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What is the Process for Tracking Accounts Payable?

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The process for tracking and paying accounts payable begins with the decision to order supplies or materials. Once that decision has been made a purchase order is completed, giving authorization to the appropriate personnel to place the order through a supplier. Once that purchase order is drawn up and the order placed, the Accounts Payable Department takes over, following the order from start to end.

To do this, most companies make use of accounts payable software, which links purchase orders, invoices, receipts, and notations that final payment has been made. However, whether the tracking is done by computer or by hand, the process is the same.

With some minor variations, the steps for tracking accounts payable will follow these guidelines:

1. A purchase order will be completed.
2. The order will be placed or the purchase made.
3. The expense will be recorded in a cash disbursement journal, even if the purchase was made on credit. Both purchases and payments are noted in the cash disbursement journal, each in their own column, and this journal will be balanced against the total accounts payable in the general ledger at the end of the month.
4. The purchase will be noted in an accounts payable ledger set up for that particular supplier. The accounts payable ledger is a record of the total amount the business owes that one supplier. The total of all accounts payable is balanced against the accounts payable line in the general ledger.

Reconciliation (balancing) the cash disbursement journal, the general ledger and the control account against the accounts payable ledger ensures against input errors. This system of balancing the different ledgers also prevents costly mistakes such as overpayment of any one invoice. This system can also help discover any errors which might appear on bills or invoices from the vendors.

Next Page: Can Accounts Payable Help a Business Maintain a Sound Financial Status?

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