If you work in an accounting environment, one of the tasks you might have to complete is accounts payable ledger procedures. I started my career working in a University finance department, as a purchase ledger clerk.
We have included details on the definition, procedures for both large and small businesses, journal entry and an Excel Template.
Accounts Payable Definition
The definition of accounts payable is the money owed to suppliers for goods or services that have been purchased on credit. Each invoice is recorded to the accounting software and will be shown as a liability on the Balance Sheet.
Accounts payable procedures
Depending on the size of your business will depend on the procedures that you will need to put in place. A small self-employed person will likely know the invoices are coming in and can keep the process simple. As part of a large organisation, invoices may need matching to purchase orders and signed off by a manager.
- Open a credit account with a supplier and agree on terms; you may need to complete a credit application form.
- Purchase goods from the supplier, either verbally, the supplier issues a quote or issue a purchase order to the supplier.
- Goods or services received from the supplier.
- Purchase invoice or bill received from the supplier. Ensure that all the details are correct, if anything is wrong, sort it out immediately.
- Record the invoice in accounting software or manual system.
- File the invoice in a pending folder.
- When the invoice is due, pay it, it is useful to pay invoices in a batch and set payment dates.
- File invoice in the paid folder.
How to File Purchase Invoices
The best solution is to set up 2 folders, 1 for unpaid and 1 for paid. In the unpaid folder, file them either by date order for when they are due or by the supplier name. The paid folder is best filed by supplier name and then by date, with the newest on the top, as a result they are easier to find.
If you are aiming for a paperless office set up files on your computer for Purchase invoice > Month > and use the invoice number to save them.
The reason for setting up the files in this way is that if you need to refer back to the invoices in the future, they are easy to find.
Accounts Payable Ledger Journal Entry
Every transaction in accounts is double entry, so if an item is posted to one account and an equal amount is posted to another account. An example journal posting is of an invoice for 87.00 for stationery is:
Debit Expense account (stationery) 87.00
Credit Accounts Payable 87.00
When you pay the invoice the journal entry will be as follows:
Debit Accounts Payable 87.00
Credit Bank 87.00
Accounts Payable Template
If you use an accounting software package, one of the reports will be an aged payable report, which lists all the outstanding invoices by the customer and due dates. If you are using a manual system, then our spreadsheet will help keep track of outstanding amounts.
Find full details and instructions at accounts payable template.