5.3: Accounts Payable
Accounts payable are the unpaid bills of the business; the money you owe to your suppliers and other creditors. The sum of the amounts you owe to your suppliers is listed as a current liability on your balance sheet. You will often see Accounts Payable abbreviated as A/P.
If you use the accrual basis of accounting, as we recommend, expenses are recorded in the cash disbursements journal at the time the goods or services are purchased, even if you buy on credit. If you deal with a given supplier many times during the month, you don’t have to record every purchase. You could accumulate all bills for the month from that supplier, then record one transaction in the purchases journal at the end of the month. You should keep an accounts payable ledger account for each supplier.
Expenses from the cash disbursements journal are posted to the appropriate accounts payable ledger at the end of each day. The accounts payable ledger is a record of what you owe each vendor. The general ledger contains an accounts payable account, which is your accounts payable control account. The cash disbursements journal has accounts payable credit and debit columns. Credit purchases and payments on account are entered in these two columns, respectively. At the end of the month they are totalled and posted to the control account in the general ledger.
Accounts payable ledgers. Accounts payable ledgers will help you control your expenditures and payables. If you maintain accurate payable ledgers, it will be easy for you to double check the invoices you get from your suppliers. At the end of the month, reconcile your accounts payable ledgers with the accounts payable control account. The control account is the total accounts payable balance from your general ledger.
The beginning accounts payable total, plus purchases on account during the month, minus payments on account during the month, should equal the ending accounts payable total. Compare this amount to the sum of the individual accounts payable ledgers. This will help you discover any errors you made in recording your payables. Reconciliation might also help you catch any errors on vendor bills. An accounts payable aging report is a good cash management tool that should be prepared periodically. It will help you plan the timing and amount of your cash disbursements.