Accounts payable is a file or account sub-ledger that records amounts that a person or company owes to suppliers, but has

not paid yet (a form of debt), sometimes referred as trade payables. When an invoice is received, it is added to the file, and then removed when it is paid. Thus, the A/P is a form of credit that suppliers offer to their customers by allowing them to pay for a product or service after it has already been received. In households, accounts payable are ordinarily bills from the electric company, telephone company, cable television or satellite dish service, newspaper subscription, and other such regular services. Householders usually track and pay on a monthly basis by hand using cheques or credit cards. In a business, there is usually a much broader range of services in the A/P file, and accountants or bookkeepers usually use accounting software to track the flow of money into this liability account when they receive invoices and out of it when they make payments. Increasingly, large firms are using specialized Accounts Payable automation solutions (commonly called ePayables) to automate the paper and manual elements of processing an organization's invoices. Commonly, a supplier will ship a product, issue an invoice, and collect payment later, which describes a cash conversion cycle, a period of time during which the supplier has already paid for raw materials but hasn't been paid in return by the final customer. When the invoice is received by the purchaser it is matched to the packing slip and purchase order, and if all is in order, the invoice is paid. This is referred to as the three-way match. [1]The three-way match can slow down the payment process, so the method may be modified. For example, three-way matching may be limited solely to large-value invoices, or the matching is automatically approved if the received quantity is within a certain percentage of the amount authorized in the purchase order.[2]

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1 Expense administration 2 Internal controls 3 Statements as the method of paying Accounts Payable known as Creditors 4 Age Analysis as a Management Tool of Accounts Payable and/or Creditors 5 Accounts Payable Chart of Accounts 6 Audits of accounts payable 7 Accounts Payable automation 8 See also 9 References

[edit] Expense administration

Expense administration is usually closely related to accounts payable, and sometimes those functions are performed by the same employee. The expense administrator verifies employees' expense reports, confirming that receipts exist to support airline, ground transportation, meals and entertainment, telephone, hotel, and other expenses. This documentation is necessary for tax purposes and to prevent reimbursement of inappropriate or erroneous expenses. Airline expenses are, perhaps, the most prone to fraud because of the high cost of air travel and the confusing nature of airline-related documentation, which can consist of an array of reservations, receipts, and actual tickets.

[edit] Internal controls

A variety of checks against abuse are usually present to prevent embezzlement by accounts payable personnel. Segregation of duties is a common control. Nearly all companies have a junior employee process and print a cheque and a senior employee review and sign the cheque. Often, the accounting software will limit each employee to performing only the functions assigned to them, so that there is no way any one employee even the controller can singlehandedly make a payment. Some companies also separate the functions of adding new vendors and entering vouchers. This makes it impossible for an employee to add himself as a vendor and then cut a cheque to himself without colluding with another employee. This file is referred to as the master vendor file. It is the repository of all significant information about the company's suppliers. It is the reference point for accounts payable when it comes to paying invoices. [3] In addition, most companies require a second signature on cheques whose amount exceeds a specified threshold. Accounts payable personnel must watch for fraudulent invoices. In the absence of a purchase order system, the first line of defense is the approving manager. However, A/P staff should become familiar with a few common problems, such as "Yellow Pages" ripoffs in which fraudulent operators offer to place an advertisement. The walking-fingers logo has never been trademarked, and there are many different Yellow Pages-style directories, most of which have a small distribution. According to an article in the Winter 2000 American Payroll Association's Employer Practices, "Vendors may send documents that look like invoices but in small print they state "this is not a bill." These may be charges for directory listings or advertisements. Recently, some companies have begun sending what appears to be a rebate or refund check; in reality, it is a registration for services that is activated when the document is returned with a signature." In accounts payable, a simple mistake can cause a large overpayment. A common example involves duplicate invoices. An invoice may be temporarily misplaced or still in the approval status when the vendors calls to inquire into its payment status. After the A/P staff member looks it up and finds it has not been paid, the vendor sends a duplicate invoice; meanwhile the original invoice shows up and gets paid. Then the duplicate invoice arrives and inadvertently gets paid as well, perhaps under a slightly different invoice number.

[edit] Statements as the method of paying Accounts Payable known as Creditors

The strongest defence that a Company can have is the practice of Reconciliations of the General Ledger Entries and/or the Accounts Payable Book against the Statement. It is posssible to reconcile to the value in the Suppliers Book that will reflect in their Books as Accounts Receivable and/or Debtors by comparing it to the internal company Account Values in the internal Accounting Package for e.g. Accpac or Pastel Evolution that is there reflected as Accounts Payable and/or Creditors by matching the values until only net outstanding items between the two sets of books to be taken into the final Reconciliation from where the adjudgement Journals for processing in the Accounts Payable / Creditors Ledger is done. In order to prevent errors and/or fraud it is uttermostly important that no payments in any circumstances is made against invoices , but only against the actual statement. Companies should also make sure that a statement is what it says : A Statement and not an internal allocation sheet of payments and entry values. It is also very important that allocations of values for debits and credits in both sets of books should be for full and not partial invoices as full allocations is necessarily to tick off the entry as complete and handled by the Accountant during tight Month End Deadlines for the Trading Results of the Company. A correctly drawn up Statement at month end should only have the net outstanding debits and credits for e.g. invoices , credit notes and as yet unallocated payments. There is a number of ways different companies Statements can look : 1. Statement as per system Month End Cut Off for e.g. 31 January 2011 2. Statement as per system Month End System Date but different Cut Off Date 3. Statement as per latest Invoice 4. Statement as per actual current Date 5. A combined Statement with the net debit and or credit entries when more than one internal software system is used for e.g. Accpac and Pastel Evolution

[edit] Age Analysis as a Management Tool of Accounts Payable and/or Creditors

Modern Advanced software packages such as Pastel Evolution gives an option for Accounts Payable and/or Creditors Age Analysis printout breakdown as an effective Report in the commitment for Managers for financial planning towards external Suppliers especially in medium size businesses that experience temporary Cash Flow problems. It also allows successful businesses the best option to use credit terms from external Suppliers to the Companies maximum advantage.

[edit] Accounts Payable Chart of Accounts

Most big and medium size limited and/or Incorporated Companies are using a Chart of Accounts for the Accounts Payable and/or Creditors Book especially when their accounting system is modern for e.g. as in the case of Pastel Evolution. In this Chart of Accounts (that is similar to the General Ledger or the Accounts Receivable Chart of Accounts also known as the Debtors Book) all Suppliers is included in the Approved Suppliers Listing , including those with Zero Account Balances.

[edit] Audits of accounts payable

Auditors often focus on the existence of approved invoices, expense reports, and other supporting documentation to support checks that were cut. The presence of a confirmation or statement from the supplier is reasonable proof of the existence of the account. It is not uncommon for some of this documentation to be lost or misfiled by the time the audit rolls around. An auditor may decide to expand the sample size in such situations. Auditors typically prepare an ageing structure of accounts payable for a better understanding of outstanding debts over certain periods (30, 60, 90 days, etc). Such structures are helpful in the correct presentation of the balance sheet as of year end.

[edit] Accounts Payable automation

ePayables are defined as the technology or process automation solutions that automate any part of the accounts payable ("AP") process.

[edit] See also