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Not only is it very important for entrepreneurs to understand what accounts payable are, so that they can pay their bills accurately and on time says Edmonton bookkeeping, but understanding how to read the accounts payable on their financial statements can help entrepreneurs ensure the accuracy of that information on an ongoing basis. Many entrepreneurs tend to struggle with basic business finances, and in fact, into it, who is the company that makes accounting software QuickBooks did a survey of many small business owners on their business financial literacy. They were asked questions such as how to improve cash flow in their business, and what accruals are. 82% of the respondents to answered the quiz, scored less than 70% on the test. Since many entrepreneurs struggle with understanding their finances, being able to clearly understand accounts payable can be significant.

The first thing that entrepreneurs should understand says Edmonton bookkeeping, is knowing clearly what accounts payable is referring to. Account payable is a liability for an amount owed to a creditor for any goods or services that were purchased. Essentially, accounts payable is any purchase that an entrepreneur has made the business, but was not paid for right away. When an entrepreneur makes a purchase in their business and does not pay immediately, they are essentially making purchases on credit, and as a result, the entrepreneur and their vendor end up in a creditor and debtor relationship until the entrepreneur pays that invoice completely and in full.

Once an entrepreneur understands what accounts payable is, the next thing that they should understand says Edmonton bookkeeping, is how it is going to show up on the financial statements of their business. When an entrepreneur looks at the balance sheet, is going to show them an overview of the business finances, and allow them to get a clear picture of how financially well-off the business is. They should expect to see a list of assets at the top, a list of the liabilities in the middle, and the equity in the business at the bottom. When an entrepreneur looks at the balance sheet, they will subtract the liability from the assets in order to understand the overall financial health of their business. It is very important that business owners review their balance sheet before making any financial decisions in their business, which is why it is very important that it is kept up-to-date and accurate at all times. When entrepreneurs make a purchase and do not pay immediately for its, it is entered into the accounts payable section under the liabilities on the balance sheet. Any time they enter and payments, they should verify that the liability section is impacted by the same amount. That can help them verify they entered the invoice and accurately.

As an entrepreneur makes payments, they should also be checking that the liability is decreasing by the amount that they have paid, but also, that the cash is decreasing by the same amount as well. Since they will make payments in their business with the cash in their business, they should verify that both of the amounts are being affected on their balance sheet.

By doing this in their business, entrepreneurs can be certain that they are keeping accurate track of their accounts payable, as well as ensuring the accuracy of their balance sheets so that they can be prepared to make financial decisions in their business any time they need to.

Edmonton Bookkeeping | Ensuring Accuracy Of Accounts Payable

Once an entrepreneur understands how important keeping track of their accounts payable is, they should develop a system early on in their business says Edmonton bookkeeping to help them stay organized. Being organized with a great bookkeeping system can help entrepreneurs have a clear view of all payables in their business, and do so in a stress-free way. The preferred method of doing this is called a three-way match system and can be very easy to implement in any business.

The three-way match system requires the use of three reports that they will receive from their vendor at various points of the purchase. They will need a purchase order, receiving reports and in the invoice. The purchase order will be prepared by the vendor at the time that the business owner makes a purchase. It will include a list of all of the items that the entrepreneur has ordered, along with quantities and a unit price. It is very important that an entrepreneur keeps this report, not only because it also includes tracking number that they can use with their vendor, to reference the purchase, but because they will need to use the purchase order later when they start receiving products.

The receiving report is what an entrepreneur will get when the products that they have ordered starts arriving at the business. An entrepreneur should compare the receiving report to the purchase order, to verify that what was ordered was received. The information on the receiving report should match the information on the purchase order. Some companies ship partial orders, and if this is the case, entrepreneurs should keep both the purchase order and the receiving reports together until the entire order has been received. At any time, if an entrepreneur has received too many products or not the products that they expected, they can call the company using the PO number as a reference to get the information sorted out.

Once an entrepreneur has received all of the parts of their order, they will get the invoice. This also has a list of all of the products that were ordered, and a unit price for each. The invoice will also include any additional charges that a business owner might have such as a shipping fee and the taxes. By verifying that the items that were invoiced with items that were received, and the amount that the items were listed for was also accurate, as indicated on the purchase order. Once a business owner has verified the accuracy of all this information, then they can go ahead and confidently enter that invoice into their accounting software.

By implementing this matching system in their business, entrepreneurs can verify the accuracy of all invoices, so that they can be entered into the accounting software in a timely manner, help an entrepreneur ensure their accounts payable as accurate at all times.