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August 2009

in this issue

Business Scenario
- Accounts Payable - Part 1


Accounting Tip

Did You Know ?


Sandy's Recommendations

Next Issue - Accounts Payable - Part 2


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  • Business Scenario
    - Accounts Payable - Part 1

  • What's the best way to handle / record vendor activity?

  • Answer
  • Vendor / supplier activity when dealing with receiving bills and issuing the payment / cheque (at a later date) are known in accounting as your Accounts Payable (A/P).

    Please note that items paid by cash, debit cards, COD, etc. are usually entered as a journal entry. However, if they are regular vendors and you want to track their history, you can record these expenses as cash payments in Accounts Payable as well.

    Accounts Payable is what's known as a sub- ledger, which was defined in the June 2009 issue of e-ccounting. In accounting software the Accounts Payable may be referred to as a module.

    The accounting software is designed, once set-up properly, to automatically handle the Accounts Payable portion of the transaction (see definition section for more details on integrated accounts).

    For a (vendor) bill the Accounts Payable is a credit while the GST (if applicable) and Expense are debits.

    For the payment / cheque, the Accounts Payable is reduced or debited while the bank is a credit.

    The A/P primarily has two components: Bills (discussed below) and Payments (to be discussed in the next issue).

    Component 1 - Bills

    When you choose the Purchases / Bill screen, it is divided into two sections; (a) general information including:

    • Vendor name
    • Invoice number (which is on the bill, if there isn't one, use a consistent numbering system. For example for credit cards and utility bills, the month and the year is a good simple system).
    • Date of the bill

    and (b) the bookkeeping portion of the screen will, as a minimum, require the following:

    • Details of the bill (it's a good idea to put a brief description)
    • The amount of the invoice (before taxes)
    • The applicable taxes (GST, PST or both)
    • The expense account name or number to attach the purchase.

    Once you have completed the screen, if all the required fields have been entered you will post the entry. At this point all your reports will be updated.

    There are two main reports available:

    At any requested date, the report will itemize each vendor you have an outstanding balance with and how much you owe, as well as a grand total at the bottom. The report has a current column, over 30 days, over 60 days and over 90 days columns to track the aging of these outstanding balances.

    At any giving date, you may request the specifics of one particular vendor. This report will provide each bill and payment therefore including both paid and unpaid items.

  • Accounting Tip
  • Bookkeeping Hint - when entering a multi- lined item ie. a credit card, and you are not ready to post but don't want to loose all your data, store it as a recurring or memorized entry. This way you can call it back up when you are ready to finish it. You can make your changes / additions and then post it.

    When you have posted the item chances are you won't need it again, therefore to avoid a long list of one-time memorized transactions, delete it.

  • Did You Know ?
  • As tempted as you may be to enter the purchase only after it is paid for, perhaps to save time (one transaction instead of two) this is not correct, as there are rules in accounting (GAAP) that transactions must be entered as they occur. Therefore, there is one entry for the purchase and at a later date, when the payment is made, another entry for the cheque.

    If this is unclear, please review it with an accounting expert.

    For more Did You Knows?
  • Definition

    Integrated Accounts

    Also known as linked accounts, they are required when initially setting up your books. In order for the sub- ledgers (modules) to work, the system must have the following accounts created and linked to their proper modules:

    • Accounts Receivable
    • Accounts Payable
    • bank for deposits and cheques.

    With these accounts properly set up, the system will automatically do the following:

    • When you are purchasing something "on account", from a vendor, the A/P will automatically be a credit (more information is needed, but this is just to stress the portion done automatically) and when you make the payment the A/P is a debit and the bank is a credit.
    • When you are selling something "on account", to a customer, the A/R will automatically be a debit (more information is needed, but this is just to stress the portion done automatically) and when you receive the payment the A/R is a credit and the bank is a debit.

    These automatic linked accounts will save a lot of time in data entry.

    For more definitions ...
  • Sandy's Recommendations
  • When you set-up the vendor take the time to enter as much information as you have, ie. full address, fax, phone number(s), a special contact name including their proper title and any other relavent information, ie special dates.

    Pay attention to due dates, ie due upon receipt versus due in 30 days. If cash flow is an issue, take advantage by not paying things earlier than you have to, ie many items are due in 30 days. That said, to avoid late fees and continue good relations with the vendor avoid paying things late whenever possible.

  • Next Issue - Accounts Payable - Part2


    The second component of the Accounts Payable (AP) - vendor payments/ cheques

    • Hint on paying bills in other currencies, ie US or Euro.

    • How to deal with necessary deposits required to open a vendor account.

    • What are your options if you can't pay your bills when they are due.

    • Options for filing vendor bills, once they are paid, for both small or large business

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