Accounts Payable

(Explanation)

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Introduction to Accounts Payable
Account payable is defined in Websters New Universal Unabridged Dictionary as:

account payable, pl. accounts payable. a liability to a creditor, carried on open account,
usually for purchases of goods and services. [1935-40]

When a company orders and receives goods (or services) in advance of paying for them, we say
that the company is purchasing the goods on account or on credit. The supplier (or vendor) of the
goods on credit is also referred to as a creditor. If the company receiving the goods does not sign a
promissory note, the vendors bill or invoice will be recorded by the company in its liability account
Accounts Payable (or Trade Payables).

As is expected for a liability account, Accounts Payable will normally have a credit balance. Hence,
when a vendor invoice is recorded, Accounts Payable will be credited and another account must
be debited (as required by double-entry accounting). When an account payable is paid, Accounts
Payable will be debited and Cash will be credited. Therefore, the credit balance in Accounts Payable
should be equal to the amount of vendor invoices that have been recorded but have not yet been
paid.

Under the accrual method of accounting, the company receiving goods or services on credit must
report the liability no later than the date they were received. The same date is used to record the
debit entry to an expense or asset account as appropriate. Hence, accountants say that under the
accrual method of accounting expenses are reported when they are incurred (not when they are
paid).

The term accounts payable can also refer to the person or staff that processes vendor invoices and
pays the companys bills. Thats why a supplier who hasnt received payment from a customer will
phone and ask to speak with accounts payable.

The accounts payable process involves reviewing an enormous amount of detail to ensure that only
legitimate and accurate amounts are entered in the accounting system. Much of the information that
needs to be reviewed will be found in the following documents:

purchase orders issued by the company

receiving reports issued by the company
invoices from the companys vendors
contracts and other agreements

The accuracy and completeness of a companys financial statements are dependent on the accounts
payable process. A well-run accounts payable process will include:

the timely processing of accurate and legitimate vendor invoices,

accurate recording in the appropriate general ledger accounts, and
the accrual of obligations and expenses that have not yet been completely processed.

The efficiency and effectiveness of the accounts payable process will also affect the companys cash
position, credit rating, and relationships with its suppliers.

An Account Payable Is Another Companys Account Receivable

It may be helpful to note that an account payable at one company is an account receivable for
the vendor that issued the sales invoice. To illustrate this, lets assume that DeliverCorp provides

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a service for YourCo at a cost of $600 on May 1 and sends an invoice dated May 1 for $600. The
invoice specifies that the amount will be due in 30 days. (We will assume throughout our explanation
that the companies follow the accrual method of accounting.)

The following table highlights the symmetry between a companys account payable and its vendors
account receivable.

YourCos account payable DeliveryCorps account receivable

Also known as a trade payable. Also known as a trade receivable.

A $600 obligation to the vendor DeliverCorp A right to receive $600 from its customer YourCo
resulting from a service on account (or on credit). as a result of providing a service on account (or
on credit).

Recorded in the general ledger account Accounts Recorded in the general ledger account Accounts
Payable as of May 1. Receivable as of May 1.

Delivery expense of $600 is also recorded as of Delivery revenue of $600 is also recorded as of
May 1. May 1.

The payable and the expense are documented The receivable and the revenue are documented
by the vendors sales invoice. by its sales invoice.

YourCo is the debtor. DeliverCorp is the creditor (and is usually an

unsecured creditor).

The following table focuses on the general ledger accounts: Accounts Payable and Accounts
Receivable.

YourCo's general ledger account DeliverCorp's general ledger account

Accounts Payable Accounts Receivable

A current liability account. A current asset account.

This account is credited for the goods and/or This account is debited for the goods and/or
services received on account (on credit) as services it provided on credit and billed on one of
shown on the vendor invoice. its sales invoices.

When YourCo pays for a previously recorded When DeliverCorp receives an amount that was
vendor invoice, this account is debited. due on one of its accounts receivable, this
account is credited.

This account should have a credit balance. This account should have a debit balance.

The balance in this account reports the amounts The balance in this account reports the amounts
that YourCo owes for the vendor invoices it has that DeliverCorp has not yet collected from the
recorded but has not yet paid. sales invoices it has recorded.

An increase in this account balance is viewed as An increase in this account balance is viewed as
positive for YourCo's cash flows from operating negative for DeliverCorp's cash flows from
activities. operating activities.

A decrease in this account balance is viewed as A decrease in this account balance is viewed as
negative for YourCo's cash flows from operating positive for DeliverCorp's cash flows from
activities. operating activities.

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Accounts Payable Process
The accounts payable process or function is immensely important since it involves nearly all of a
companys payments outside of payroll. The accounts payable process might be carried out by an
accounts payable department in a large corporation, by a small staff in a medium-sized company, or
by a bookkeeper or perhaps the owner in a small business.

Regardless of the companys size, the mission of accounts payable is to pay only the companys
bills and invoices that are legitimate and accurate. This means that before a vendors invoice is
entered into the accounting records and scheduled for payment, the invoice must reflect:

what the company had ordered

what the company has received
the proper unit costs, calculations, totals, terms, etc.

To safeguard a companys cash and other assets, the accounts payable process should have
internal controls. A few reasons for internal controls are to:

prevent paying a fraudulent invoice

prevent paying an inaccurate invoice
prevent paying a vendor invoice twice
be certain that all vendor invoices are accounted for

Periodically companies should seek professional assistance to improve its internal controls.

The accounts payable process must also be efficient and accurate in order for the companys
financial statements to be accurate and complete. Because of double-entry accounting an omission
of a vendor invoice will actually cause two accounts to report incorrect amounts. For example, if a
repair expense is not recorded in a timely manner:

1. the liability will be omitted from the balance sheet, and

2. the repair expense will be omitted from the income statement.

If the vendor invoice for a repair is recorded twice, there will be two problems as well:

1. the liabilities will be overstated, and

2. repairs expense will be overstated.

In other words, without the accounts payable process being up-to-date and well run, the companys
management and other users of the financial statements will be receiving inaccurate feedback on the
companys performance and financial position.

A poorly run accounts payable process can also mean missing a discount for paying some bills early.
If vendor invoices are not paid when they become due, supplier relationships could be strained. This
may lead to some vendors demanding cash on delivery. If that were to occur it could have extreme
consequences for a cash-strapped company.

Just as delays in paying bills can cause problems, so could paying bills too soon. If vendor invoices
are paid earlier than necessary, there may not be cash available to pay some other bills by their due
dates.

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Purchase order

A purchase order or PO is prepared by a company to communicate and document precisely what the
company is ordering from a vendor. The paper version of a purchase order is a multi-copy form with
copies distributed to several people. The people or departments receiving a copy of the PO include:

the person requesting that a PO be issued for the goods or services

the accounts payable department
the receiving department
the vendor
the person preparing the purchase order

The purchase order will indicate a PO number, date prepared, company name, vendor name, name
and phone number of a contact person, a description of the items being purchased, the quantity, unit
prices, shipping method, date needed, and other pertinent information.

One copy of the purchase order will be used in the three-way match, which we will discuss later.

Receiving report

A receiving report is a companys documentation of the goods it has received. The receiving report
may be a paper form or it may be a computer entry. The quantity and description of the goods shown
on the receiving report should be compared to the information on the companys purchase order.

After the receiving report and purchase order information are reconciled, they need to be compared
to the vendor invoice. Hence, the receiving report is the second of the three documents in the three-
way match (which will be discussed shortly).

Vendor Invoice

The supplier or vendor will send an invoice to the company that had received the goods and/
or services on credit. When the invoice or bill is received, the customer will refer to it as a vendor
invoice. Each vendor invoice is routed to accounts payable for processing. After the invoice is verified
and approved, the amount will be credited to the companys Accounts Payable account and will also
be debited to another account (often as an expense or asset).

A common technique for verifying a vendor invoice is the three-way match.

Three-way match

The accounts payable process often uses a technique known as the three-way match to assure that
only valid and accurate vendor invoices are recorded and paid. The three-way match involves the
following:

Document What it shows

1. Company purchase order What the company had ordered and at what cost.

2. Company receiving report What the company has received.

3. Vendor invoice What the vendor billed the company.

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Only when the details in the three documents are in agreement will a vendors invoice be entered
into the Accounts Payable account and scheduled for payment.

Good internal control of a companys resources is enhanced when the company assigns a separate
employee with a specific, limited responsibility. The following chart illustrates the concept of the
separation (or segregation) of duties involving accounts payable:

Person #1 Prepares the company's purchase orders (POs)

Person #2 Prepares the company's receiving reports

Person #3 Compares each PO, receiving report and vendor invoice

Person #4 Pays the vendors

When the duties are separated, it will require more than one dishonest person to steal from the
company. Hence, small companies without sufficient staff to separate employees responsibilities will
have a greater risk of theft.

To illustrate the three-way match, lets assume that BuyerCo needs 10 cartridges of toner for its
printers. BuyerCo issues a purchase order to SupplierCorp for 10 cartridges at $60 per cartridge
that are to be delivered in 10 days. One copy of the PO is sent to SupplierCorp, one copy goes to
the person requisitioning the cartridges, one copy goes to the receiving department, one copy goes
to accounts payable, and one copy is retained by the person preparing the PO. When BuyerCo
receives the cartridges, a receiving report is prepared.

The three-way match involves comparing the following information:

1. The description, quantity, cost and terms on the companys purchase order.
2. The description and quantity of goods shown on the receiving report.
3. The description, quantity, cost, terms, and math on the vendor invoice.

After determining that the information reconciles, the vendor invoice can be entered into the liability
account Accounts Payable. The information entered into the accounting software will include
invoice reference information (vendor name or code, invoice number and date, etc.), the amount
to be credited to Accounts Payable, the amount(s) and account(s) to be debited and the date that
the payment is to be made. The payment date is based on the terms shown on the invoice and the
companys policy for making payments.

Lastly, the documents should be stamped or perforated to indicate they have been entered into the
accounting system thus avoiding a duplicate payment.

Vouchers

Some companies use a voucher in order to document or vouch for the completeness of the
approval process. You can visualize a voucher as a cover sheet for attaching the supporting
documents (purchase order, receiving report, vendors invoice, etc.) and for noting the approvals,
account numbers, and other information for each vendor invoice or bill.

When the vendor invoice is paid, the voucher and its attachments (including a copy of the check that

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was issued) will be stored in a paid voucher/invoice file. If paper documents are involved, an office
machine could perforate the word PAID through the voucher and its attachments. This is done to
assure that a duplicate payment will not occur.

The unpaid invoices and vouchers will be held in an open file.

Vendor invoices without purchase orders or receiving reports

Not all vendor invoices will have purchase orders or receiving reports. Hence, the three-way match
is not always possible. For example, a company does not issue a purchase order to its electric utility
for a pre-established amount of electricity for the following month. The same is true for the telephone,
natural gas, sewer and water, freight-in, and so on.

There are also payments that are required every month in order to fulfill lease agreements or other
contracts. Examples include the monthly rent for a storage facility, office rent, automobile payments,
equipment leases, maintenance agreements, etc. Even though these obligations will not have
purchase orders, the responsibility is unchanged: pay only the amounts that are legitimate and
accurate.

Statements from vendors

Vendors often send statements to their customers to indicate the amounts (listed by invoice number)
that remain unpaid. When a vendor statement is received the details on the statement should be
compared to the companys records.

The fact that a company can be receiving both invoices and statements from a vendor means there
is the potential of a duplicate payment. In order to avoid making a duplicate payment, companies
often establish the following rule: Pay only from vendor invoices; never pay from vendor statements.

Related Expense or Asset

The vendor invoices received by a company could involve the following:

1. A vendor invoice may be a bill for a repair or maintenance service. The vendors credit
terms allow the company to pay 30 days after the date of the service. Since repairs and
maintenance do not create more assets, the cost of the service should be reported on the
income statement as an expense. Under the accrual method of accounting the expense is
reported in the accounting period in which the service occurred (not the period in which it is
paid). Other examples of expenses include the cost of office expenses such as electricity and
telephone, consulting, and more.

2. A vendor invoice may be a bill for the purchase of expensive equipment that will be used
by the company for several years. The equipment will be recorded as an asset and will be
reported in the companys balance sheet section property, plant and equipment. As the
equipment is utilized, its cost will be moved from the balance sheet to the income statement
account Depreciation Expense.

3. Another vendor invoice may be a billing for the cost of a service that the vendor will provide
in the future, but the payment must be made in advance. A common example is an insurance
companys invoice for the premiums covering the next six months of insurance on the
companys automobiles. The company will initially debit the invoice amount to a current asset
such as Prepaid Expenses. As the insurance expires, the cost will be allocated to Insurance
Expense.

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The following table illustrates an insurance premium of $6,000 that is paid in December but the
coverage is for the following January 1 through June 30:

Dec Jan Feb Mar Apr May June

Payment $6,000 $ - $ - $ - $ - $ - $ -
Expense (expiring) - 1,000 1,000 1,000 1,000 1,000 1,000
Prepaid at end of month 6,000 5,000 4,000 3,000 2,000 1,000 -

The three examples illustrate that some vendor invoices will be immediately recorded as expenses
while other invoices are initially recorded as assets. The accounts payable staff needs to be
instructed as to the proper accounts to be debited when vendor invoices are entered as credits to
Accounts Payable. Generally, a cost that is used up and has no future economic value that can be
measured is debited immediately to expense. Vendor invoices for property, plant and equipment are
not expensed immediately. Instead, the cost is recorded in a balance sheet asset account and will be
expensed in increments during the assets useful life. Lastly, a prepaid expense is initially recorded in
a current asset account and will be allocated to expense as the cost expires.

End of the Period Cut-Off

At the end of every accounting period (year, quarter, month, 5-week period, etc.) it is important that
the accounts payable processing be up-to-date. If it is not up-to-date, the income statement for the
accounting period will likely be omitting some expenses and the balance sheet at the end of the
accounting period will be omitting some liabilities.

During the first few days after an accounting period ends, it is important for the accounts payable
staff to closely examine the incoming vendor invoices. For example, a $900 repair bill received on
January 6 may be a December repair expense and a liability as of December 31. Another vendor
invoice received on January 6 may not have been an obligation as of December 31 and is actually a
January expense.

It is also necessary to review the receiving reports that have not yet been matched to vendor
invoices. If items were ordered and received prior to December 31, the amounts must be recorded
as of December 31 through an accrual-type adjusting entry.

Note: The proper cut-off at the end of each accounting period becomes more complicated and
often more significant if a company has inventories of finished products, work-in-process and raw
materials. It is possible that some goods will be included in the physical inventory counts, but the
costs have not yet been recorded in Accounts Payable and in the Inventory or Purchases account.

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Accruing Expenses and Liabilities
At the end of every accounting period there will be some vendor invoices and receiving reports that
have not yet been approved or fully matched. As a result these amounts will not have been entered
into the Accounts Payable account (and the related expense or asset account). These documents
should be reviewed in order to determine whether a liability and an expense have actually been
incurred by the company as of the end of the accounting period.

Since the accrual method of accounting requires that all of a companys liabilities and expenses must
be reported on the financial statements, companies should prepare an accrual-type adjusting entry
at the end of every accounting period. This adjusting entry will credit Accrued Liabilities and will debit
the appropriate expense or other account for the amounts that were incurred but are not yet included
in Accounts Payable. The balance in Accrued Liabilities will be reported in the current liability section
of the balance sheet immediately after Accounts Payable.

It is also common for companies to prepare a reversing entry every month. The reversing entry
removes the previous periods accrual adjusting entry and prevents the double-counting of an
expense that could occur when the actual vendor invoice is processed.

Note: Under the accrual method of accounting, a companys financial statements must report all
expenses and liabilities that are probable and can be measured even if the vendors invoices have
not yet been received or fully processed.

Adding General Ledger Accounts

The general ledger accounts that are available for recording transactions are found in the companys
chart of accounts. For most businesses the general ledger accounts are listed in the following order:

1. Balance sheet accounts

Asset accounts
Liability accounts
Stockholders or owners equity accounts

2. Income statement accounts

Operating revenue accounts
Operating expense accounts
Nonoperating revenue and gain accounts
Nonoperating expense and loss accounts

Many systems will allow for each account to have subaccounts. Subaccounts allow for summarizing
or combining amounts while also maintaining the detailed amounts.

When the existing accounts are not sufficient, new accounts should be added. In other words,
meaningful financial reporting of transactions should not be limited to a preconceived list of accounts.

For more information and examples see Explanation of Chart of Accounts.

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Invoice Credit Terms
The invoice terms indicate when an invoice becomes due and whether a discount may be taken if
the invoice is paid sooner. The invoice terms also dictate the point at which ownership of goods will
transfer from the seller to the buyer.

The following payment terms are some of the more common ones for businesses without inventories.

Net due upon receipt

If the vendors terms are Net due upon receipt, the invoice amount is due immediately. (Of course,
you should verify that the invoice is valid and accurate before it is entered for payment.)

Net 30 days

When the vendor invoice states Net 30 days, the amount of the invoice (minus any returns or
allowances) is due 30 days from the date of the invoice. For example, if a vendor invoice for $1,000
is dated June 1 and the company is granted a $100 allowance, the net amount of $900 should be
paid by July 1. (If there were no allowance, the company should remit $1,000 by July 1.)

1/10, n/30

When a vendor invoice includes terms of 1/10, n/30, the 1 represents 1% of the amount owed, the
10 represents 10 days, the n represents the word net, and the 30 represents 30 days. The terms
1/10, n/30 indicate that the buyer may take an early payment discount of 1% of the amount owed if
the amount owed is remitted within 10 days instead of the normal 30 days. In other words, the buyer
can choose either of the following:

Pay within 10 days and deduct 1% of the net amount owed (the invoice amount minus any
authorized returns and/or allowances), or
Pay in 30 days and take no discount.

To illustrate1/10, n/30, lets assume that a vendor invoice for $1,000 is dated June 1 and the buyer
does not return any of the goods. Since there are no returns, the net amount of the purchase is the
full $1,000 and the buyer can remit either of the following amounts:

If paying by June 10, the amount due to the vendor is $990. [The net amount of $1,000 minus
the $10 early payment discount (which is 1% of $1,000).]
If paying by July 1, the net amount of $1,000 is due.

If the buyer was given an allowance of $100, the net amount is $900. In that case the buyer can
remit either of the following amounts:

If paying by June 10, the amount due to the vendor is $891. [The net amount of $900 minus
$9 (which is 1% of $900).]
If paying by July 1, the net amount of $900 is due.

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2/10, n/30

If the vendors invoice has terms of 2/10, n/30, the 2 represents 2%, the 10 represents 10 days,
the n represents the word net and the 30 represents 30 days. This means that the buyer can take
an early payment discount of 2% of the amount owed if the amount is remitted within 10 days instead
of the customary 30 days. In other words, the buyer can choose either of the following:

Pay within 10 days and deduct 2% of the net amount (invoice amount minus any authorized
returns and/or allowances), or
Pay the full amount in 30 days with no discount.

To illustrate 2/10, n/30, assume that a vendors invoice for $1,000 is dated June 1 and the vendor
has granted the buyer an allowance of $100. This means the net amount is $900 and that only $900
will be eligible for the early payment discount. Hence, the buyer can remit either of the following
amounts:

If paying by June 10, the amount due to the vendor is $882. [The net amount of $900 minus
$18 (which is 2% of $900).]
If paying by July 1, the net amount of $900 is due.

Early Payment Discounts vs. Need for Cash

Some vendors offer an early payment discount such as 2/10, net 30. This means that the buyer may
deduct 2% of the amount owed if the vendor is paid within 10 days instead of the normal 30 days.
For instance, an invoice amount of $1,000 can be settled in full if the buyer will pay $980 within 10
days. In this example, the buyer will save $20 (2% X $1,000) for paying 20 days earlier than the
normal due date. If the buyer has the opportunity to do this every 20 days, it would occur 18 times
during a year (365 days divided by 20 days = 18 times). That means the company could save up
to $360 ($20 X 18 times per year) each year by using a single $980 amount. Hence the annual
percentage rate is approximately 36% ($360 earned divided by $980 used).

Looking at it another way, if the buyer had to borrow $980 from its bank for the 20 days at a
borrowing rate of 6% per year, the interest for 20 days would be only $3.22 ($980 X 6% X 20/365).
By paying $3.22 of interest to the bank, the buyer will save paying the vendor $20 and therefore will
be better off by $16.78 ($20.00 minus $3.22). If this occurs 18 times in a year, the net annual savings
will be approximately $301 [$16.78 X 18 times; or $360 per year saved minus the annual interest
paid to the bank of $59 ($980 X 6%)].

A discount of 1% for paying 20 days early equates to an annual interest rate of approximately 18%.

It is clear that buyers with sufficient cash balances or a readily available line of credit should take
advantage of the early payment discounts. However, some buyers are operating with very little cash
and are unable to borrow additional money. These buyers may be wise to forgo the early payment
discounts in order to avoid the risk of overdrawing their checking account. One overdraft fee could be
greater than the early payment discount. If an overdraft causes several of the buyers checks to be
returned to its vendors, the total amount of overdraft fees will be even greater.

If a buyers checks are returned because of insufficient funds its suppliers may become concerned
about the buyers ability to pay. This could lead to one or more of the suppliers demanding payment
at the time of delivery. The elimination of 30 days of credit from suppliers could be devastating for a
buyer with little money and a credit line that has been exhausted.

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Be sure to consider your companys cash balances and cash needs before paying invoices prior to
their due dates.

Other
Vendor or employee?

Occasionally an individual will provide services for a company and submits an invoice. The invoice
is processed through accounts payable and in the U.S. the company may be required to issue the
individual an IRS Form 1099-MISC in January of the following year.

While the company views the individual as an independent contractor, the Internal Revenue Service
rules may dictate that the individual is actually a part-time employee. If a person is deemed to be an
employee, the Internal Revenue Service requires that payroll taxes be withheld and a Form W-2 be
issued instead of Form 1099-MISC.

You can learn more about the distinction between an independent contractor and an employee at
www.IRS.gov.

Internal controls

In order to protect a companys assets it is important that a company have in place a variety of
controls over issuing purchase orders, issuing checks, adding vendors to the accounts payable
master vendor file, segregating duties, and other safeguards referred to as internal controls.

We recommend that a professional who is well-versed in internal controls perform a review of your
companys policies and procedures.

Batching the payments to vendors

In order for the accounts payable staff to operate efficiently, it is helpful to process the checks written
to vendors only on specified days each month. Writing the checks on pre-announced days will
hopefully discourage the need for rush checks and allow the accounts payable processing to be
more efficient.

Sales and use taxes

Certain purchases of goods and/or services may be subject to state sales taxes. If a sales tax is not
paid for the sales-taxable goods or services (even from out-of-state vendors), the buyer is likely to be
liable for a state use tax. To further complicate the situation, some organizations may be exempt from
both a sales tax and a use tax depending on the state laws.

The responsibility for compliance with sales and use taxes rests with each company. As a result,
companies must be familiar with the laws of the states in which they operate.

Travel and entertainment

Travel and entertainment, commonly known as T&E, is another area of accounts payable that
needs to be managed. Here, too, each company must establish procedures and controls and be in
compliance with Internal Revenue Service (IRS) rules which can be found at www.IRS.gov.

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General Ledger Account: Accounts Payable
The general ledger account Accounts Payable or Trade Payables is a current liability account, since
the amounts owed are usually due in 10 days, 30 days, 60 days, etc. The balance in Accounts
Payable is usually presented as the first or second item in the current liability section of the balance
sheet. (Many companies report Notes Payable due within one year as the first item.)

As a liability account, Accounts Payable is expected to have a credit balance. Hence, a credit entry
will increase the balance in Accounts Payable and a debit entry will decrease the balance.

A bill or invoice from a supplier of goods or services on credit is often referred to as a vendor invoice.
The vendor invoices are entered as credits in the Accounts Payable account, thereby increasing the
credit balance in Accounts Payable. When a company pays a vendor, it will reduce Accounts Payable
with a debit amount. As a result, the normal credit balance in Accounts Payable is the amount of
vendor invoices that have been recorded but have not yet been paid. The unpaid invoices are
sometimes referred to as open invoices.

Accounting software allows companies to sort its accounts payable according to the dates when
payments will be due. This feature and the resulting report are known as the aging of accounts
payable.

Entering a vendor invoice into Accounts Payable

Prior to entering a vendor invoice into Accounts Payable, the invoice should be reviewed and
approved. The reason is that a vendor invoice may contain errors (incorrect quantities, incorrect
prices, math errors, etc.) and some invoices may not be legitimate.

After a vendor invoice has been approved, the recording of the invoice will include:

a credit to Accounts Payable, and

a minimum of one debit to another account. The debit amount usually involves one of the
following:
an expense (Repairs & Maintenance Expense, Advertising Expense, Rent Expense, etc.)
a prepaid asset (Prepaid Expenses, Prepaid Insurance)
a fixed or plant asset (Equipment, Fixtures, Vehicles, etc.)

A listing of the accounts that a company has available for recording transactions is known as the
chart of accounts.

A report that lists the accounts and amounts that are debited for a group of invoices entered into the
accounting software is known as the accounts payable distribution.

Reductions to Accounts Payable

When a company pays part or all of a previously recorded vendor invoice, the balance in Accounts
Payable will be reduced with a debit entry and Cash will be reduced with a credit entry.

Accounts Payable is also debited when a company returns goods to a vendor or when the vendor
grants an allowance.

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Conclusion
Because the material covered here is considered an introduction to this topic, many complexities
have been omitted. You should always consult with an accounting professional for assistance with
your own specific circumstances.

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