
Accountancy Accounts Payable, Accounts Payable Accounting, Payable Expenses
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Accounts Payable
The Accounts Payable is a form of credit that suppliers offer to their purchasers
by allowing them to pay for a product or service after it has already been received.
Accounts Payable is a file or account that contains money that a person
or company owes to suppliers, but hasn't paid yet. When you receive an invoice you
add it to the file, and then you remove it when you pay.
In a business, there is usually a much broader range of services in the
Accounts
Payable
file.
A chart of accounts is a listing of the names of the accounts that a company has
identified and made available for recording transactions in its general ledger.
The Accounts Payable is a form of credit that suppliers offer to their purchasers
by allowing them to pay for a product or service after it has already been received.
In household, accounts payable are ordinarily bills from the electric company,
telephone company, cable television or satellite dish service, newspaper subscription,
and other such regular services. Householders usually track and pay on a monthly
basis by hand using cheques or credit cards.
In a business, there is usually a much broader range of services in the A/P
file, and accountants or bookkeepers usually use accounting software to track
the flow of money into this liability account when they receive invoices and out
of it when they make payments.
Commonly, a supplier will ship a product, issue an invoice, and collect payment
later, which creates a cash conversion cycle, a period of time during which the
supplier has already paid for raw materials but hasn't been paid in return by the
final customer. Certain companies, most famously Dell, have been able to profit
handsomely by reversing the conversion cycle: they receive payment before they ship
the product. Instead of granting credit to their customers, they receive it from
them.
Expense Administration
Expense administration is usually closely related to accounts payable, and
sometimes those functions are performed by the same employee. The expense administrator
verifies employees' expense reports, confirming that receipts exist to support airline,
ground transportation, meals and entertainment, telephone, hotel, and other expenses.
This documentation is necessary for tax purposes and to prevent reimbursement of
inappropriate or erroneous expenses. Airline expenses are, perhaps, the most prone
to fraud because of the high cost of air travel and the confusing nature of airline-related
documentation, which can consist of an array of reservations, receipts, and actual
tickets.
Petty cash is also usually paid out by AP personnel in the form of a check made
out to an employee, who cashes the check at the bank and puts the cash in the petty
cash-box.
Internal Controls
A variety of checks against abuse are usually present to prevent embezzlement by
Accounts Payable personnel. Separation of duties is a common control. Nearly
all companies have a junior employee process and print the cheque and a senior employee
review and sign the cheque.
Often, the accounting software will limit each employee to performing only
the functions assigned to them, so that there is no way any one employee – even
the controller – can singlehandedly make a payment.
Some companies also separate the functions of adding new vendors and entering vouchers.
This makes it impossible for an employee to add himself as a vendor and then cut
a cheque to himself without colluding with another employee. In addition, most companies
require a second signature on cheque whose amount exceeds a specified threshold.
Accounts payable personnel must watch for fraudulent invoices. In the absence
of a purchase order system, the first line of defense is the approving manager.
However, AP staff should become familiar with a few common problems, such as "Yellow
Pages" ripoffs in which fraudulent operators offer to place an advertisement.
The walking-fingers logo has never been trademarked, and there are many different
Yellow Pages-style directories, most of which have a small distribution. According
to an article in the Winter 2000 American Payroll Association's Employer Practices,
"Vendors may send documents that look like invoices but in small print they state
'this is not a bill'. These may be charges for directory listings or advertisements.
Recently, some companies have begun sending what appears to be a rebate or refund
check; in reality, it is a registration for services that is activated when the
document is returned with a signature".
In Accounts Payable, a simple mistake can cause a large overpayment. A common
example involves duplicate invoices. An invoice may be temporarily misplaced or
still in the approval status when the vendors calls to inquire into its payment
status. After the AP staff member looks it up and finds it has not been paid, the
vendor sends a duplicate invoice; meanwhile the original invoice shows up and gets
paid. Then the duplicate invoice arrives and inadvertently gets paid as well, perhaps
under a slightly different invoice number.
As Mary S. Scheiffer points out in Accounts Payable: A Guide to Running an
Efficient Department, "Depending on the controls in place, the second payment may
or may not be caught! The phenomenal growth of payment recovery firms gives testimony
to the fact that this is a serious issue in corporate America today".
Audits of Accounts Payable
Auditors often focus on the existence of approved invoices, expense reports, and
other supporting documentation to support checks that were cut.
The presence of a confirmation or statement from the supplier is reasonable proof
of the existence of the account.It is not uncommon for some of this documentation
to be lost or misfiled by the time the audit rolls around. An auditor may decide
to expand the sample size in such situations.
Auditors typically prepare an aging structure of accounts payable for a better
understanding of outstanding debts over certain periods (30, 60, 90 days, etc.)
Such structures are helpful in the correct presentation of the balance sheet as
of year end.
Business Tips
Some tips on how to avoid business failure:
-
Don't underestimate the capital you need to start up the business.
-
Understand and keep control of your finances - income earned is not the same as
cash in hand.
-
More volume does not automatically mean more profit - you need to get your pricing
right.
- Make sure you have good software for your business, software that provides you with a good reporting picture of all aspects of your business operations.
See More Information On:
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ShopMateWeb Online Cloud Based Business Database Application
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ShopMate Desktop Automotive Database Software
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ShopMate Desktop Modules Explained - Screen Shots
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AzureMate Desktop Cloud Data Storage Explorer Software
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Software Downloads and Installations
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MotoShop Automotive Database Software
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Ideas for Business - Business Tips
- Automobile History - Automotive Fuels
Important Note
Because the material covered here and other pages is considered an introduction
to the topic of Accountancy and Accounting, there are many complexities not presented.
You should always consult with a business accounting professional for assistance
with your own specific circumstances.