Many small business owners struggle with understanding basic business financial literacy says Edmonton bookkeeping. As a result, they do not understand what accounts payable are, or how important they are organized as they track them through their accounting software. Understanding how to organize accounts payable can help entrepreneurs not only stay organized when paying invoices but can also ensure the accuracy of their financial statements so that they can end up with the most accurate balance sheets possible, which will help them make financial decisions in their business any time they need to.
The first thing that entrepreneurs should understand is what accounts payable actually are. Any time an entrepreneur makes a purchase for their business, but dozens pay the vendor immediately, they enter into a creditor and debtor relationship because the business owner has essentially purchased items on the credit. They will have this relationship until the entrepreneur pays their vendor completely and in full. This amount that they owe is referred to as their accounts payable. And is essentially a liability in their business that is owed to a creditor for any goods or services. Examples of what can be an account payable is if an entrepreneur has made an order of office supplies from Staples, that would count as Accounts Payable. If an entrepreneur has made a purchase of any raw materials that they use to make their products, that would be counted as account payable. Also, things like utility bills, phone bills, or Internet bills are also examples of what can be considered an account payable says Edmonton bookkeeping.
Once an entrepreneur understands what accounts payable is, they should ensure they know how it looks in their financial statements of their business. Edmonton bookkeeping says that it should be recorded on the balance sheets of the business. The balance sheet should have three sections, an asset section at the top, a liability section in the middle, and this middle section is where accounts payable are going to be included. It will stay here for the entire life of the debt. Once an entrepreneur makes the payment to that vendor, it will leave this section, making the amount that an entrepreneur owes in their liability less by the entire amount of that bill.
An entrepreneur should also understand how their balance sheet is going to look when they have made that payment. They should ensure that they disburse payments, that the entire amount of payments that they make, should be indicated on their accounts payable section, by a decrease at what they owe overall. They should also be verifying that as they make payments, but it is also going to affect the assets of their business, specifically the cash in their business. They should verify that the exact amount that they have decreased their accounts payable has also decreased in their cash section as well.
When entrepreneurs understand what their accounts payable is, and how it is tracked through their financial statements, they can ensure that they are entering in invoices properly, as well as making payments properly as well.
Edmonton Bookkeeping | Best Practices For Organizing Accounts Payable
Being organized is extremely helpful for entrepreneurs in order to stay on top of all of the invoices that they will receive in their business says Edmonton bookkeeping. Being organized as they receive invoices, can help them enter the invoices correctly and their accounting software, so that they can ensure that they are staying on top of making payments properly, on time, and ensuring that the financial statements of their business are up-to-date because of it.
A great system for entrepreneurs to get into the habit of using in their business is called a three-way match and Edmonton bookkeeping says that can help entrepreneurs ensure that the invoices that they receive are accurate, and is especially beneficial to learn how to do before a business grows. Once they have a separate employee making purchases, receiving orders, and entering in invoices into their accounting software, this is an extremely vital system to ensure what was purchased was received and invoiced properly. A business owner needs to understand that in this three-way match, they will need to keep track of a purchase order, a receiving report, and the invoice.
The purchase order is going to be a document that an entrepreneur receives in their business when they make a purchase, indicating all of the items that they have purchased, and a unit price for each one. Depending on the business and the industry, various things might be included in the purchase order including a reference number, the date it was prepared and the date that it is needed, contact name and phone number, as well as a shipping method.
The next thing that entrepreneurs should expect is to get a receiving report, it will arrive at the same time that the products due says Edmonton bookkeeping. This is extremely important to take note of, to ensure that what was ordered is what is received. The receiver should verify that snow additional products were received and that the entire order is accounted for. Some companies ship partial orders, and if this is the case, the receiver should keep the purchase order along with all the receiving reports until all parts of the order have arrived.
Once all parts of the order have arrived says Edmonton bookkeeping, the invoice should be included. The receiver should verify that the amount on the invoice reflects all of the products that were received, and for the prices that were indicated on the purchase order. Once this is all accurate, the invoice can then be given to the person entering in invoices into the accounting software. By staying with this system, entrepreneurs can ensure that their invoices that they receive are accurate, and can be entered into their accounting software in a timely fashion. By doing this, entrepreneurs can ensure that any time they want to pull a balance sheet to see the state of their business finances, it will be a true reflection of the amount of money that they owe in their business.