Small Business Accounting And Accounts Payable

When a small business owner purchases stock or services from a supplier, it is standard practice that the provider will offer them credit. This will then form part of the businesses Accounts Payable. Your creditor forwards you an invoice which you file until it is due for payment. Accounting for your creditors and paying your bills on time are the duties of an Accounts Payable department. Your bookkeeper must manage numerous key actions to ensure that your Accounts Payable is managed effectively.

What is a PO?

To launch the process of making a purchase you are required to issue a valid purchase order to your provider. This is the initial step in identifying the items and products that you want for your business. It will have itemized details of your purchase including unit costs and the full amount payable for the order. When you place an order with your supplier, the prices quoted on the purchase order will usually equal the decided product price list that your supplier has forwarded to you to aid ordering.

The PO (purchase order) is very important as it is a legal contract offer to buy the items or services from your supplier. When your provider accepts this PO, it confirms the order and your supplier is then obliged to carry out the order accordingly. In an outsourced Accounts Payable department, the bookkeeper raises the PO after checking that the business owner legitimately requires the items. This prevents any mistakes in ordering and avoids budding arguments between the business and the vendor.

Any mistakes in the PO could result in leftover stocks and inadequate or mistaken deliveries. If you urgently need items to finish a customer order, then inaccurate deliveries could be devastating for your business. Therefore your business will gain from meticulous and precise PO preparation.

Invoices

Once your PO has been sent to your provider, you will take delivery of the supplies ordered in a short time followed by the supplier’s invoice. The invoices will then need to inputed onto your accounting system such as MYOB to keep your accounts up to date. Other invoices that form part of accounts payable include electricity and other utilities. The bookkeeper will accurately recognize the invoices and decide if they are trade invoices which unequivocally affect the cost of the goods that you sell to your customers and consequently your gross profit.

Making Payment

The financial cycle of your business depends on a proper Accounts Payable process. Your liabilities to your trade and other creditors, such as regulatory and tax authorities must be recognized and paid for when they fall due. When you come to an agreement on credit terms with your vendors, these form the basis of the payments prepared.

Distributing funds to your creditors is a crucial component of the Accounts Payable process. The credit terms govern when invoices are paid. Paying your infvoices is made easy through online bank facilities or your bookkeeper can issue a business cheque. It is an advantage to negotiate long credit periods. You have the prospect to collect payments from your buyer which you can then pay your debtors, as part of the working capital cycle.

By managing an official supplier list, you can be assured that the invoices entered into the accounting system are from legitimate vendors. The list will include related information on the vendors and suppliers of your business. Your bookkeeper will match the bills with this list to make certain that the creditors are legitimate. Before each payment is made, invoices will be checked against this official list. No payments will be released if the payment iffy.

Using the Right Expense Account

Expenses incurred by your business must be charged to the correct expense accounts to maintain an precise record of the numerous classes of expense. Expenses must be posted to independent accounts to sum up how much is spent on aspects such as postage, shipping or repairs to premises. Accounting services that exactly group and charge expenses make sure that you are informed how your money is being spent in the business. It gives business owners the ability to clarify whether they could better administer their expenses by curtailing uncalled for expenditure.

Trade Creditor Reconciliations

An essential feature of Accounts Payable is the reconciling of trade creditor accounts. This activity will be done by your bookkeeping service when it receives the monthly statement of accounts from creditors. The closing balance on the statement will show the amount your business owes to the vendor as recorded in the wholesaler’s books. Your bookkeeper will reconcile this figure with the amount payable as reflected in your own accounting records. There may be timing differences that could explain the existence of invoices in the creditors Statement of Accounts which have not yet been received by your book keeper at the month end.

Creditor reconciliations should normally be performed on a regular basis for trade debtors. This process can see double invoicing or troubles in the creditor invoicing practice. It will draw attention to charges which you have not picked up in your accounting records such as interest penalties for late payment of creditor invoices. There may be creditor invoices that have not been captured in your accounting system in which case your Accounts Payable displays an incorrect balance and your liabilities are understated.

The Accounts Payable function is crucial to properly manage the cash flow of your business, distinguish your risk exposure to unpaid invoices and provide an true statement of the liabilities of your business. Bookkeeping Central can give effective accounting for your debtors by fully managing your entire Accounts Payable process and lifting the burden of paying your creditors and managing your cash flow from your shoulders. That leaves you free to focus on those activities that will drive up sales and bring in more revenue for your endeavor. Outsourcing your accounting services is the best resolution for a busy small business owner.

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