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The Process of Accounts Payable

In accounting terms, accounts payable is an accounting entry which represents an entity’s responsibility to pay off its short period debt to its creditors, and the accounts payable amount is entered into under the heading current liabilities. Accounts payable is better understood in this: when a company orders and receives goods (or services) in advance of paying for them, that company is purchasing goods “on account” or “on credit.,” and the vendor’s bill or invoice will be recorded by the company in its liability account titled Accounts Payable.

The amount standing for accounts payable will be credited and another account must be debited when a vendor’s invoice is recorded. When the amount of accounts payable is paid, that amount will be entered into the debit column and Cash will be credited; therefore, the credit balance in accounts payable is equal to the amount of the vendor’s invoice that have been recorded but have not been actually paid yet.

The term accounts payable can also refer to the person or staff that processes vendor invoices and pays the company’s bills.
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There are other short-term debts that may be referred to, aside from accounts payable, and they are: payroll costs, business income taxes and short-term loans. Long-term debts, on the other hand, are the following: lease payments, retirement benefits, individual notes payable and a range of other debts repaid over a long term.
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There is a slightly differentiation between the terms accounts payable to trade payable, such that trade payable constitute all the money a company owes the vendors when it buys business supplies and materials are included in the company’s inventory.

The difference between accounts receivables to accounts payable is that in accounts receivables it refers to the money that is owed to a company.

The following documents are a summary of details which must be reviewed thoroughly to ensure that only legitimate and accurate amounts are entered in the accounting system: purchase orders issued by the company, receiving reports issued by the company, invoices from the company’s vendors, contracts and agreements.

The accuracy and completeness of a company’s financial statements are dependent on the accounts payable process, thus a well-run process must include the following: the timely processing of accurate and legitimate vendor invoices, accurate recording in the appropriate general ledger accounts, and the accrual of obligations and expenses that have not yet been completely processed.

To be able to maintain an accurate reporting of the accounts payable process, recently, business process automation, specifically accounts payable automation software, has been introduced, which has reduced dramatically the time needed to process an invoice. The good thing about this accounts payable automation software is that there will never be another misplaced invoice and payable is routed accordingly and instantaneously.