Reprsent Short-Term Dues
Accounts payable (AP) is otherwise known as short-term obligations of a Sewer Contractor Company that must be paid within twelve months from the date of incurrence. The bills are either paid monthly or on a lump-sum basis. Those paid monthly would include bills for utilities like water and electricity among others. Payment on lump-sum normally includes those from trade transactions like purchases of materials, supplies and inventory.
What comprises Accounts Payable?
It is normally refers to obligations incurred for transactions that are business-related. These would include purchases for: materials that are used for operations; tools and equipment of the manufacturing division, and overhead expenses like packaging supplies.
This account also includes payables to contractors for work done and completed. Payment for fees and compensation becomes due and demandable upon completion, hence classified as current liabilities.
Payment for work done that is not related to business may be classified as Accounts Payable - Non-Trade. An example of these would-be payments for minor repairs, electrical installations, purchase of office supplies and the like.
There are obligations that are long-term in nature, but with the current portion classified as (AP). For purchases made with credit terms that are longer than one year, the current portion of the obligation becomes due and demandable for that year. Hence, accountants normally classify the current portion as Accounts Payable, with the balance classified under long term obligations.
How do Accountants treat (AP) in their Books of Account?
Accountants in Saudi Arabia classify all obligations of the company in accordance to: the date of maturity - whether short or long term; classification = trade or non-trade; materiality - if immediate payment is required or if a sum of money needs to be reserved for possible incurrence of obligation.
(AP) falls under the Current Liabilities Account. Under this account would be (AP)- Trade and (AP)- Non-Trade. Finance managers and accountants are always on the look-out for currently maturing obligations since these needs to be paid for in cash immediately.
Payments to vendors are made in accordance to signed contracts and the maturity date of the invoices that is on file. (AP) can be found under the Current Liabilities portion of the Balance Sheet. Total amount is lumped for each account, say Accounts Payable-Trade, but is further classified in the subsidiary ledgers where each supplier' account is listed.
What is the routing procedure for invoices classified as (AP)?
Purchase requisition together with the Purchase Order is forwarded by the Purchasing Office to the Accounting Department. The accounting department checks on the validity of the documents by following certain accounting guidelines.
First, it checks if there is a valid requisition. Further verification would be made if the persons who signed the document are authorized to sign it; Second, they would check on the Purchase Order if this went through the usual bidding process, and if the guidelines used in choosing the winning bidder were above board; Third, would be the terms of payment. How soon should it be paid? And discount is given if early payment is made.
If the document passes through accounting, a voucher is prepared and signed by the authorized officer for payment. This is then forwarded to the Treasury Department for preparation of check and payment.
What is the impact of payment of (AP) in the company's financial reports?
Payment would mean an outflow of cash. Businesses normally take care of its currently maturing obligations to maintain goodwill to suppliers and creditors. If there will be gaps due to lack of funds, Financial Managers normally resort to borrow from banking institutions to help fund payments to short term creditors.
Among the duties of an Accountant is to prepare Cash Flow Position Reports that would show the inflow and outflow of cash. This is done yearly and monitored monthly for any deviations from expected results.
Good financial management would mean that negative flows shall not occur at any time for any given year. There should be enough funds to run its operations and pay off its currently maturing obligations like those found in the Accounts Payable portion of the balance sheet.
Return From Accounts Payable Page to Accounting Page
Return From Accounts Payable Page to Home Page