One of the reasons why it is so important for entrepreneurs to understand accounts payable says Edmonton bookkeeping, is because it will help entrepreneurs significantly stay organized for paying invoices. The company behind QuickBooks, Intuit surveyed small business owners in order to test their knowledge of basic business finances. They asked the respondents questions such as what is the role of the balance sheet, and how to improve cash flow. An overwhelming majority, 82% of all the respondents scored less than 70% on the quiz. Because of how few business owners are well-versed in business finances, an entrepreneur should make it a priority learn not only what accounts payable are, but how they impact their business.
The first thing that entrepreneurs should understand, is what accounts payable are. Edmonton bookkeeping says that it is essentially a liability for an amount owed to a vendor for any goods or services that an entrepreneur purchases for their business. Any purchase that a business owner made and did not pay for right away, is considered an accounts payable. Because the entrepreneur essentially purchases their goods and services on credit, the result is that the entrepreneur and their vendor have a creditor/debtor relationship until the business owner pays the invoice that they owe their vendor in full.
Because an account payable is listed as a liability, entrepreneurs should understand how that looks on their financial statements. Edmonton bookkeeping says that entrepreneurs review their balance sheets any time they are about to make a financial decision in their business, whether it is purchasing assets, or making payments, or running payroll. The balance sheet shows a list of all of the assets in the business, and then a list of all the liabilities in the business as well. In order for an entrepreneur to gauge the financial health of their business, the subject the liabilities from the assets, and end up with an idea of how the finances are doing in their business. The accounts payable will show up on the balance sheet in the liability section.
Entrepreneurs need to understand that because accounts payable are listed as a liability, and with how often an entrepreneur needs to review their balance sheets, it is very important that a business owner enters in all of the invoices they get from vendors very regularly, so that they end up with up-to-date balance sheets that they can use to make those financial decisions in their business.
Entrepreneurs should also understand that as they pay off their accounts payables, their liability section will decrease in amount. However, Edmonton bookkeeping says that entrepreneurs need to remember that they use cash to make those payments, so is there liabilities decrease sodas their cash.
Helping entrepreneurs understand their accounts payable, can help them stay on top of all of the payments that they need to make, so that they can make payments regularly, and correctly, and end up with accurate financial statements that can help them make informed financial decisions in their business.
Edmonton Bookkeeping | Proper Tracking Of Accounts Payable
In order to help entrepreneurs stay organized when it comes to their invoices, business owners should learn how to keep their invoices organized says Edmonton bookkeeping and receive the product so that they can ensure the invoices that they do enter into their accounting software are accurate. This will not only help business owners stay organized when receiving products from vendors and the accompanying invoices but that, in turn, will help them stay on top of all of their necessary payments and ensure the accuracy of their accounts payables in their business.
One method that is extremely beneficial for entrepreneurs to use when it comes to receiving products and invoices in their business is called the three-way match. The use the purchase order, the receiving report and the invoice in order to verify that all the products that were ordered were received, and invoice to accurately. Edmonton bookkeeping says that when entrepreneurs learn this, not only are they keeping their accounts payable accurate for them, but this is exceptionally beneficial for when they start hiring staff members, and more than one person is involved in the ordering, receiving and entering of invoices.
The first thing that an entrepreneur will receive when the order products, is a purchase order. They will receive this before they receive any products, and is a list of all of the products that it entrepreneur has ordered, including the quantity and the unit number. Edmonton bookkeeping says that depending on the business and the industry, a variety of other things might be included on the purchase order. There might be a purchase order number, the date it was prepared, the date it is scheduled to ship, the shipping method, the company name and contact just to name a few.
Once an entrepreneur starts receiving products from that order in their business, the products should be accompanied by a receiving report. On entrepreneur should verify that the products that they are receiving matches what is on the receiving report and also matches but on the purchase order. If all of the products arrive in the first shipment, a business owner should ensure that all of the products that are listed on the purchase order are also listed on the receiving report. The report should match what is on the purchase order. However, Edmonton bookkeeping says that some companies ship partial orders, and if this is the case, then entrepreneurs need to receive multiple reports, and so they need to keep the purchase order and the receiving reports until everything has arrived.
Once all of the products have been received properly, an entrepreneur will get an invoice, that will detail all of the products that they ordered, and how much the bill costs. An entrepreneur should verify that all of the items on the invoice match the receiving report, and all of the prices match what is on the purchase order. Additional charges might be incurred like shipping, as well as tax, but as long as the individual unit prices are the same, an entrepreneur can verify the accuracy of the invoice and enter it into their software right away so that they ensure their balance sheets are kept up-to-date.