Accounts Payable Invoice Processing

This article will cover the basic invoice record-keeping process in a financial year. Below topics will be described-

• Definition of AP
• End to end Accounts Payable Process
• AP Journal entries record keeping the example
• How to record bill
• How to pay a bill
• Accounts Payable Aging
• Dispute Management
• Methods of Dispute Management
• Three-Way Match
• Way to improve Accounts Payable processes.

Definition of Accounts Payable:

Accounts Payable refers to the amount payable accounting entries to the Vendors of the company for the purchase of goods or services and are recorded under the head current liabilities on the balance sheet and this account debited whenever any payment is been made. So in simple words Accounts payable is just an account that tracks the amounts that you owe/obliged to pay your vendors and other suppliers.

End to end Accounts Payable Process

The end-to-end accounts payable process starts from Purchase requestion, PO, Goods receiving, Invoices receiving & approving invoices, Checking invoices before payment, and posting for payments, and so on.

AP Journal entries record-keeping: the example

In February 2021, Hero International ltd. did the transactions, as mentioned below. The company uses the periodic inventory system, and to account for the discounts, the company uses the gross method.

Feb 02: Company purchased the inventory worth $ 50,000 with terms 2/10, n/30, FOB shipping point. For this, the freight expenses came to $ 500.

Solution: The journal entry will be:

How to record bills?

•#3 — Entry when there is the purchase of asset other than the merchandise inventory on account:

• In case there is the purchase of assets other than the merchandise inventory on accounts like the plant, furniture, equipment, tools, or other fixed assets. The entry to record accounts payable liability is as follows:

• #4 — Damaged or undesirable inventory returned to the supplier:
• Let’s say, in case the part of inventory purchased on the account, is found by the buyer to be damaged. He may either return the same to the seller; or ask for the allowance as a reduction in prices. Now, if the seller approves the return or the allowance, then the buyer will reduce the accounts payable liability by that amount in his books of accounts. In such cases, the journal entry will be:

How to pay a bill?

#Feb-10: Paid the cash for the purchases made on Feb 02 to the creditors:

• Credit duration in the credit term is usually 30 days, but it can vary depending on the type of business and the relationship between the company and its suppliers.

Accounts Payable Aging

Accounts payable aging or A/P aging is the report used by the company to control and monitor its payables. The company that has many suppliers may need to use the A/P aging report to properly manage its payment to the supplier. Example of the AP Aging report given below:

Dispute Management

A real-world example of dispute Management is given below:

Methods of Dispute Management

Dispute management methods basically depend on the size of the company and its policy however I will give you an idea of it. So once can follow the steps

Three-Way Match

A “three-way match” refers to the three components (purchase order, receipt of goods, and supplier invoice) that must match within agreed-upon tolerance levels in order to ensure proper and timely payment. This might seem to be a process that is easy to achieve, but that is not necessarily the case.

How does Three-way Match work?

What is a workflow in accounts payable?

The accounts payable workflow automation will determine the correctness of the invoices before payments are processed. The automatic invoice matching and verification will process this complex procedure electronically.

Way to improve Accounts Payable processes?

• Gather all supplier Invoices digitally using automated accounts payable.
• Automate your invoice validation and matching functions.
• Cut Down On Excess Invoices.
• Move Over To Fully Electronic Payments.
• Concentrate All Your Disbursements.

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