Must Know Facts About Accounts Payable In 2023

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Accounts payable details liabilities which are owed by a business to a supplier for products or services rendered but not yet paid for. Accounts payable deals in credit balances received in the form of invoices, purchase orders, receiving reports, and vendors’ bills, among others. Using the accrual method of accounting, liabilities are reported when goods or services are rendered, as opposed to when a payment is made.

In order to maintain good relationships with suppliers and to maintain good credit scores, accounts payable must be regularly updated and sustained by staff. The information recorded should be accurate and legitimate, and processed regularly to allow payments to be made on time. Take care that invoices are not entered twice, resulting in overpayments, or that inaccurate information is entered, resulting in unbalanced accounts due to accrual based accounting. To avoid possible embezzlement, many companies divide duties related to accounts payable among a number of employees so that no one person is able to perform a payment or manage vendors.

A business should have internal controls in place before paying invoices. These internal controls are in place to avoid paying for invoices more than once, paying erroneous invoices, or paying for fraudulent invoices. Received invoices must reflect the information the business already has on hand, such as ordering and receiving information and costs associated.

A purchase order is presented by the buyer to the seller, detailing the products or services being purchased, price paid, contact information of the buyer and seller, a purchase order number, and shipping information. When goods are received, a receiving report is created by the buyer to indicate what has been purchased. This information should be compared with the information listed on a purchase order to ensure that it is correct. Then, the seller will send the buyer a vendor invoice detailing what is owed for the products or services rendered. This information is verified using a three-way match between the purchase order, receiving report, and vendor invoice. Payments are only made after information has been verified to be accurate and legitimate.

Some suppliers offer discounts for early payments such as a percentage deducted from the sum amount. Because sellers want to receive payments as quickly as possible, this provides incentive for buyers to make their payments within a certain timeframe.

When an accounting period comes to a close, accounts payable must be brought up to date. For example, if an invoice is received after the first of a new year, it could be for a liability incurred in the previous year and must be recorded as such. Accounts must be balanced and all records checked to ensure that payments are made on time and no errors have been made. Businesses must also adjust and reverse entries for the sake of accrual based accounting methods when processing invoices at the end of an accounting period for liabilities which have been incurred but not yet paid for.

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