The record of all unpaid amounts owed to suppliers on any given date by a business.
Accounts Payable Definition and Information
Here is a step by step process from the time a business places an order to the time the bill is paid:-
The business opens an account with a supplier.
The business orders goods from the supplier.
The supplier provides an invoice for the goods.
The invoice has to be paid within a certain number of days such as 7 or 30.
The business enters the invoice into their bookkeeping system.
The business regularly checks their accounts payable list.
When a bill shows up on the list as due now the business pays it.
The paid invoice is removed from the accounts payable list.
Recording Accounts Payable
When the invoice is entered into the bookkeeping system the following details are recorded:
The date of the invoice
The supplier name
The supplier address and contact details
The quantity of goods
The description of goods
The cost of the goods
The total that is due to be paid
The date the bill is due for payment
Go herefor more info on how to reconcile accounts payable and to download an excel template to record your list of unpaid bills.
The accounts payable ledger will only show a summary of the invoice details:-
Date of invoice
Amount of invoice
Name of Supplier
Due date of payment
Overdue Accounts Payable
An invoice that has past the due date is called an overdue invoice, it is over the due date.
This overdue bill will remain on the accounts payable list until it is paid.
If the list of overdue invoices keeps increasing because the business does not have enough funds to pay, the owner/manager needs to investigate why there is not enough funds and rectify the issue as soon as possible.
Accounts Payable Definition
A huge debt can kill a business.
A dissatisfied supplier might pass the overdue invoice to a debt collection agency.
The debt collection agency will charge fees which have to be paid by the business, not the supplier, so in the end the business will end up paying way more than the original invoice amount.
The fees are coded to ‘collection fees’ expense on the chart of accounts.
Accounts payable are a liability to a business. The dictionary defines this as a legal responsibility, or in simple terms a burden and a problem!
Accounts Payable Journal Entry
This is based on goods purchased to the value of $100.00, and collection fees of $10.00
New purchase invoice
Debit Expense account $100.00
Credit Accounts Payable $100.00
Recording collection fees
Debit Collection fees $10.00 Credit Bank account $10.00
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