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Lessons on Accounts Payable In accounting terms, accounts payable is an accounting entry which represents an entity’s responsibility to pay off its short period debt to its creditors, and the accounts payable amount is entered into under the heading current liabilities. Further, to have a better understanding of accounts payable, it can also be described as when a company orders and receives goods (or services) in advance of paying for them, that company is purchasing goods “on account” or “on credit.,” and the vendor’s bill or invoice will be recorded by the company in its liability account titled Accounts Payable. As soon as the vendor’s invoice is recorded, the amount representing accounts payable will be entered as credit and for it to be balanced, another account must be debited. The value of accounts payable is entered into the debit column and Cash will be credited when the account payable is paid, and, therefore, the credit balance in accounts payable becomes equal to the amount reflected in the vendor’s invoice which has already been recorded but have not been actually paid yet. The process of accounts payable may also point to an accountant in the business department or account personnel who process the vendor invoices for payment of the company’s bills.
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Accounts payable are basically a short-term debt, but there are also other short-term business debts, which includes payroll costs, business income taxes and short-term loans. Lease payments, retirement benefits, individual notes payable and a range of other debts repaid over a long term are known as long-term debts.
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Trade payable is more long-term than accounts payable, because it refers to all the money a company owes the vendors for the business supplies and materials, which is included in the company’s inventory. Accounts receivables refers to the money that is owed to the company; therefore, the term is opposite in meaning to accounts payable. In the process of accounting for accounts payable, an enormous amount of detail must be reviewed to ensure that only legitimate and accurate amounts are entered in the accounting system, and the following documents are considered for review: purchase orders issued by the company, receiving reports issued by the company, invoices from the company’s vendors, contracts and agreements. The financial statements of a company can reflect an accurate and complete reporting if the accounts payable process is well-run, which accounts for including the following procedures: the timely processing of accurate and legitimate vendor invoices, accurate recording in the appropriate general ledger accounts, and the accrual of obligations and expenses that have not yet been completely processed. Currently, business process automation, which is accounts payable automation software, has been introduced to manage accounts payable, which has helped a lot in maintaining accurate reporting, as well as reduced the time needed to process an invoice. Another benefit of accounts payable automation software is that there won’t be any misplaced invoice anymore and payable is directed instantaneously and accordingly.