Entrepreneurs need to understand what accounts payable are said Edmonton bookkeeping, so that they can ensure that they are keeping track of all of their invoices properly, and making payments in a timely manner. Intuitís, the makers of accounting software QuickBooks wanted to test the basic business financial literacy of entrepreneurs and asked him questions about what a balance sheet is, what accruals are, and how to improve the cash flow in their business. 82% of the respondents actually scored lower than 70% on the test. Since many business owners struggle to understand business finances, helping them understand accounts payable is important to helping them have accurate financial statements in their business.
The first thing an entrepreneur should understand when it comes to accounts payable is understanding what they are. Edmonton bookkeeping says that any time the business owner makes a purchase but does not pay the vendor immediately, they have essentially purchased of that item on credit, and the result is an accounts payable that is listed in their financial statements of the business. The buyer and seller will have a creditor/debtor relationship until the buyer pays the vendor complete and in full.
An entrepreneur should also understand how their accounts payable is going to show up in their financial statements of their business. Edmonton bookkeeping says that business owners should expect to see all accounts payables show up on their business balance sheet, in the section listed liability. This is considered a short-term debt that is going to stay in the liability section of the business for the life of the debt. Once an entrepreneur makes the payment, the amount in the liability section decreases for that same amount. Business owners should verify that these short-term debts are actually kept separate from longer-term loans such as financing for vehicles, or loans from their financial institution.
Once an entrepreneur understands how their accounts payable books on their balance sheet, the next thing that they should understand according to Edmonton bookkeeping is how it appears on the balance sheet when they make payments. This is extremely important for entrepreneurs to learn so that they can verify that as they have made payments, the payments show up accurately as well. When an entrepreneur disperses payments in their business, they should keep track of the total amount that they have paid, and ensure that the total amount that they have paid has been decreased in the liability section of their balance sheets. Next thing that they should do, is look at the asset section of their balance sheets, and verify that the same amount that has decreased in their accounts payable section, should also decrease in their cash in their asset section. By verifying these two amounts balance, can ensure that a business owner has paid properly, and attract it properly and their accounting software.
Edmonton bookkeeping says that entrepreneurs who understand what accounts payable are, and how to track them in their business, can ensure that not only are they understanding how much they owe their vendors, but that they are also able to make accurate payments as well.
Edmonton Bookkeeping | What Entrepreneurs Need To Know About Accounts Payable
It is extremely important for entrepreneurs to understand how to track their accounts payable through their accounting software says Edmonton bookkeeping. The reason is, in order to ensure that they are making payments accurately and on time, business owners need to have tracked those accounts payable through their accounting system, to ensure that the entered into their accounting software. The best way to do this, is developing a system called a three-way match, that not only can help entrepreneurs stay organized with receiving products, and invoices, but can also help an entrepreneur ensure the accuracy of this information as they grow and add employees for their business.
This three-way matching system requires an entrepreneur to understand what a purchase order, receiving the report and an invoice is. Edmonton bookkeeping says that a purchase order is essentially a detailed report communicating to the entrepreneur everything that is being ordered from the vendor. It should include a description and quantity and price of everything being purchased. Other information that may be included on the purchase order includes a reference number, the date the order was made, the date it is needed, the company name, the contact name and phone number etc.
Edmonton bookkeeping says the next thing that is important is receiving reports. As the product is sent to the small business, the receiving report will match the purchase order, in terms of information that is on it, except it will list everything that is included in the shipment. If everything is shipped at the same time, entrepreneurs only need to verify that the products that were received are the products that were ordered. If an entrepreneur is receiving partial orders, they need to be receiving multiple receiving reports and should ensure that every time they receive product, but it is all being compared to the purchase order.
Once all of the products have been received, a small business owner should receive the invoice, outlining the amount that the entrepreneur opens for the purchase. Not only should a business owner be verifying all of the products are correct, and nothing was missing or invoice that is not received, but also that the unit price and final price is what was listed on the purchase order.
Once an entrepreneur has verified the accuracy of the purchases, and the invoice, that has been they can confidently enter the amount of the invoice into their accounting software. This is especially important as the business grows, and they have multiple people working for the company. If the purchase is made by one employee, received by another, and entered into the accounting software by a third, this three-way matching system is extremely important to help keep an entrepreneur organized with the accounts payable that they owe.