What is Accounts Payable - South Africa?
Accounts payable (AP), or "payables," refers to a company's short-term obligations owed to its creditors or suppliers, which have not yet been paid. Payables appear on a company's balance sheet as a current liability.
Monitor your AP spending and establish internal controls to protect your cash and assets. This will prevent you from paying for incorrect invoices. This will help prevent paying for incorrect invoices. Maintaining an organized and well-run accounts payable process is key so you remain aware of the effect AP has on your bottom line.
Accounts Payable vs. Trade Payables
Although some people use the phrases "accounts payable" and "trade payables" interchangeably, the phrases refer to similar but slightly different situations. Trade payables are the money owed by a company to its vendors for inventory-related goods. These goods can include business supplies or materials that are part of the inventory. Accounts payable include all the company's short-term obligations.
For example, if a restaurant owes money to a food or beverage company, those items are part of the inventory, and thus part of its trade payables.
Also, the company owes money to other companies for services like cleaning staff uniforms, which is categorized as accounts payable. Both categories are part of accounts payable, and many companies group them together under the term accounts payable.
What does accounts payable do?
The accounts payable department provides financial, administrative, and clerical support to an organization. This team handles all accounts payable tasks, such as coding, approving, paying, and reconciling vendor invoices. It is crucial for the company's accounting department.
The accounts payable team is responsible for improving the payment process. They make sure that payments are only made on legitimate and accurate bills and invoices. A good accounts payable department can save your organization time and money with the AP process.
With automation, AP teams can choose when to pay invoices to avoid late fees or take advantage of early pay discounts. They can also choose how to pay, whether it's by paper check, ACH, or virtual cards that offer cash-back rebates. Organizations, in turn, gain more control over outgoing cash and can even transform AP from a cost center to a profit center.
What is the accounts payable process?
The accounts payable process manages a company’s financial obligations to its creditors and vendors. The end-to-end process of accounts payable includes four distinct steps:
- Invoice capture usually involves entering invoice data (vendor details, line items, amounts, and GL coding) into a record system manually. This presents risks associated with accuracy and human error.
- Invoice approval: Invoice approval involves the review and approval of supplier invoices. Often, someone from the AP team literally walks the paper invoice around the office to obtain the necessary approvals. This happens prior to posting as a cost in the ERP and sending payment.
- Payment authorization: Once you have an invoice ready for payment, you must get authorization to make the payment. This includes the date you will submit the payment, the payment method, and the payment amount.
- Payment execution: After authorizing payment, we pay the invoice and send remittance details to the vendor. Oftentimes this involves printing, signing, and mailing checks, initiating ACH with the bank, or completing credit card payments. Now you can close the invoice out of the system and file it into various repositories.
Frequently asked questions
What does it mean when an account is payable?
Accounts payable (AP) defined
Accounts payable (AP) is an accounting term used to describe the money owed to vendors or suppliers for goods or services purchased on credit.
Is account payable a debit or credit?
Because accounts payable is a liability, it is a credit entry. The credit balance indicates the money owed to a supplier. When that balance is paid, your company should debit accounts payable, which decreases the credit balance.
What is accounts payable on a balance sheet example?
Accounts payable example
For example, if a company purchases goods for R880, it will record a R880 credit under accounts payable, and a R880 debit to the expense account. Once the company has paid the invoice, it will debit accounts payable by R880, and record a R880 credit to cash.
What is an example of accounts payable expenses?
Accounts payable differ from other types of current liabilities like short-term loans, accruals, proposed dividends and bills of exchange payable. Examples of accounts payable expenses may include (but are not limited to) things like:
- Transportation and logistics
- Raw materials
- Power / energy / fuel
- Products and equipment
- Leasing
- Licensing
- Services (assembly / subcontracting)
Should any of the goods or services listed above be purchased on credit by your organization, it is important to record the amount to AP immediately. This will ensure your balance sheet is kept up-to-date and accurately reports the total amount owed to your vendors, enabling transparency in your bookkeeping efforts and accounting process.
Payable vs Accounts Receivable - How Is Accounts Payable Different From Accounts Receivable?
Receivables represent funds owed to the firm for services rendered and are booked as an asset. Accounts payable, on the other hand, represent funds that the firm owes to others and are considered a type of accrual. For example, payments due to suppliers or creditors. Payables are booked as liabilities.
Are Accounts Payable Business Expenses?
No. Some people mistakenly believe that accounts payable refer to the routine expenses of a company’s core operations, however, that is an incorrect interpretation of the term. The company income statement shows expenses, and the balance sheet records payables as a liability.
What is the job description of accounts payable?
The role of an Accounts Payable Clerk is to provide financial and administrative support for the organization. They process payments, verify invoices and reconcile all expenses to keep track of what's going out of the business.
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