Accounts Payable represents purchases or services you avail from your suppliers. Suppliers, on the other hand, represents the subsidiary of accounts payables.

It is important to record all purchases to take account of expenses incurred or the cost of services to fulfill sales. In other words, every sales invoice or billing statement received from the supplier should be recorded as a “vouchers payable” or “accounts payable voucher (APV)”.

In the Philippines, the common practice is to prepare a request for payment or direct check vouchers to process the payment but the problem with this approach is that the expense is not properly accrued to its correct period or month.

For example, if you consume your electricity on January, you normally receive the billing on the last week of the month, but the payment due is the following month which in this case is February. If you record it thru direct check voucher, then the electricity expense is recorded on February instead of January which is incorrect. Now if you practice the APV approach, then you will be able to accrue the expense on January, and then issue the payment the following month thru a check voucher matching against the January APV setup.

Another benefit of the APV approach is that can easily view payable aging report especially if you have the payment term privileges from the suppliers.

Here are the steps to setup and automate your payables:

  1. Setup your suppliers. A database of suppliers is a must for you to make use of accounts payable system. The important information you need is a unique supplier code or identifier of the supplier (it can be an acronym or a serial code), addresses, contact info and the default expense account of the supplier to automate the recording of expense every time you use that supplier to setup your payable.
  2. Encode supplier invoices or bills thru the accounts payable setup. It some software, they call it Bills, or Voucher. Key-in important details such as the transaction date, reference number to match it against the actual billing, amount and payment terms or due date. This should automate journal entries to account for the expense account related to the transaction to automate its posting to the general ledger and update your P&L report.
  3. Once the accounts payable is setup, a typical accounting software has a readily available payable aging report and payment processing to close the accounts payable. Some software has a default check voucher printout and check writing capabilities to process the payment complete with documentation. This will also automate journal entries to decrease the balance of your accounts payable and balance of your cash in bank to update your balance sheet report.
  4. Lastly, You may now enjoy the benefit of having a month-end expense report to track expenditures so you will be able to take care of your bottom line on a more efficient manner.

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