Accounts Payable Definition
Understand what we mean by accounts payable. Why the process is called accounts payable and what are the other names by which this process is known as. Download a ready recokner to keep with you.
What is Accounts Payable
- Accounts payable is the amount owed for the purchase of goods or services at a specific date.
- It is the money that a company owes to vendors for products and services purchased on credit extended in the normal course of business.
- As a general practice suppliers offer to their customers credit, which is an payment arrangement to pay for a product or service after it has already been received.
- Accounts Payable is presented as Current Liabilities under the Liability section of the Balance Sheet. It represents a negative cash flow for the company.
- Accounts payable are often referred to as "payables".
- Accounts Payable is considered as Current Liability, meaning that it is a short term credit extended to the business expected to be fulfilled in less than a year
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Accounts Payable Journal Entry
Although in the large organizations the Procure to Pay Accounting process starts when the purchase order for supply of goods is released to the supplier. To keep things simple in the beginning we will discuss the core accounting entries related to the Accounts Payables process.
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Companies and businesses have huge transactions pertaining to their accounts payable process. They receive goods and services from various suppliers and they need to manage timely payments to these creditors to avoid default and adhere to the payment terms.
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When a customer wants a product that has been stored in the warehouse, the same need to be picked off the shelf (or off the floor) and get it ready for shipping. Depending on how big is the warehouse, picking can take a while. (Many distribution centers cover more than 1 million square feet.). Hence, warehouse order picking methods are an important aspect within any warehouse.
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Payables are often categorized as “Trade Payables” & “Expense Payables”. “Trade Payables” are the monies due for the purchase of physical goods that are recorded in Inventory. “Expense Payables” are the monies due for the purchase of goods or services that are expensed.
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Large companies have huge number of suppliers. To remain competitive they need to manage their procure to pay process very effectively. They create specialized division to handle these operations.
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Miscellaneous Warehouse Processes
At the end of each inventory control, the Contractor provides the Ordering Person with an inventory report which contains a list of all stock adjustments. The Ordering Person uses the report to create, by use of his/her own means, necessary value and accounting adjustments related to the stock. Let us look at some to the mislaneous warehouse processes not covered earlier.
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After products have been received and passed a quality inspection, they need to be stored so that you can find them when you need them. This process is called putaway. The spot where you store a particular product is called a location. One section of a warehouse might have small locations for light items; another area may have large locations on the floor for heavy items.
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Overview of Warehouse Processes
The basic function of a warehouse is to store goods. This means that they receive deliveries from suppliers, do any necessary checking and sorting, store the materials until it is dispatched to customers. Traditionally warehouses were seen as places for the long-term storage of goods. Now organizations want to optimize their customer experience and try to move materials quickly through the supply chain, so the role of warehousing has changed.
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Before shipping, businesses need to make sure that the items will arrive in good condition. Packaging is a form of protection against environmental threats that the product will face from the time it leaves warehouse facility until the time it reached the customer. The packaging is intended to provide protection for the item as it is being handled in the warehouse or when the item is being shipped.
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Subsidiary Ledgers – AP Ledger
An accounts payable invoice gets recorded in the Account Payable sub-ledger at the time an invoice is received and validated that the respective goods corresponding to the invoice have been received. Then it is verified and vouchered for payment as per the payment terms agreed with the Supplier.
