Six must read tips for accounts payable best practices

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By Proformative

We are living in times when there is a ‘best practices’ module in every field. Accounting is a field with written rules (IFRS etc) that must be followed at all times. However, in addition to such rules, there are some other practices that one can follow to further improve the accounting procedures. Explained below are six such accounts payable best practices that every company should follow.

 

Have a clear cut policy

It is very important to have a clear cut policy regarding everything related to accounts payable. It is very crucial to have a well-explained, concrete policy so that there is no vagueness. A policy basically serves like a manual that one can refer to in case any problem arises.

If every accountant/clerk uses the method that suits him/her the best, there will be havoc in the office making it difficult for managers to manage things. With well-explained policies, it is easier to streamline and gauge work.

Some suggested policies include:

• Entering invoices individually and making sure they are logged before approval.

• All invoices having account codes and special handling notes on them.

A business can make policies according to the nature of the business. However, they should always follow accounting guidelines.

 

Have a strong communication process

It is very important to have a strong chain of communication. The policies you prepare must be communicated well to everyone who should know it. There is no point in preparing policies if they are not communicated properly.

Everyone should know his/her job well so that perfection can be achieved. Every point such as method of filing and approving invoices should be clear cut. They should be written in such a way that it is easy to comprehend so that there is no possibility of confusion. 

Additionally, stay in touch with the vendors too. A good option is to send them a welcome letter informing them of the information you need to process their invoices etc. Vendors will also appreciate such a move as it gives them a feeling of security, as they know that the other party is working towards clearing the payment.

 

Have the right person for the job

It is important to have the right person doing the right job. Firstly, the individual who is entering the invoices should differ from the individual who is signing and approving the invoices.  Such a move will help reduce the risk of cheating or scams. Always choose the person who knows the job well and is interested in putting efforts.

 

Always double check

Human errors are very common. It is important to keep an eye on things and double check every figure before noting it down. Additionally, every invoice is required to be noted down as billed, even if the company is not planning to pay the whole amount. In such a scenario, a credit note should be matched and entered against the bill.

 

Avail discounts

More often than not, you might be in a position to avail discounts. The secret lies in paying attention to every invoice and seeing if you are eligible for any discount. Sometimes, vendors offer discounts (such as cash discounts, which are generally based on paying the amount within a specified time) that can help you save money.

 

Gather all the necessary documents

It is important that you keep all important documents (invoices, deposit slips), as they may be needed at a later stage for confirmation or other purposes. Additionally, try to make all the payments from original invoices. However, if this is not possible, make sure you verify your records for the amount and invoice number.

In addition to this, make sure of the presence of a W-9 on file for every vendor before you make the payment. This move will save you from year-end hassle that one has to bear in the preparation of 1099s. You may end up paying hefty fines for a lack of compliance with 1099 requirements for reporting.

Implement these account payable practices in your business and you will find an improvement in your company’s workflow. These points will not only help you keep a tab on everything, but you will also be in a position to save money by cutting down on penalties and availing discounts. The key lies in having well-defined policies and making sure that they are fully implemented.

Sources: wikipedia.org, proformative.com

Understanding the Income Statement

Income statements are one of three high profile accounting documents that summarize a companies earnings after expenses have been subtracted from revenue. The income statement is a statement of corporate profitability for a given time period whether it be quarterly or annually. Depending on whether a company is private or public, income statements are either made public via the securities and exchange commission in the case of public companies or private only made viewable by key corporate and ownership parties of interest.

The income statement is important because it demonstrates to corporate ownership how a company is performing, The income statement is also a necessary document for tax reporting requirements and is thus essential. These documents can also be audited by accounting organizations that do not have an obvious conflict of interest. Statements by auditors claiming the income statements comply with Generally Accepted Accounting Principles (GAAP) provide some credibility to the accuracy of the income statement.

Income statement items

The income statement is broken down into several lines on which positive or numerical values appear. These values may appear on a number of financial reports such as 10K annual reports, corporate prospectus', financial websites, or as downloaded or prepared on spreadsheets. The positive values are associated with income from revenue, and the negative values include cost of goods sold, expenses, depreciation, amortization and dividends paid. The retained earnings at the bottom of an income statement is often considered the most important number on the income statement, hence the phrase 'the bottom line'.  This number reflects the amount of revenue not spent by the company and may increase the net worth of the company and its shareholders. Some of the key values are listed below:

• Sales or Revenue: This is hopefully a positive number at the top of the statement
• Operating Expenses or Cost of Goods Sold (COG): This is always a negative number
• Net earnings after COG: This is the difference between Sales and COG
• Depreciation and Taxes: Also a negative number subtracted from Net earnings
• Net Earnings after Depreciation and Tax: Hopefully earnings are still positive
• Dividends paid out: This is a negative number that is subtracted from the last net earnings.
• Retained Earnings: After all is subtracted and tallied what is left is either a net gain or loss for the company.

Not every income statement is exactly the same as some companies don't pay dividends or have property that depreciates. For example, a small sole proprietorship or partnership may have no shareholders or dividend paying shares. They may also have had a net loss the prior year which can be carried forward to the following years gains reducing or eliminating taxes. Thus, there are unique tax related and business type factors that influence what expenses a business has to put on its income statement.

Income statements are financial statements that report a companies revenue, expenses and retained earnings for a period of time. These documents are snapshots of a company's financial performance and can also be used for calculating financial profitability metrics such as return on revenue (ROE), and Profit Margin on Sales. Income statements are also required by the Internal Revenue Service in order to report taxable earnings if any. 

These financial statements can be prepared by accountants or those familiar with a company's finances and financial record keeping. Income statements are considered important documents by shareholders, corporation owners and taxation authorities because of their ability to illustrate a company's financial performance. Income statements are either prepared every 3 months of a fiscal year or 1 time a year or both quarterly and annually.