Accounts payable process in bookkeeping

Managing accounts payable is one of the main tasks of modern business. The effectiveness of such management depends not only on the success of the company but also its existence in general. In this article, we will review the basic rules of debt management and pay attention to the tax aspects of accounting for accounts payable.

What are the accounts payable process?

Accounts payable is an unpaid obligation of an enterprise to other parties. These can be suppliers of goods, work, services, landlords, employees, the budget, and extra-budgetary funds. It can also owe to the buyers in the case of an advance payment on account for forthcoming deliveries.

Accounts payable process main steps

Next, we consider the basic rules for managing accounts payable. They can be summarized as follows:

  • based on the business environment of the enterprise, determine the structure of accounts payable and regularly analyze the ratio of types of liabilities;
  • avoid overdue accounts payable that involve the risk of suspension or termination of activities;
  • periodically calculate the turnover of accounts receivable and accounts payable and adjust the commercial terms for deferred payments with buyers and suppliers;
  • conduct an inventory of accounts receivable and accounts payable and take timely measures to resolve the debt during the accounts payable process.

These rules for managing accounts payable are valid for any activity. Each organization has additional ways to make managing accounts payable effectively during the full cycle accounts payable process.

Purchase order and receiving a report

A purchase order of a product is a document that is usually required in cases when the customer company books a batch of goods in the warehouse of the supplier company for a receipt sometime in the future. It is usually reflected in the accounts payable flow chart. Drawing up of an order can be either one-time or regular. The order is not an independent document but serves as an Appendix to the contract of sale, delivery, etc. Most often, the terms and conditions for submitting the order are regulated mainly by the contract. Receiving report is collected according to the documents “Receipt of goods and services”.Its main purpose is to display information on received goods and services visually and to control the filling of invoices. The main purpose is to use information as a visual representation for an accountant.

Vendor invoice and its verification

It would seem those small inaccuracies in the details of the vendor invoice do not change the essence of the business transaction in case of accounts payable process automation. Still, in practice, tax inspectors pay close attention to the correctness of the registration of vendor invoices when accepting documentation for input VAT deductions. Recall that according to the definition given in the Tax code, these documents serve as the basis for the buyer to accept the deduction of the tax amounts presented by the seller. The tax code also sets certain requirements, and if the tax amount specified in the vendor invoice is met, it can be deducted. Thus, any organization that receives and records vendor invoices has to organize a check for compliance of this document with the requirements of tax legislation.

Three-way match method

The essence of this method is really simple and consists of several accounts payable process steps. The method is based on the analysis of three main documents: vendor invoice, purchase order and receiving a report. The information in these three documents must match. In case of any contradictory information, a detailed revision is needed. In spite of its simplicity, this method is efficient for small and medium businesses. Now, you know an answer to “What is the accounts payable process?”.

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