Accounts payable is defined as a liability to a creditor. It can be carried on an open account that is usually used for the purchase of goods and services. When a company opts to buy goods and services on credit, it is called an account. You might know it by the name of credit. Whoever is supplying the goods and services in question is the creditor. If a promissory note is not signed between the two parties, the transaction is recorded in a liability account. This is accounts payable.
Accounts Payable Must Have a Credit Balance
Since accounts payable is a liability account, accounts payable has a credit balance. When an invoice for a vendor is recorded, accounts payable is credited. Of course, the other account must be debited. When accounts payable is fully paid, cash would be credit and accounts payable would be debited. The accounts payable credit balance is supposed to be equal to the number of invoices that have not been paid.
Accounts Payable Can Be An Employee or Staff
The accrual method of accounting requires that the company that receives the goods and services in question to report the same day they were received. The same date is used to enter a debit entry to an asset account or expense. The term accounts payable is not just defined as a liability to a creditor or open account that is used for purchasing goods and services. Accounts payable can also be defined as the person or staff members that pay the bills of the company and processes vendor invoices. Suppliers who have not received a payment will want to speak with the accounts payable staff.
Documents Where Details Need To Be Reviewed
To ensure that only legit and accurate amounts are recorded, the accounts payable must be reviewed in detail. The following documents are where details need to be reviewed:
- Purchase orders that are issued by the company
- Receiving reports that are issued by the vendors
- Contracts and other important legal agreements
- Invoices from vendors of the company
Accounts Payable Plays a Vital Role
The financial statements of any company are held in the hands of the accounts payable staff. In order for accounts payable to run smoothly, there are a few things that must happen.
The invoices of vendors need to be verified accurately and in a timely fashion. This is important for a number of different reasons. Accounts payable needs to always run smoothly.
Accurate recording of all forms of information needs to be a priority. If accounts payable is off even a little bit, a company could face big problems.
Accounts payable develops a relationship with suppliers that needs to be kept on good terms. This can be achieved by processing, recording and verifying information in the shortest amount of time possible.
All in all, accounts payable is a very important part of any company that purchases goods and services from vendors.