Accounts payable are amounts due to vendors or suppliers for materials and services received. It is located in the current liabilities section of the balance sheet. For more information or an in-depth article, read: Accounts Payable Management. If you want a more sophisticated understanding, read: Accounts Payable Turnover Rate
Of all the assets in business cash is the most valuable and coveted. Keeping track of how much is available and where it goes is the responsibility of the bookkeeper. Often owners have no idea of how much they really have nor how much of the existing cash is earmarked for certain items.
With small business, the biggest heartache for the bookkeeper is addressing the daily phone calls and letters (bills, statements and notices) related to purchases. Vendors regularly communicate with the accounts payable manager wanting to know payment cycles and status of their respective account.
Generally Accepted Accounting Principles (GAAP) advocates using the accrual basis of accounting over cash basis. The difference between the two methods is important to understand as a bookkeeper.
The accounts payable turnover rate is a business activity ratio measuring the frequency of the company’s ability to pay its vendors and suppliers. The numerical value is customarily reported as an annual value. The higher the number, the more often the payables are cleared (paid). A ’12’ would indicate that all payables are paid every month (360 days/12 = 30 days). Ideal values exceed 20 as this indicates all accounts are paid on average at least every 18 days (360 days/20 = 18 days).
Accounting uses control accounts to sum up activity related to a particular function of business. As an example the bank account has a register which identifies the activity in a ledger format of what transpires at the bank for this particular account.
The current liabilities section of the balance sheet identifies those amounts due to third parties within the current year. These include accounts payable, credit card accounts, accrued payroll, taxes, unearned revenue, deposits and those amounts due within one year related to debt instruments.
Creating a file structure for accounting is critical for the overall success of the business. If properly structured, data retrieval and information access add to the overall value of the company. This article teaches the new business owner how to create a file structure to use with accounting.
The primary goal of creating a file structure is to make data retrieval easy and understandable by just about anyone involved in office operations. Keep in mind that the end user is how the structure is developed. From a simple format to a more complicated structure incorporating the entire office, the file structure should be organized in a systematic approach. First, break down the accounting function into the respective areas of importance. Next, subdivide these areas by accounting cycles. Finally, incorporate the accounting software function and the overall office to end up with a well-organized file structure for the company.
Cash flow is the ability of a business to turn its product or service into cash. It is generally measured in dollars or in dollars against a time period. The simplest example I can think of is a child selling lemonade.
