Understanding The Implications Of Accounts Payable
Accounts payable is found in the credit side of a company's balance sheet statement
. It represents short - term liabilities. Differentiated from mortgage payables, accounts payable is a debt to be paid in no more than one year. So, every account payable item is liquidated in less than one year. Mortgage payable on the other hand is debt with maturity or payment term exceeding one year. Accounts payables are part of the company's current liabilities.The importance of accounts payable explains how one business should handle or manage its creditors. In manufacturing firms, these are usually the supplier of materials. Some may view this accounting term as straightforward. What is understood by a layman - it is a debt to be paid at a given maturity. This is treating it as an ordinary personal credit, which is not supposed to be the case.
There are some accounts payable that can be conceived in the light of a personal loan. Examples are utilities such as telephone, electricity, water or even credit cards. These are uniform in treatment of the company - you have the amount and the due date which usually fall on the same date every month. Recording of this account in the company's books may be handled by a different employee. When paid, the amount of payment will be treated as expense and the issuance of payment in form of checks are handled by another employee, maybe officer of the company.
The accounts payable must be treated with relative care. Scrutinize the provisions. Very common payment terms are similar to the following: within 30 days, net 30 or 2/10 net 30. Within 30 days implies that the account payable is to be paid within 30 days; 2/10 net 30 is a provision that allows for discounts. This 2/10 is a discount option where-in the supplier gives a 2 per cent discount when the amount is paid within 10 days but needs to be settled in 30 day time without discount.
Crucial to the treatment of accounts payable is monitoring the due date of each of the accounts payables. There are payables that even penalizes when payment is not done on the stipulated due date. With this, the firm may encounter additional expense instead of having accrued savings.
Even if your business is a small one and you do the payments to creditors by yourself, it is better still to understand and have familiarity with common payment terms. No matter how small the discount offered by a creditor, any amount is still a considerable savings when taken in the long run. Most of all, the accounts payable is an indication of billing process, something which is important in setting up a business.
Accounts payable will always be a part of a business financial statement. There will always be creditors and even simple utilities will be part of this account.
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