The reason why it is important for entrepreneurs to understand what their accounts payable is says Edmonton bookkeeping, is so that they can ensure they are entering their invoices to their accounting software in a timely manner so that they can issue payment for their invoices on time, as well as end up with accurate and up-to-date balance sheets so that entrepreneurs can make informed financial decisions in their business. In order to learn how to do this, entrepreneurs should understand very clearly what accounts payable is, and how it shows up in their financial statements.
The first thing that entrepreneurs ask when learning about accounts payable, is what it actually is. Edmonton bookkeeping says that any time an entrepreneur makes a purchase for their business but does not pay that invoice immediately, they are essentially making the purchase on credit, and that gets tracked in their accounting software is in accounts payable. It is ultimately a liability for the business, and the amount owed to the creditor for goods or services that they have purchased.
Many entrepreneurs question what can be included in their accounts payable section of the business. Anything that an entrepreneur purchases, and receives an invoice for can be counted as an account payable. For example, if the order office supplies, when those office supplies arrive and the entrepreneur gets an invoice, that would count as an account payable. In addition to purchases like that, entrepreneurs can count utility bills, or other bills like a cell phone or the Internet is an account payable. Entrepreneurs should ensure that accounts payable are kept very separate from things like loans including asset purchases. Those should be included in a separate section, and are not counted as an account payable in the business.
The next question business owners often have when it comes to their accounts payable, is how it shows up in their financial statements. Edmonton bookkeeping says that business owners will see it very clearly on their balance sheets. Their balance sheets will be organized in three sections: the assets of the business listed the top, the liabilities of the business is listed in the middle section, and the equity at the bottom. Business owners should understand that in the assets of the business, it is listed in order of what is is used to make liquid, so cash will be listed at the very top, and second, from the top is Accounts Receivable. All of the accounts payable are counted under the liability section. When an entrepreneur goes to SS the financial health of their business, they simply look at the liabilities compared to the assets and are able to understand how much money they have in their business to make financial decisions like running payroll, paying bills.
By understanding what accounts payable is in their business, can help entrepreneurs understand why it is important to enter it in a timely manner in their accounting software, and how they can use that information to make great decisions in their business, that can help them avoid making decisions that can negatively impact their finances, and use that information to collectively grow their business as well.
Edmonton Bookkeeping | Frequently Asked Questions About Accounts Payable
An important aspect of learning what the accounts payable in their business is learning how to process the invoices they receive in a timely fashion says Edmonton bookkeeping. When entrepreneurs can process the invoices quickly, they can not only ensure the payment of those invoices in a timely manner as well but also can avoid making mistakes such as paying an invoice or completely missing it as well. One way that business owners can minimize errors when it comes to their invoices, is learning how to document their accounts payable process, in order to avoid mistakes and ensure the accuracy of their invoices.
The first question that entrepreneurs have is what did the need to know in order to implement this bookkeeping system? The three documents that an entrepreneur needs in order to implement this system in their business, are the purchase orders they receive when they make in order, the receiving reports the receive when that product is received in their business, and finally the invoice. Ten bookkeeping says that these three reports will be all that is needed for an entrepreneur to implement a system in their business to ensure the accuracy of those invoices.
The next question entrepreneurs often have is what is a purchase order. This is a report that is prepared by the vendor to indicate every item that is being ordered, and will include not just a list of the products, but have a description and a unit price as well. The purchase order might have a variety of other bits of information, depending on the business as well as the industry. It often includes a purchase order number, the date that it was prepared, the company and contact name, as well as the date the order was created, and the shipping method. Ultimately, as long as an entrepreneur can understand that it includes items and their prices that is all they need to reference in order to implement this accounting system.
Entrepreneur keep this purchase order on hand when they start receiving the product from their vendor. A business owner should not only be ensuring that the products that they are receiving is accurately recorded on their receiving report, but also that it matches the purchase order as well. If products are missing, or too much product is received, an entrepreneur can use the purchase order number in order to contact the company and correct any mistakes.
When an entrepreneur receives all of their product, they will be able to look at the invoice, and compare it to the receiving reports as well as the purchase order, to ensure that all the products that were ordered were received, and the invoices for the previously agreed upon amounts indicated on the purchase order. Edmonton bookkeeping says that once an entrepreneur does this, they can very quickly ensure the accuracy of the invoice, and put it into their accounting software in a timely manner, so that they can process payment on it, as well as ensure the accuracy of their balance sheet on an ongoing basis.