Accounting for accounts payable

The accounting for accounts payable involves the recordation and payment of liabilities. This is the primary functional area through which a business records expenses and pays other parties.

The key accounts payable accounting tasks are as follows:

  1. Invoice verification. The first step in accounting for accounts payable is to ensure that all incoming invoices from suppliers are valid. There are two ways to do so. One option is to have an authorized employee approve each invoice. The other option is to compare the information on each invoice to the authorizing purchase order and receiving documentation, which is called three-way matching. Since both options are labor-intensive, it is customary to not verify invoices having small dollar totals.
  2. Invoice recordation. Once an invoice has been verified, the accountant enters the amount owed in the accounts payable software. The information entered includes the supplier name, invoice date, and invoice amount. The related accounting entry generated by the accounting software is always a credit to the accounts payable account. The offsetting debit may be either to an expense or asset account.
  3. Invoice payment. When an invoice is due for payment, the accountant sets it up for payment through the accounting software. This typically means that a preliminary check register is run and reviewed to ensure that all items scheduled for payment should actually be paid. If so, check stock is loaded into a printer and checks are printed. Supporting information is attached to each check and then forwarded to a check signer, who reviews each packet of information for errors and then signs the checks. An alternative is to send electronic payments directly into the bank accounts of suppliers. Following payment, all payment information is stapled together and filed by supplier name.

There are a number of additional tasks involved in the accounting for accounts payable, including the following:

  • Periodically reconcile the accounts payable account, to ensure that the account balance matches the actual amounts owed to suppliers.
  • Send 1099 forms to suppliers following the end of the calendar year, if aggregate payments to them exceed a threshold amount.
  • Contact suppliers to ensure that they have cashed all checks sent to them; otherwise, uncashed check amounts may have to be forwarded to a state government as unclaimed property.

Related Courses

Payables Management