Lessons on 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. As soon as the vendor’s invoice is recorded, the amount representing accounts payable will be entered as credit and for it to be balanced, another account must be debited. As soon as the amount representing accounts payable is paid, this amount will be debited and Cash will be credited and, thus, the credit balance in accounts payable becomes equal to the amount reflected in the vendor’s invoice which has already 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. Lease payments, retirement benefits, individual notes payable and a range of other debts repaid over a long term are known as long-term debts.
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The difference of trade payable to accounts payable is that it refers to all the money a company owes the vendors for the business supplies and materials, which is included in the company’s inventory. Accounts receivables refers to the money that is owed to the company; therefore, the term is opposite in meaning to accounts payable. An enormous amount of detail in the form of documents must be reviewed in the process of accounts payable in order to ensure that only legitimate and accurate amounts are entered in the accounting system, and these referred documents are: purchase orders issued by the company, receiving reports issued by the company, invoices from the company’s vendors, contracts and agreements. The financial statements of a company can reflect an accurate and complete reporting if the accounts payable process is well-run, which accounts for including the following procedures: 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.