In order to help entrepreneurs understand how to read their balance sheet, Edmonton bookkeeping says that business owners need to first understand what accounts payable are in their business, and why they exist. The reason why this is so important is that many entrepreneurs lack an understanding of their business finances. To help them understand, they can learn what accounts payable are so that they can understand how it appears on their balance sheets.
When an entrepreneur makes a purchase in their business but does not pay immediately, this is considered an account payable. Edmonton bookkeeping says that it is essentially a liability for the business and the amount owed to its vendor for any goods or services that an entrepreneur has purchased. Examples of things that can be account payables are if an entrepreneur makes an order of office supplies from Staples, and they will ship the product and send an invoice, that is counted as an account payable. Also, entrepreneurs who purchase raw materials to make their product with, those would be considered account payables. Also, entrepreneurs should understand that utility bills like gas, power and electricity as well as bills like their cell phone whether Internet bills are also considered the accounts payable of the business. These are all things that an entrepreneur will buy and pay for at a later date.
Once an entrepreneur understands what an account payable is, they should understand how it appears on their financial statements of the business. Edmonton bookkeeping says that the accounts payable shows up on the balance sheets of the business. The balance sheet shows the assets and liabilities of the business. An entrepreneur should be reviewing this statement every time they make any sort of financial decision in their business, whether it is to pay invoices, run payroll, or purchase assets in their business. Edmonton bookkeeping says that an entrepreneur merely subtracts the liabilities from the assets, in order to get a clear understanding of the overall financial health of their business. Because of how important it is to have this statement up-to-date on a regular basis, entrepreneurs need to ensure that there entering in the invoices and bills that they get from their vendors into their accounting software on a regular basis so that this report can stay accurate.
Once an entrepreneur understands how it looks on their balance sheet when the ad and accounts payable, they should next understand how it looks when they pay that accounts payable. The amount of the liability that they have on the balance sheet decreases the exact amount that an entrepreneur pays. However, since they are paying that out of the cash of their business, they should look to the top of the balance sheet at the assets, and note that their cash will have decreased in the same amount.
When entrepreneurs understand how their balance sheet looks, and how accounts payable is tracked on their balance sheet, they will be able to gain a deeper understanding of the overall financial health of their business.
Edmonton Bookkeeping | How Accounts Payable Shows Up On The Balance Sheet
In order to help entrepreneurs stay financially organized, Edmonton bookkeeping says that they should create a defined process on how they receive invoices in their business, not only to verify the accuracy of them but so entrepreneurs can enter those invoices regularly into their accounting software, so they can end up with accurate financial statements in their business regularly.
A great system that entrepreneurs can use to ensure the accuracy of their invoices, is a three-way match or an entrepreneur uses the purchase order, the receiving report as well as the invoice from the vendor in order to verify the accuracy of the invoice. Edmonton bookkeeping says that by using this system, entrepreneurs can ensure no matter who is doing the purchasing, or the receiving, or entering the invoices in the business, by following this system, they can ensure that invoices are checked for accuracy before they entered.
When an entrepreneur makes a purchase in their business and does not pay for it immediately, they should expect to receive a purchase order, which is a report prepared by their vendor to indicate what items are being ordered, and should include the quantity, the unit number as well as the description of the items being purchased. The purchase order will also have a tracking number and might include a variety of different bits of information depending on the industry, and the company. Including contact name and phone number, date it was prepared and the date it is planning on being shipped as well as the shipping method. Anything that is important to the purchase of that product, will be indicated on the purchase order.
When those products start arriving at the entrepreneur’s business, they should expect to see a receiving report along with the products. Edmonton bookkeeping says that this is going to look very similar to the purchase order, but the same information, except it is going to have a list of all the products that are included in the order. If it is complete order, it should match the purchase order almost exactly. If it is a partial order, entrepreneurs need to check off what they have received, and what they are waiting for, and then keep both reports together until the entire order is received. If not all of the products have been received, but the receiving report indicates they all arrived, an entrepreneur can call their vendor and use the purchase order number to find out what went wrong.
Finally, after they received all of the items, they will receive the invoice from their vendor. An entrepreneur should double check all of the items that were received are what is indicated on the invoice, and the amount that an entrepreneur owes matches the amounts listed on the purchase order. By doing this, entrepreneurs can ensure the accuracy of the invoices, and regardless of who is receiving the products, or entering information into the accounting software, they can verify the accuracy of the information.
When entrepreneurs use a defined bookkeeping process to help keep their invoices organized, they can ensure the accuracy of the information, so that they can be confident in the accuracy of their balance sheets so that when the need to use that information to make a financial decision, it is up-to-date.