When a company purchases goods on credit which needs to be paid back in a short period of time, it is known as Accounts Payable It is treated as a liability and comes under the head current liabilities’. Accounts Payable is a short-term debt payment that needs to be paid to avoid default.
Accounts payable (AP) is money owed by a business to its suppliers shown as a liability on a company’s balance sheet. It is distinct from notes payable liabilities, which are debts created by formal legal instrument documents.
Accounts payable is recorded in the Account Payable sub-ledger at the time an invoice is vouched for payment. Vouchered, or vouched, means that an invoice is approved for payment and has been recorded in General Ledger or AP sub-ledger as an outstanding, or open, liability because it has not been paid.
Payables are often categorized as Trade Payables, payables for the purchase of physical goods that are recorded in Inventory, and Expense Payables, payables for the purchase of products or services that are expensed. Common examples of Expense Payables are advertising, travel, entertainment, office supplies, and utilities.
AP is a form of credit that suppliers offer to their customers by allowing them to pay for a product or service after it has already been received. Suppliers offer various payment terms for an invoice. Payment terms may include the offer of a cash discount for paying an invoice within a defined number of days.
Accounts Payable Process
Audits of Accounts Payable
Auditors often focus on the existence of approved invoices, expense reports, and other supporting documentation to support cheques that were cut. The presence of a confirmation or statement from the supplier is reasonable proof of the account’s existence.
Auditors typically prepare an aging structure of accounts payable for a better understanding of outstanding debts over specific periods (30, 60, 90 days, etc.). Such arrangements are helpful in the correct presentation of the balance sheet as of fiscal year-end.
Journal Entries for Accounts Payable
Whenever there is any transaction related to the purchase of goods or services on the account then there arises the liability known as accounts payable liability. This is to be created and recorded in the books of accounts by the company. For the purpose of recording the journal entries for accounts payable, the amount is measured using the seller’s invoice as it usually contains information in detail regarding the amount that the buyer has to pay and the due date.
How to automate accounts payable?
Organizations that wish to automate accounts payable usually implement an AP automation solution that is connected to the ERP system and potentially other business applications in place. Today, there are cloud-based accounts payable software options on the market to suit companies of all sizes and industries.
Automation of accounts payable works differently depending on the type of supplier invoices that are handled. For indirect spending or expense, invoices the accounts payable automation software will support automatic data capture, coding, and distribution of the invoice to the appropriate approver within the organization. For direct spend where there is a purchase order involved, the accounts payable automation system will automatically match the invoice data to the purchase order and, if everything matches, directly send the invoice for payment without any human intervention whatsoever. This is what is referred to as touchless invoice processing and the end goal of automation in accounts payable.
Why is Accounts Payable Important?
Tracking your Accounts Payable Services is a critical component of Cash Flow Management. As your business grows, you may be spending money on different services for your business, and you will receive invoices that need to get paid. If you can’t manage your debts, you could find yourself in a cash crunch, or worse, defaulting on a mortgage.
Especially when you are growing quickly, you may need to buy more inventory and invest in business expansion faster than your customers are paying you. That means that you will have bills that come due before you receive money from your customers.
To stay on top of a situation like this, you need to keep track of your accounts payable and make sure that you have enough cash on hand to continue paying your bills. Ideally, you should forecast your sales and cash flow to make sure that you plan to have enough money to cover the costs of growth.
Accounts Payable Services by Rayvat
We understand that the Accounts Payable Process are critical for maintaining good supplier relations and optimizing the cost. Hence at Rayvat, we always endeavor to increase efficiency and help you to reduce costs. Our Accounts Payable Services help in smooth managing of accounts payable process flow by automation and reporting. We help organizations in making timely payments whereby helping them to take benefits of early payment discounts and an increase in organizational efficiency.
Our accounts payable services help you to:
Meet your regulatory requirements
Optimize your cost by timely payment of bills and avoiding interest and penalties
Optimizing working capital management
Getting vendor discounts
Avoiding Duplicate Payments
Increase in financial Control for top-level Executives
We would help you convert your paper business into live data online, helping you fetch as many reports you can by focusing on automation of the accounts payable process flow through a combination of people and soft wares. You will be provided with regular aging reports for better understanding and decision making.