Accounts payable are a liability to a party, known as a creditor, in an open account, generally for purchases of services and goods. This is something often seen doing by the bookkeeping service in Johor Bahru.
When a business orders and gets the items or services before paying, we state that the business is acquiring the items on credit or account. The vendor or supplier of the products on credit is also known as a creditor. If the business getting the products does not sign a promissory note, the supplier’s invoice or billing will be recorded by the company in the liability account (Also see The Difference between Assets, Liabilities and Equity), which is Accounts Payable.
As it is one of the liability accounts, the balance of Accounts Payable will be credit. When recording a supplier invoice, Accounts Payable will be credited, and another account will be debited according to double-entry accounting. If the account payable is paid, Cash will be credited while Accounts Payable will be debited. The credit balance in Accounts Payable ought to be equivalent to the amount of the supplier invoices that is recorded but not paid yet.
According to the accrual method in accounting, the business getting services or items on credit need to report the liability on the date the goods are received. Then, the same date is used in recording the debit entry to an asset or expenditure account. Therefore, accountants state that expenses should be reported when incurred, not when paid under the accrual method.
The term accounts payable also means the individual who processes supplier invoices and make payments for the company’s expenses. This is why a supplier who has not gotten the payment from its client will ask about “accounts payable.”
The process of accounts payable includes examining a vast quantity of information to make sure that precise and legitimate quantities are inputted in the accounting system. The information that needs to be evaluated will be discovered in the following files:
• Agreements and other contracts
• Purchase order released by the business
• Invoices from the business’s suppliers
• Receiving reports released by the business
The precision and efficiency of a business’s financial statements rely on the accounts payable process (Also see Reasons You Should Outsource Your Accounting Function). A well-organised accounts payable procedure will consist of:
• the accrual of expenditures and obligations that is yet to be processed.
• precise recording in the general ledger accounts
• the regular processing of legitimate and accurate supplier invoices
The effectiveness and efficiency of the accounts payable procedure will have effects on the business’s credit ranking, relationships with its vendors and its cash position and therefore it is crucial to engage an accounting firm in Johor Bahru if one is unsure of how to maintain it properly.