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
Accounts Payable is part of the Balance Sheet and is in the section of current liabilities. It is money owed to suppliers for services or products purchased on credit.
Accounts Payable will also include invoices from Utility companies, car lease or anything else which a supplier invoice is issued and paid at a later date.
Some businesses may call it a purchase or creditors ledger.
Accounts Payable Cycle
Below is an image showing the accounts payable cycle, from deciding on the goods or services required through to paying the invoice. Each section is broken down with further details.
Accounts payable procedures
Depending on the size of your business will depend on the systems 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.
- Decide on the goods or services to order from a supplier. If you have a stock control system in place, it will notify you when stock needs reordering.
- If you haven’t already got one find a supplier, it is worth getting several quotations to ensure the best price. Open a credit account with a supplier and agree on terms; you may need to complete a credit application form. If you need to provide references, it is worth checking if they are willing to offer them.
- Purchase goods from the supplier, either verbally, issue a purchase order to the supplier or they may issue a quotation. If you provide a purchase order, ensure that it includes all the details; purchase order number, order date, full description, quantity, amount and delivery date.
- Goods or services received from the supplier.
- Ensure that the correct goods, quantities and condition are what you ordered.
- When you receive a purchase invoice or bill received from the supplier, ensure that all the details are correct, if anything is wrong, sort it out immediately with the supplier.
- Match the invoice to the purchase order and get authorisation from a manager if required.
- Record the invoice in accounting software or manual system. File the invoice in a pending folder ready for payment.
- When the invoice is due, pay it, it is useful to pay invoices in a batch and set payment dates. File the invoice in the paid folder.
How to File Purchase Invoices
The best solution is to set up two folders, 1 for unpaid and 1 for paid. In the outstanding 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 you post an item to one account, 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 Ledger Template
If you use an accounting software package like Xero or Quickbooks, 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. The accounts payable template will allow you to list all the invoices including date, reference, credit terms and amount. The report will show you when invoices are due and a total figure for invoices due for a set period.
Find full details and instructions at accounts payable template.
Return from Accounts Payable Ledger to Bookkeeping Basics.