in

Accounts Payable – Meaning, Definition, and Process

Accounts Payable – Meaning, Definition, and Process

Accounts payable are the funds owed by a company to its suppliers or vendors for the purchase of goods or services. On the balance sheet, it is classified as current liabilities because these commitments must be met within an accounting period. It is crucial to recognize that accounts payable only exist in accrual accounting and not in cash accounting. To safeguard your cash and assets and avoid paying for erroneous invoices, it is critical to closely monitor your AP expenses and establish internal controls. Maintaining an orderly and well-run accounts payable process is critical to be aware of the impact AP has on your bottom line.

What is the Role of the Account Payable Department or Team?

The accounts payable department’s mission is to offer a company financial, administrative, and clerical support: This team is in charge of overseeing the payment of the full account process. This is a vital function in the company’s accounting department, and it entails the coding, approval, payment, and reconciliation of vendor bills.

Account payable department/team’s duty contributes to the improvement of the payment process and ensures that payments are only made on genuine and accurate bills and invoices. A skilled and well-managed accounts payable department/team may save your company a significant amount of time and money in the AP process.

Process of Account Payable

The Accountable Process includes:

  • Receive vendor invoices and do a three-way check for consistency against the purchase order, goods receipt, and invoice.
  • AP must confirm receipt of the goods or services before approving the invoice for payment.
  • If an error occurs during invoice processing, such as the improper amount or price, accounts payable deliver the invoice to the buyer, who works to resolve the problem.
  • Checks and payments are given immediately once the AP department has vouched for the invoice and all deviations have been handled and remedied.
  • The invoice is recognized as paid in the finance system after payment is received.

Receiving Invoices

When a firm acquires products or services, an invoice is sent to the AP department. It allows them to keep track of the amount, current pricing, date, and other important details of the transaction. When an AP team is managed manually, invoice data must be entered into an accounting system. If the company uses AP automation software, the invoice is usually scanned using an OCR technique.

Invoice Verification

It is critical to verify that all invoice data is correct and checked. Details such as vendor name, billing address, purchase order, authorization, compliance, and more can be included. This procedure is generally accelerated by AP software, which transmits approvals to the necessary parties.

Update Records

The general ledger department must maintain the company’s records up to date once all invoices have been received. Depending on a company’s operational standards, changing records may need management clearance to maintain the process visible at all points.

Make Payments

The AP department must provide timely payments to all suppliers, creditors, and supply chain partners. Before initiating payment for bills, the team additionally compiles and examines the relevant papers. Managers frequently undertake financial statement audits to ensure that everything is going well.

Examples of Account Payable

Image credit: https://www.wallstreetmojo.com/accounts-payable-examples/

  • Below is the list of Accounts Payable Examples –
  • Raw Materials
  • Power
  • Fuel Purchase
  • Transportation and Logistics
  • Assembling and Subcontracting Works
  • Traveling
  • Equipment
  • Leasing
  • Licensing

What do you think?

15147 points
Upvote Downvote

Written by Hardik Tokas

Hardik Tokas is a law graduate from GGSIPU, Delhi. He is an analytical thinker, an active team player who is proactive in legal research and writing, and has highly motivated enthusiasm for business, start-ups, and entrepreneurship. He has the vision to deliver excellent support to the visionary entrepreneurs and educate them in all legal compliances of applicable laws considering their business level and long term growth. He is a goal-oriented professional and a valuable member of the organization.

Comments

Leave a Reply

Your email address will not be published.

Loading…

0
How GST Affects Service Industry in India

How GST Affects Service Industry in India?

Why Humility Matters for Managers at Workplace

Why Humility Matters for Managers at Workplace?