All businesses or organizations have two indispensable financial flows: Expenses
Let’s have a quick understanding of the mentioned terms. In simple
words, revenue refers to the money coming in, and expenses refer to the money
The money coming in (revenue) is responsible for meeting the requirements and
helping to run the business. Once the money is in, the organization requires a
department to track all expenses and keep minimal costing. Now, to manage all
the mentioned jobs, accounts payable comes into action.
Let’s have a deep understanding of Accounts Payable.
Accounts payable (AP) is an account that represents the company’s responsibility
to pay off short–term debts to its creditors.
In simple terms, when a company buys goods on credit that need to be paid back
in a certain time period, it is known as Accounts Payable. A company’s total
Accounts Payable comes under the head’s current liabilities. Accounts Payable is a
short-term payable debt that needs to be paid to avoid default. In a company, the
AP department is responsible for making the payments owed by the company to
the suppliers or creditors.
This article includes:
- Understanding Accounts Payable
- What is the Role of Accounts Payable?
- What is the Accounts Payable Process?
Accounts Payable is a liability due to the vendors/ creditors when it orders
services without paying in cash beforehand, which means goods have been
bought on credit. The term Accounts Payable is not only limited to large
organizations, even at some point individuals like you and me are also accounts
For instance, we consume electricity, telephone, TV networks, and the bill is
generated at the end of the month. This means that the service provider gave you
some services and now the bill has to be paid to avoid default.
Now let us understand this from the Company’s perspective. Assume you are
Company A who has bought goods from Company B on credit. The amount
generated must be paid in 30 days.
In the records of Company B, the sales will be mentioned as accounts receivable
and Company A will mention the purchase as accounts payable.
By and large, the role of Accounts Payable is to contribute towards financial and
administrative support to the organization. The department is responsible for
paying incoming bills. Large Companies maintain a separate department for
accounts payable, while small businesses mostly tend to have combined accounts
receivable and payable.
Ultimately, the roles and responsibilities of AP depend on the size of an
organization. In addition to paying bills, AP executes at least three roles.
AP organizes and maintains vendor contact information either manually or
Again, depending on the organization, the AP department executes the
verification of the purchases after the purchase is made. This department also
controls the monthly aging analysis reports that help the organization and analyze
how much the business owes.
Business Travel Expenses
Large organizations that require their staff to travel have their Accounts Payable
department which helps the company to manage the travel expenses.
Travel expenses include advance airline booking, hotel reservations, lodging, and
all the relevant expenses. After the business travel has occurred the AP would
then investigate settling funds distributed and the amount spent.
Accounts Payable is responsible for the distribution of internal reimbursement
payments. And have control over the distribution of sales tax exemption
certificates. Accounts Payable regularly grasp the supply of sales tax exemption
certificates, to ensure the purchase does not include sales tax expenses.
This department also works to reduce costs by developing strategies to save the
3. What is the Accounts Payable Process?
The Accounts Payable department has set criteria and procedures to be followed
before paying the vendors. The guidelines are essential to follow.
The process involves:
· Receiving the bill: when the purchase takes place, a bill is generated which helps
to trace the number of goods. This helps in the verification of the bill.
· Review bill details: In this process, the department verifies and makes sure that
the bill contains the required credentials. Such as the Name of the vendor,
authorization, and the requirements for the purchase order.
· Updating records after the receival of the bill: The ledger accounts require to be
updated depending on the received bill.
· Making payment: The department ensures that the payments are being made on
or before their due date as agreed upon with the vendor and the purchasing organization .All the bank details need to be verified again before making the payment.
To conclude, accounts payable is mentioned in the company’s balance sheet
under the head of current liability. It is a short–term credit that must be paid in a
certain period to the creditor or vendors. Apart from this AP also deals with
internal payments, business expenses, and vendor payments.
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