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Part of Accounts Payable is managing stock or services purchased from a supplier on credit. In terms of cash flow and administration this is useful as you won't have to pay for any goods or services upfront but settle the invoice when the credit period has ended. Your creditor forwards you an invoice which you file until it is scheduled for payment. Accounting for your creditors and paying your invoices on time are the duties of an Accounts Payable function. Your bookkeeper must manage numerous imperative actions to ensure that your Accounts Payable is managed professionally.
Purchases
You open your purchases cycle by issuing a official and authorized purchase order to your supplier. This is the initial step in identifying the items and products that you need for your business. It will include itemized details of your purchase plus unit costs and the total payable for the order. When you place an order with your supplier, the prices quoted on the purchase order will generally match the granted product price list that your supplier has forwarded to you to aid ordering.
The PO (purchase order) is very important as it is a legal contract offer to buy the items or services from your supplier. When your supplier accepts this PO, it confirms the order and your vendor is then obliged to fulfill the order accordingly. In an outsourced Accounts Payable function, the bookkeeper raises the PO after checking that the business owner actually requires the items. This prevents any errors in ordering and stops would-be disputes between the business and the provider.
Any errors in the PO could result in leftover stocks and ineffective or mistaken deliveries. If you urgently need items to conclude a client order, then inaccurate deliveries could be ruinous for your business. That’s where your business will profit from reliable and careful PO preparation.
Keeping Records
Once your PO has been sent to your supplier, you will take delivery of the goods ordered in a short time followed by the vendor’s invoice. These bills have to be input into a computerized accounting system to update your business accounting records. The invoices your business receives could come from trade or other creditors such as utilities and telephone invoices. The bookkeeper will correctly recognize the invoices and decide if they are stock invoices which unequivocally affect the cost of the goods that you sell to your customers and hence your gross profit.
The financial cycle of your business depends on a proper Accounts Payable process. Your liabilities to your trade and other debtors, such as regulatory and tax authorities must be recognized and paid for when they fall due. When you agree on credit terms with your vendors, these form the basis of the payments completed.
Distributing funds to your debtors is a critical aspect of the Accounts Payable process. The credit terms govern 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 opportunity to collect monies from your consumer which you can then pay your creditors, as part of the working capital cycle.
By running an approved provider list, you can be assured that the invoices entered into the accounting system are from genuine vendors. The list will hold related information on the vendors and suppliers of your business. Your accountant will match up the invoices with this list to guarantee that the creditors are genuine. Before each payment is made, invoices will be checked against this approved list. No payments will be released if the payment doubtful.
Charge Correct Expense Accounts
Expenses incurred by your business must be charged to the correct expense accounts to sustain an true record of the several classes of expense. There are distinct accounts to capture the cost of transportation, stationery, postage and motor vehicle maintenance. Accounting services that suitably class and charge expenses make sure that you’re informed how your money is being spent in the business. It gives business owners the facility to ascertain whether they could better direct their expenses by curtailing needless costs.
Trade Creditor Reconciliations
An key feature of Accounts Payable is the reconciliation 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 vendor as recorded in the vendor’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 ordinarily be performed on a consistent basis for trade creditors. This process can see double invoicing or problems in the creditor invoicing method. It will underline 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 incorrect balance and your liabilities are understated.
The Accounts Payable function is vital to appropriately manage the cash flow of your business, recognize your risk exposure to unpaid invoices and provide an correct representation of the liabilities of your business. Bookkeeping Central can present effective accounting for your creditors by fully managing your entire Accounts Payable practice and lifting the load of paying your creditors 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 enterprise. Outsourcing your accounting services is the best resolution for a busy small business owner.
Article Source: http://www.everyonesarticles.com
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