Understand the Accounts Payable process. Understand the AP cycle and the various tasks that need to be completed during AP transaction processing. Learn the key activities and setups that are done in any typical system during the AP processing.
Given below is the complete Accounts Payable Process:
1. Issue Purchase Order:
The AP Process starts with the issue of Purchase order to the Supplier. The purchase order specifies what you intend to buy, the make and the quality of the goods. In some cases it also specifies the agreed quantity and the price.
2. Receive Goods:
Based on the purchase order the supplier will ship a product. Till goods have been received by the customer, the ownership generally lies with the supplier. Once the goods are received at your go down, you become the owner of the goods.
3. Inspect Goods:
Most organizations have the internal control processes to inspect the goods to ensure the quantity and quality of the supplied material.
4. Enter Invoice:
Supplier issues an credit invoice, and collects payment later. This 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. Received invoice is accounted for in the books of the customer.
5. PO Match and Receipt Match:
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. The three-way match can slow down the payment process, so 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.
6. Release and Make Payment:
Once the matching is done and accounts payable department is satisfied to the accuracy and validity of purchase, the refer to the payments terms. Companies may have negotiated different payment terms with different suppliers. Payment is released based on the agreed payment terms and amount is issued to the supplier.
7. Bank Reconciliation:
Generally the payment is made through the bank. There is a slight delay between the date when the payment is released and when it reaches to the account of the supplier. The bank entry is reconciled to the original payment entry in the Payments Register to reconcile the both accounts and this completes the account payable process.
In the next video tutorial we will take you through the accounting entries in the payable process.
Given below are some other activities that happen during the AP processing cycle:
Inventory is money, and hence businesses need to perform physical inventory counts periodically to make sure that their inventory records are accurate. The traditional approach to conducting inventory counts is to shut down a facility during a slow time of year to count everything, one item at a time. This process is slow, expensive, and (unfortunately) not very accurate.
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.
This article discusses the documents that gets generated during the procure to pay process. Undestand why these documents are created, what is their business significance and how they are handled and generated using ERP or automated systems.
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.
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.
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.
One of the warehousing best practices that retailers like Walmart, Amazon, and Target have adopted is known as cross-docking. During this process the inbound products are unloaded at a distribution center and then sorted by destination, and eventually reloaded onto outbound trucks. In real parlance, the goods are not at all warehoused but just moved across the dock (hence the name).
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.
We need a strong payables process so that it provides us with a high-productivity accounting solution to process vendor payments. An integrated payables process provides strong financial control so you can prevent duplicate payments, pay for only the goods and services you order and receive, and maximize supplier discounts. Understand the key features of an effective accounts payable system.
Warehouses may seem like a simple, straightforward concept, but they actually include a variety of different types of warehouses that all have their own niche. The type of warehousing that’s right for you depends on your specific industry, location, and needs. From private warehousing, distribution centers, and climate-controlled warehouses, there’s an option to suit every business.
© 2023 TechnoFunc, All Rights Reserved