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Bookkeeping Melbourne - What is Accounts Payable?

By: Mark Bailey

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When you are managing your small business, you buy your stocks from suppliers who extend you credit and produce part of your Accounts Payable. That means you do not have to pay for your purchases or any services that you ask for for the duration of the credit period that has been established. You will be sent a bill which is normally filed until it is due for payment. Accounting for your debtors and paying your bills on time are the duties of an Accounts Payable department. Your bookkeeper must process a number of imperative activities to guarantee that your Accounts Payable is managed effectively.

Purchases

To commence the process of making a purchase you are required to issue a official purchase order to your provider. This is the opening step in identifying the items and products that you require for your business. It will contain itemized specifics of your purchase with unit costs and the sum payable for the order. When you place an order with your provider, the prices quoted on the purchase order will normally equal the granted product price list that your vendor has forwarded to you to facilitate ordering.

The PO (purchase order) is very important as it is a legal contract offer to buy the items or services from your supplier. When your wholesaler accepts this PO, it confirms the order and your provider is then obliged to fulfill the order accordingly. In an outsourced Accounts Payable department, the bookkeeper raises the PO after checking that the business owner indisputably requires the items. This prevents any mistakes in ordering and prevents potential arguments between the business and the wholesaler.

Any mistakes in the PO could result in leftover stocks and ineffective or mistaken deliveries. If you urgently need items to wrap up a consumer order, then erroneous deliveries could be terrible for your business. This shows why your business will benefit from reliable and well thought-out PO preparation.

Input Invoices

Once your PO has been sent to your provider, you will receive the goods ordered in a short time followed by the supplier’s invoice. These bills have to be input into a computerized accounting system to update your business accounting records. The bills your business receives could come from trade or other debtors such as utilities and telephone bills. The bookkeeper will appropriately identify the invoices and decide if they are stock invoices which immediately affect the cost of the goods that you sell to your customers and hence your gross profit.

The financial cycle of your business depends on a proper Accounts Payable process. Your liabilities to your trade and other creditors, such as regulatory and tax authorities must be recognized and paid for when they fall due. When you agree on credit terms with your suppliers, these form the basis of the payments made.

Sending funds to your creditors is a crucial component of the Accounts Payable process. The credit terms direct when invoices are paid. Paying your infvoices is made easy through online bank facilities or your bookkeeper can issue a business cheque. Longer credit terms augur well of your business. You have the chance to collect monies from your consumer which you can then pay your debtors, as part of the working capital cycle.

By maintaining an official supplier list, you can be assured that the invoices entered into the accounting system are from true suppliers. The list will include important information on the vendors and suppliers of your business. Your accountant will match the bills with this list to make sure that the creditors are genuine. Before each payment is made, invoices will be checked against this approved list. No payments will be released if the payment questionable.

Using Expense Accounts

Expenses incurred by your business must be charged to the correct expense accounts to keep an accurate record of the several classes of expense. There are separate accounts to sum up the cost of transportation, stationery, postage and motor vehicle maintenance. Accounting services that correctly categorize and charge expenses make sure that you are informed how your money is being spent in the business. It gives business owners the facility to ascertain whether they could better deal with their expenses by curtailing excessive expenses.

Trade Creditor Reconciliations

An vital feature of Accounts Payable is the reconciliation of trade creditor accounts. This activity will be done by your bookkeeping service when it receives the monthly statement of accounts from creditors. The closing balance on the statement will show the amount your business owes to the vendor as recorded in the wholesaler’s books. Your bookkeeper will reconcile this figure with the amount payable as reflected in your own accounting records. There may be timing differences that could explain the existence of invoices in the debtors Statement of Accounts which have not yet been received by your book keeper at the month end.

Creditor reconciliations should ordinarily be performed on a frequent basis for trade creditors. This process can identify double invoicing or troubles in the creditor invoicing method. It will show up charges which you have not picked up in your accounting records such as interest penalties for late payment of creditor invoices. There may be creditor invoices that have not been captured in your accounting system in which case your Accounts Payable displays an inaccurate balance and your liabilities are understated.

The Accounts Payable function is essential to accurately control the cash flow of your business, distinguish your risk exposure to unpaid invoices and provide an true depiction of the liabilities of your business. Bookkeeping Central can give effective accounting for your debtors by fully managing your entire Accounts Payable procedure and lifting the weight of paying your debtors and managing your cash flow from your shoulders. That leaves you free to focus on those activities that will drive up sales and bring in more profits for your venture. Outsourcing your accounting services is the most excellent resolution for a busy small business owner.

Article Source: http://depositarticles.com/

Bookkeeping Melbourne

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