Accounts Payable – Accounting For Your Creditors
When a small business owner purchases stock or services from a vendor, it is standard practice that the vendor will offer them credit. This will then create part of the businesses Accounts Payable. This is an advantage as you will not have to pay for any purchases and services you ask for until the credit period has lapsed. Your creditor forwards you an invoice which you file until it’s scheduled for payment. Accounting for your debtors and paying your invoices on time are the duties of an Accounts Payable function. Your bookkeeper must carry out numerous important activities to ensure that your Accounts Payable is managed competently.
Purchase Orders
You launch your purchases cycle by issuing a legitimate and authorized purchase order to your supplier. This is the opening step in identifying the items and products that you require for your business. It will contain itemized particulars of your purchase with unit costs and the total payable for the order. When you place an order with your vendor, the prices quoted on the purchase order will normally fit the decided product price list that your provider has forwarded to you to aid ordering.
The purchase order, or PO, constitutes a legal offer by you to purchase the specified items from your supplier. When your supplier accepts this PO, it confirms the order and your provider is then obliged to carry out the order accordingly. In an outsourced Accounts Payable department, the bookkeeper raises the PO after checking that the business owner truly requires the items. This prevents any mistakes in ordering and prevents budding disputes between the business and the wholesaler.
Any errors in the PO could result in surplus stocks and ineffective or incorrect deliveries. If you urgently need items to complete a client order, then wrong deliveries could be catastrophic for your business. Therefore your business will benefit from meticulous and well thought-out PO preparation.
Keeping Records
Once your PO has been sent to your supplier, you will get the goods ordered in a short time followed by the vendor’s invoice. The invoices will then need to inputed onto your accounting system such as MYOB to keep your accounts up to date. Other bills that form part of accounts payable include electricity and other utilities. The bookkeeper will appropriately identify the invoices and establish if they are stock invoices which directly affect the cost of the goods that you sell to your customers and therefore your gross profit.
Making Payment to Creditors
The financial cycle of your business depends on a proper Accounts Payable process. Debts to suppliers and other creditors such as utility companies or tax authorities have to be paid when the invoice is due. When you decide on credit terms with your suppliers, these form the basis of the payments prepared.
Disbursing funds to your debtors is a important aspect of the Accounts Payable process. The credit terms regulate when invoices are paid. These can be settled by your bookkeeper either by issuing your company cheques or electronically through an online banking system. It is good to secure longer credit periods. You have the prospect to collect payment from your customer which you can then pay your debtors, as part of the working capital cycle.
By keeping an permitted supplier list, you can be certain that the invoices entered into the accounting system are from valid vendors. The list will contain important information on the vendors and suppliers of your business. An outsourced Accounts Payable function will match up the bills with this inventory to guarantee that the debtors 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 the Right Expense Account
Expenses incurred by your business must be charged to the correct expense accounts to uphold an correct record of the many classes of expense. Expenses must be posted to distinct accounts to depict how much is spent on aspects such as postage, shipping or repairs to premises. Accounting services that precisely arrange and charge expenses make sure that you’re aware how your money is being spent in the business. It gives business owners the ability to determine whether they could better direct their expenses by curtailing superfluous overheads.
Trade Creditor Reconciliations
An essential feature of Accounts Payable is the reconciling 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 provider as recorded in the provider’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 creditors Statement of Accounts which have not yet been received by your book keeper at the month end.
Creditor reconciliations should normally be performed on a regular basis for trade debtors. This process can discover double invoicing or problems in the creditor invoicing practice. It will draw attention to 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 inexact balance and your liabilities are understated.
The Accounts Payable function is critical to suitably supervise the cash flow of your business, distinguish your risk exposure to unpaid invoices and provide an true account of the liabilities of your business. Bookkeeping Central can present effective accounting for your debtors by fully managing your entire Accounts Payable procedure and lifting the burden 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 takings for your venture. Outsourcing your accounting services is the best resolution for a busy small business owner.
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