One of the reasons why entrepreneurs should learn how to keep their accounts payable very organized is because into it, who are the makers of QuickBooks did a financial literacy quiz with entrepreneurs, to test them on how well they understand basic business finances such as what the role of the balance sheet is, how to improve cash flow and what accruals are said Edmonton bookkeeping. 82% of all of the small businesses that were surveyed scored less than 70% on this quiz. Many entrepreneurs are very good at providing the services that they provide in their business, and less knowledgeable about running their business. By understanding accounts payable can help entrepreneurs stay organized, and therefore paying their invoices accurately and on time, so that they can have the most accurate balance sheets at all times.
The first thing that it is important for an entrepreneur to know, is what account payable refers to. Any time an entrepreneur makes a purchase for their business but does not pay for the product or service immediately, that becomes an account payable on their balance sheet. It is essentially a vendor extending credit to the entrepreneur for a short term loan. Edmonton bookkeeping says that because it is considered a short-term loan, it will appear on their balance sheet under the liability section. Unlike longer-term loans, the short-term debt of the invoices is going to stay in that section of the balance sheet for the life of the debt.
Once an entrepreneur makes payments on invoices that they perceived, they should be watching their balance sheet. For all of the invoices that they pay, they should see the amount outstanding in their liabilities decrease. They should also see that the cash that they have in their business should also decrease the same amount. If for some reason those two amounts do not match, something was entered incorrectly. It is very important that entrepreneurs are keeping track of all of the invoices that they pay in a timely fashion in their accounting software so that they can ensure the accuracy of their balance sheets. Since business owners review their balance sheets on a regular basis in order to do bank reconciliations, so that they can make other important financial decisions in their business, ensuring the balance sheets are kept current on a regular basis is extremely important.
In order for a business owner to remain organized so that they can ensure that they are making purchases regularly, and in a timely fashion, they should ensure that they have an organized bookkeeping system that helps with their accounts payable. By developing a system that involves recording when they received invoices, and keeping track of when they need to be paid, can help an entrepreneur not only have a clear view of how much they owe but have a less stressful time in keeping track of all of the payments they must make.
Edmonton bookkeeping says that understanding their accounts payable can help entrepreneurs develop an organized system for dealing with all of the invoices that they receive as part of their business.
Edmonton Bookkeeping | Organizing Accounts Payable
Helping entrepreneurs develop an organized system for receiving accounts payable says Edmonton bookkeeping can help them ensure that there not only making payments accurately and in a timely manner, but it can also ensure that they are keeping their balance sheets up-to-date so that they can understand the state of their business finances at all times.
In order for an entrepreneur to develop a well-organized system of receiving invoices and entering them into their QuickBooks software, and paying them, Edmonton bookkeeping recommends entrepreneurs use a three-way matching system. This uses a purchasing order, receiving report and invoice to help an entrepreneur match up what they have purchased, received, and owe for that company. This is especially important if the person who is purchasing products is not the same one receiving those products, or entering invoices into QuickBooks. Having the system in place, entrepreneurs can ensure that as they grow and at employees, the same system is followed, ensuring accuracy of their payment information.
The purchase order is prepared by the seller, to help communicate what is being purchased. The purchase order will have a reference number and include a list of all of the things that are being purchased including quantity and price. As soon as a business owner makes a purchase, they should expect to receive a purchase order telling them the purchase. A business owner should scan this report to ensure everything that they wanted to purchase has been included.
The next report they need to understand is called a receiving report. Edmonton bookkeeping says that this is similar to a purchase order, except it should accompany the products that were shipped. This is especially important because if entrepreneurs received a partial order, they should be documented on the receiving report. Whoever is receiving the purchase should compare it to the purchase order, ensure all parts are received. If not, they should keep both reports together until all parts of the order have arrived.
The last report that entrepreneurs will receive is the vendorís invoice. This should have a list of all of the products that were purchased, and the amount of money that they owe including any additional fees like shipping or tax. Once an entrepreneur receives all the parts to their order, and receive the invoice, whoever is entering in the invoice into their accounting software, should verify that everything in the purchase order and receiving report match the invoice.
Having a system in place in their business, Edmonton bookkeeping says that entrepreneurs can ensure that they have all of the products that they ordered, and no products are missing, and the invoice is accurate. By verifying the accuracy of the invoice, entrepreneurs can enter it into their accounting software, ensuring that it is accurate, and entrepreneurs are not being charged for things they did not purchase. By doing this, they can stay organized with their finances, and ensure that all of their outstanding amounts are valid.