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Accounts Payable as a Balance Sheet Liability and Its Benefits by kevin clymer
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Accounts Payable as a Balance Sheet Liability and Its Benefits |
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Business
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Payable are also sometimes known as Accounts Payable and represents money that is owed by a company to its suppliers. In simple words, it the managements of business bills those are unpaid. How it recorded on the Balance Sheet Let's say ABC wants to order a new LCD which is being released by XYZ. ABC orders 500,000 pieces for its stores. XYZ receives the order, and within a week, ships the LDC to one of ABC's warehouses. Included in the shipment is a bill (let's say XYZ charged ABC $50 per LCD for half a million pieces - that's $25 million). XYZ has already sent the LCDs to ABC, even though ABC hasn't paid a penny. In essence, ABC is buying on credit and promising to pay XYZ's the $25 million. The $25 million would go on ABC's balance sheet as AP. its Terms Generally a company that buys a product on credit sets a term for its AP. The term is the number of days supplier must pay their bill before they are charged a late fee, fine or turned over to a collection agency (most terms are, 30, 60 or 90 days). If XYZ sold the LCDs to ABC on a 30-day term, ABC must pay its bill during that time. While it is good, they can bring serious problems to a business if they aren't handled properly. What if ABC would not pay it on time then XYZ would have a right to take legal action against ABC. This would make vendors angry and possibly damaging the business' credit rating and can also stop future supply of goods. Once a consistent procedure is developed, the AP process can go smoothly. Benefits of account payable: It improves Strategic Vendor Relationship it improves accuracy of Information You can save huge amounts of profits through the outsourcing work monthly. Quarterly, half-yearly and annual reports are simply made available. Tax-related work is done without loss of man-hours at the company level. Every reference to any particular account can be assessed immediately and action taken. Pay the invoices on the due date as per the company's policies. Accounts Receivable (AR) It is money owed to a company by its customers and shown on its Balance Sheet as an asset. A well-prepared accounts receivable financing management function is important to the cash flow of any business. To have an effective accounts receivable financing function it requires an investment of time, talent, reliance and business resources. Kevin Clymer is a business manager at Heka Support Services having 10 years of experience in accounts payable and other accounting services. He has written many articles on accounts payable and Bank Reconciliation. For more information on accounts payable visit at http://www.fna.heka-finance.com
Related Articles -
Account Receivables, Bank Reconciliation, General Ledger, Accounts Payable,
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