Receivables
THEME: ACCOUNTS PAYABLE
By John W. Day, MBA ACCOUNTING TERM: Accounts Payable An account payable is normally an unsecured, non-interest bearing current liability, owed by the company to a vendor for the purchase of trade goods or services. FEATURE ARTICLE: Accounts Payable Accounting If you are a small business owner or manager and you are having trouble keeping track of all those outstanding bills that have to be paid each month, perhaps you need to set up an accounts payable system. Some small businesses may not need to have a full-blown accounts payable system to manage the payments of their monthly debts. This is usually because the nature of the business has minimal vendor purchases, cash flow is adequate enough to pay all bills within 30 days, and the routine bills to pay each month are predictably the same. Other small businesses do require an accounts payable system because their situation is exactly the opposite. They have many vendors and need extended credit to make sure inventory is purchased in a timely manner. They also need the flexibility to pay bills as cash becomes available. To understand how an accounts payable system works, you must have a grasp of the “accounts payable formula”. It is set up like this: Beginning accounts payable (last month’s ending balance) Add purchases on account Subtract cash payments on account Add or Subtract adjustments Ending accounts payable balance XXXXXX XXXXXX XXXXXX XXXXXX XXXXXX
There are two ledger accounts to keep track of: 1) The “detail accounts”; and 2) the “control account”. The detail accounts relate to each individual vendor’s account and the control account relates to the summary of all the detail accounts. Fortunately, we have computers that take the drudgery out of posting all the detail information to the various ledgers.
Copyright © 2008 John W. Day
1
Here’s an overview of how an accounts payable system works: Let’s say you are a small mom & pop retail corner grocery store. You have a
By John W. Day, MBA ACCOUNTING TERM: Accounts Payable An account payable is normally an unsecured, non-interest bearing current liability, owed by the company to a vendor for the purchase of trade goods or services. FEATURE ARTICLE: Accounts Payable Accounting If you are a small business owner or manager and you are having trouble keeping track of all those outstanding bills that have to be paid each month, perhaps you need to set up an accounts payable system. Some small businesses may not need to have a full-blown accounts payable system to manage the payments of their monthly debts. This is usually because the nature of the business has minimal vendor purchases, cash flow is adequate enough to pay all bills within 30 days, and the routine bills to pay each month are predictably the same. Other small businesses do require an accounts payable system because their situation is exactly the opposite. They have many vendors and need extended credit to make sure inventory is purchased in a timely manner. They also need the flexibility to pay bills as cash becomes available. To understand how an accounts payable system works, you must have a grasp of the “accounts payable formula”. It is set up like this: Beginning accounts payable (last month’s ending balance) Add purchases on account Subtract cash payments on account Add or Subtract adjustments Ending accounts payable balance XXXXXX XXXXXX XXXXXX XXXXXX XXXXXX
There are two ledger accounts to keep track of: 1) The “detail accounts”; and 2) the “control account”. The detail accounts relate to each individual vendor’s account and the control account relates to the summary of all the detail accounts. Fortunately, we have computers that take the drudgery out of posting all the detail information to the various ledgers.
Copyright © 2008 John W. Day
1
Here’s an overview of how an accounts payable system works: Let’s say you are a small mom & pop retail corner grocery store. You have a