According to Wikipedia, accounts payable can be explained as money owed by a firm to its suppliers which is shown as a liability its balance sheet. A firm may order and collect goods or services before settling the bills, and this indicates that the firm is buying the merchandise on credit or account. A creditor is a supplier of the merchandise on credit. If the firm which collects the merchandise they ordered does not sign the promissory note, the supplier’s invoice or bills are going to be recorded in its liability account—the Accounts Payable, which is also known as Trade Payables for the business.
There is always a credit balance in every liability account. Thus, the same goes for Accounts Payable. For this reason, in the double-entry accounting system, Accounts Payable has to be credited, and the other account needs to be debited when you record a supplier invoice. When you pay for an account payable, Accounts Payable must be debited while Cash has to be credited. So, the credit balance in Accounts Payable and the amount of supplier invoices which was recorded but not yet paid should be the same. You may find these procedures difficult if you are not familiar with them. If this is true, you can hire an accounting firm in Johor Bahru to help you manage these documents.
As required by the accrual basis of accounting, it is a must for the firm that collects goods or services on credit to report the liability earlier than the date they obtained them. You may record the debit entry to an asset or expenditure account by suitably using the same date. Therefore, accountants would say that expenditure is reported not when you pay for them, but when you incur them based on the accrual basis of accounting (Also see 4 Warning Signs to on Your Financial Statements).
Besides, when someone mentions the phrase accounts payable, he may be referring to the individual or staff who processes supplier invoices as well as settle the firm’s bills. So, do not be surprised when a vendor who has not obtained payment from a client calls and requests to talk to “accounts payable.”
The accountants (Also see How an Accountant and a Financial Planner Differs) has to review a massive amount of information in the process of accounts payable to guarantee that only legit and precise amounts keyed into the accounting system. He will find a lot of the details that he needs to evaluate in the receiving reports and purchase orders which are issued by the firm, agreements and contracts, as well as the invoices from the firm’s supplier.
The accounts payable procedure is the determining factor of the precision as well as the efficiency of a business’s financial statements. If you manage accounts payable system skilfully, it will consist of the accrual of expenditures and obligations which is not processed completely yet, the precise recording in the suitable general ledger profiles as well as the quick processing of legit and accurate supplier invoices (Also see Ways to Manage Accounts Payable Aging Reports).
The firm’s credit rating, connections with its vendors as well as cash position, can be influenced by the efficiency of the procedures of accounts payable it carries out.