Accounts payable are a liability on the balance sheet of a company. They are a set of short-term credits granted by suppliers and lenders for the goods and services that a company purchases. An accounts payable department also handles internal payments for business expenses, travel, and petty cash.
When a business purchases goods and services on credit from a supplier or lender that needs to be repaid in a short period, the accounting entry is called accounts payable. On the balance sheet, it appears under current liabilities.
In a business, the accounts payable department is responsible for making payments to vendors and lenders on behalf of the company.
The accounts payable department is accountable for more than just paying incoming bills and receipts. Accounts payable often have a separate department in large companies, but the payable and receivable functions are often shared in small companies.
The AP department can manage your travel expenses for large companies or businesses that require staff to travel. Travel management by the AP department may include reservations for airlines, car rentals, and hotels.
The accounts payable department is also responsible for distributing internal compensation payments, controlling and managing cash, and distributing sales tax refund certificates.
Employees must submit a manual log report, receipts, or both compensation requests. Small expenses such as miscellaneous office supplies or company meeting lunches are treated as petty cash.
Accounts payable manages and maintains vendor contact information and payment terms through a computer database. Depending on a company’s internal control, the accounts payable department will handle approved purchase orders and verify accounts payable after purchase.
The accounts payable department also handles month-end aging analysis reports that tell management how much business is currently in debt.
The accounts payable department also works to reduce costs by identifying details and developing strategies to save the business money, for example, paying an invoice within the grace period.
AP is a direct link between a company and its vendors’ representatives. A strong business relationship can benefit the business, and a seller can offer comfortable credit terms.
The accounts payable department will have many procedures before making a payment to the vendor. The established guidelines are necessary because of the value and volume of transactions during a given period.
The process includes invoicing. If the goods are purchased, the invoice helps to track the quantity received. Ensure the invoice consists of the merchant name, authorization, date, and verified and matches purchase order requirements.
General ledger accounts need to be updated based on invoices received and generally should record expenses. Administrative approval may be required at this stage, where the permission is tied to the cost of the invoice.
All payments must be made on or before the invoice’s due date, as agreed between the merchant and the company. The required documents must be prepared and verified. You need to verify the details, the supplier’s bank account details, the payment receipt, the original invoice, and the purchase order. Administrative permission may also be required on this occasion.
