What is accounts payable and how does it pertain to your business? Here I will give you an introduction to accounts payable.
By definition: A liability to a creditor, carried on open account, usually for purchases of goods and services. (dictionary.com)
When a company orders and receives goods (or services) in advance of paying for them, we say that the company is purchasing the goods on account or on credit. The supplier (or vendor) of the goods on credit is also referred to as a creditor. Accounts payable will usually have a credit balance and will be credited and another account must be debited. When an account payable is paid, Accounts Payable will be debited and Cash will be credited.
Basically, accounts payable is a liability of goods and services bought on credit and needs to be paid in order to avoid default. Often times when working in accounting, accounts payable and accounts receivable are mixed up. Although these two are very similar, they are different. Mixing the two up can result in a lack of balance on your books.
By definition: Accounts receivable is a balance due from a debtor on a current account. (MerriamWebster.com).
Accounts payable is a current liability account that keeps track of money you owe to a third party. Transactions are occurring when cash is not involved and it will show on a statement as “on account”.
Automated Accounting Process
The accounts payable process begins when your invoice is received by the AP department. Invoices can arrive through many different methods, including electronically through email, fax, and even snail-mail. Then the invoices are typed into an accounting system and scanned in order to create a digital record.
As the accounts payable process is vital for every organization, a lot of time needs to be invested for its successful implementation. In order to have efficient accounts, payable process automation becomes necessary. Automation will also help reduce human errors and increase efficiency. Here at Accounting District, we use Quickbooks, Xero, or Sage. Automated accounts payable workflows make the entire process easier, more accurate, and efficient. Through a combination of shorter payment cycles and improved processes, automated accounts payable provides solutions that can help cut clutter and paper.
Over time, your business can achieve major cost savings as fewer staff members are required for accounts payable. Contact an expert today and see how Accounting District can save you additional costs by partnering with us and allowing us to handle your accounts payable for you.