Accounts Payable

Office Management

The accounts payable function includes the processing of invoices for payment and verification that the total of unpaid invoices at month end is equal to the accounts payable balance in the general ledger.

A purchase order system should be employee as a means of controlling expenditures and to assist in processing accounts payable.

Authority to issue purchase orders should be restricted to as few persons as necessary. Generally, only department managers should be the only employees authorized to issue purchase orders. The type of materials or services that may be contracted for and the dollar limitations should also be defined.

A purchase order should be issued for the purchase of all outside materials and services, except for minor purchases through petty cash.

A purchase order should be prepared in triplicate and should include the vendor’s name, shipping instructions, description of purchase, quantity, unit price, terms of payment and total amount. If the material or service is to be used in connection with a repair order, the repair order number should also be shown. Copies of the purchase order should be distributed as follows:

1. Original—to vendor
2. Copy—to accounting
3. Copy—to be retained by issuer

The following is a description of a voucher system for recording and payment of vendors’ invoices. The voucher register is a combination purchase journal and accounts payable register. A simple way of maintaining vendor accounts is to prepare for each vendor a folder or voucher jacket into which all invoices, purchase orders, packing slips and statements can be filed prior to matching and vouchering for payment. Before an invoice is approved for payment, it should be verified that the material or service has been received. The invoice should then be matched to the purchase order to insure that prices and quantities are correct, and all extensions and footings should be checked for accuracy.

For those vendors from whom more than one invoice is expected during the month, all invoice processing should be done at the end of the month so that total vendor charges can be posted to the purchase journal as one entry rather than by individual invoices. If the volume of accounts payable invoice processing is larger, it may be advisable to record purchases in the purchase journal during the month rather than holding them until month end.

When payment is made, check numbers should be entered in the purchase journal opposite the invoice amounts and the total monthly disbursement for accounts payable should be entered as one item in the cash disbursements journal. This avoids duplicating vendors’ names and amounts in the cash disbursements journal.

The balance in the purchase journal should represent the month-end accounts payable liability. Detailed accounts payable ledger cards need not be maintained. If total purchases from individual vendors are required, this information can be obtained form the files of paid invoices.