The Beginner's Guide to Understanding Accounts Payable

Learn the fundamentals of accounting quickly and easily with this beginner's guide to understanding accounts payable. Clear explanations, simple steps—start now!

Accounts payable is a fundamental part of the accounting process, covering payments from vendors, suppliers, and other related entities. Discovering how to record and track accounts payableenables businesses to manage their finances. This beginner's guide explains the basics of accounts payable and provides clear steps for setting up the process.

 

What is Accounts Payable?

 

Accounts payable is a current liability account that tracks the payments your business owes to suppliers and other related parties for goods and services. Whenever you purchase something from a vendor, buy parts for manufacturing, or get invoice returns from customers, these all need to be recorded as accounts payable. The understanding of what comes in and out will help you better manage your finances.

 

Record Transactions and Post to the Ledger.

Once you have a general understanding of accounts payable and its components, it's time to start documenting the transactions and then posting them to the ledger. To start, make sure you record all relevant information for each transaction, including name of company or supplier, date of invoice, what goods or services were provided, accounts receivable codes if applicable, total amount due and when payment is expected. Then post this information to your journal entry line by line. After all pertinent information has been entered into the ledger, enter the total amount owed in your Accounts Payable section of the trial balance sheet.

 

Reconcile Accounts and Issue Payments.

After accounts payable have been entered into the ledger, it’s time to reconcile them. You must look for any discrepancies between the amounts you received from vendors and suppliers and the actual invoice amount. Additionally, if there’s a large discrepancy in the amounts, investigate further by reviewing contracts, bills, or invoices for clarification. Once this has been completed and all discrepancies have been accounted for, you are ready to issue payments on all outstanding invoices.

 

Manage Disputes, Reimbursements, and Merchant Discounts.

In addition to reconciling accounts payable entries, as a business owner you need to plan ahead for how you’ll manage any potential disputes, reimbursements or merchant discounts. In some cases, customers may dispute an invoice and require additional information. Be sure to respond promptly and communicate the details of the dispute resolution process with the customer. Additionally, if you need to reimburse a vendor or supplier for a mistake on your part make sure you complete the transaction in an orderly fashion. Finally, take advantage of any merchant discounts that can help save your business money.


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