When entrepreneurs learn basic business financial literacy, Edmonton bookkeeping says that they can ensure the accuracy of their balance sheets, so that they can make informed financial decisions in their business. Intuitís, the makers of QuickBooks quizzed small business owners on basic business financial literacy. They were asked about accruals, how to increase cash flow, and what a balance sheet is. The overwhelming majority of all of the businesses that were quizzed, 82% in fact ended up scoring less than 70% on this quiz. One important aspect of gaining business financial literacy, is learning not only what their accounts payable is, but how it is tracked in their business.
Many entrepreneurs wonder what an account payable is referring to, and Edmonton bookkeeping says that any time an entrepreneur makes a purchase in their business but does not pay that invoice immediately, it is considered an account payable. Essentially, it is a liability for the amount owed to a creditor for any goods or services that they purchased. Because an entrepreneur basically makes the purchase on credit, as a result, the entrepreneur and their vendor enter into a creditor/debtor relationship until an entrepreneur pays their invoice.
Because it is considered a liability, entrepreneurs need to understand that this will appear on their balance sheet. Edmonton bookkeeping says the balance sheet shows an overview of overall financial health of the business. The top of the balance sheet will have a list of the assets of the business, the middle section will include the liabilities. This section is where entrepreneurs should see their accounts payable show up. In order for an entrepreneur to use the balance sheet to understand how the business is doing financially, they should subtract the liabilities from the assets. They should do this as often as the needs to make any financial decision in their business including payments, whether it is paying bills or paying staff their payroll. With how important it is for entrepreneurs to subtract liabilities from their assets in order to gain a complete understanding of their finances, entrepreneurs need to ensure that they are entering in their invoices into their accounting software in a timely fashion.
When an entrepreneur makes payments on their liabilities, by paying the invoices that they owe, a business owner should not only plan to see that the amount that is listed on their liability will decrease, they should also see that the cash decreases by the same amount. The reason why the cash will decrease is that using the cash in their business to pay their liability. Once they understand that, they can verify that both the liability and the cash decrease by the same amount, verifying the accuracy of entering the payment into their accounting software.
By understanding what accounts payable are, and how they are tracked in their accounting software and financial statements, can help entrepreneurs stay organized and accurate with the invoices that they owe so that they can have the most accurate financial statements possible to make informed business decisions.
Edmonton Bookkeeping | How To Accurately Track Accounts Payable
In order to help an entrepreneur stay organized with their accounts payable, Edmonton bookkeeping recommends developing bookkeeping system that will help ensure the accuracy of the invoices that they receive. When entrepreneurs are confident in the accuracy of their invoices, it increases the speed at which they can enter it into their accounting software, so that they can end up with accurate balance sheets, that they can use in order to make informed financial decisions in their business.
A great keeping system that entrepreneurs can use to ensure the accuracy of their invoices is called a three-way match system. This is a way of utilizing the purchase order, receiving report and invoice to match up together to verify the accuracy of the invoice. This is especially beneficial when the person doing the purchasing, the person doing the receiving, and the person entering the invoices are all different people. By implementing the system early on their business, Edmonton bookkeeping says that entrepreneurs can always ensure the accuracy of the invoices they receive in their business.
The purchase order is the first report that an entrepreneur is going to receive when they order a product from a vendor. The purchase order among other things, should include a description of all of the items being purchased, the quantity of each, and the price per item. Edmonton bookkeeping says that depending on the company, the industry or the products other items included in the purchase order would be a purchase order number to reference the order by, date it was prepared, date it is needed, the estimated ship date, as well as the company and vendor name, contact name and phone number, and anything else that the business deems necessary.
The receiving report is the second thing that an entrepreneur will receive from the company that they have made the purchase from. This will arrive at the same time the entrepreneur receives the products. The receiving report should match the purchase order almost entirely, except that rather than having an entire list of all of the products, it will list all of the products that have been shipped. This is extremely important if it is a business that ships partial orders. Edmonton bookkeeping says that an entrepreneur needs to match all of the products that they ordered with all of the products that they received. Partial orders will require an entrepreneur to have multiple receiving reports. Once they received all of the products, the receiving reports should match up to the purchase orders entirely.
Once an entrepreneur has received all of the products, and ten bookkeeping says that they will receive the invoice. All they need to do at this point is verify that all of the items on the invoice match all of the items that were received, and match the prices that were indicated on the purchase order. Once business owners do that, they can ensure that the invoice is accurate, and they can confidently and quickly enter that amount into their accounting software so that they can ensure the accuracy of their balance sheets at all times.