Accounts Payable - Part 1, Role and Interfaces of the Accounts Payable System
This is the 1th article in a series about Accounts Payable. This material is adapted from The Automated Accounting Systems and Procedures Handbook (John Wiley, New York 1991) Chapter 6.
6.1 Role of the Accounts Payable System
The accounts payable system controls the disbursement of funds to outside organizations. As part of this process, it retains subsidiary ledger information for thousands of vendors and thus becomes a vital tool, providing management with an abundance of information relating to vendor activity. Effective and efficient accounts payable processing is important for several reasons:
· The accounts payable system is one of the main sources of general ledger activity.
· Because of the disbursement of funds, accounts payable is a likely place for fraud to occur.
· The relationship between customer and supplier can be greatly influenced by the accounts payable system.
· The nature of the accounts payable system makes it a prime target for periodic auditing.
The primary role of the accounts payable system is to process payments to vendors for both trade and administrative payables. In addition to this, most businesses use the system as a centralized disbursement system for paying other demands, such as customer refunds or employee expense advances.
SYSTEM FLOWS
Figure 6-1 shows how voucher information flows through the accounts payable department into the accounts payable system files. These files retain accounts payable voucher information so that it can be accessed by subsequent processes that use this information. The gray shaded area of Figure 6-1 shows the processes of the accounts payable system that are covered in this chapter:
· Voucher creation.
· Period end processing.
· File maintenance.
INTERFACES TO OTHER SYSTEMS
The accounts payable system plays a central role among the various accounting and operational systems. In nearly all businesses, the accounts payable system interfaces with the purchasing and general ledger system (as Figure 6-1 shows). In certain situations the accounts payable system can also share information with a number of other systems.
Purchasing. The accounts payable and purchasing systems generally encompass the complete procurement function for a business. There are two areas in which these systems interface:
· Sharing the vendor master file.
· Matching invoices to purchase orders.
Sharing the vendor master file is a very strong interface that closely bonds the two systems. Because of this, circumstances rarely exist that would merit separate accounts payable and purchasing systems, sharing different vendor master files.
Matching invoices to purchase orders is another important interface between accounts payable and purchasing. Depending on a particular situation, the matching process can either be a very involved, automated interface, or it can be a completely manual interface, performed outside of the automated system.
General Ledger. As a subsidiary accounting system, the accounts payable system maintains subsidiary ledger information for the Accounts Payable Liability account(s) in the general ledger. At period end the accounts payable system forwards the period's financial activity to the general ledger, posting journal entries to this liability account with offsetting activity distributed to various other accounts. It is not uncommon for the accounts payable system to create more general ledger journal entries than any other subsidiary accounting system. Because of this, the accounts payable system is well equipped to handle and process general ledger accounting information in a flexible manner.
Project Costing. In construction or related industries the accounts payable system also interfaces to a project costing system that accumulates costs by job or project. Some of those costs first appear as vouchers for project-related expenses. The accounts payable system pays these vouchers and sends appropriate expense information to the project cost system where it is classified according to project ID.
Work Order Costing. In a manufacturing environment, a similar situation occurs when a particular work order includes processing at an outside vendor. Usually the outside processing is part of a specific work order that calls for a series of operations including the one performed outside. The work order will contain labor and material charges for work performed in the shop, but it can also receive charges for the outside work. The account payable system processes vouchers for the outside work and then posts the charges to the appropriate work orders.
Inventory Costing and Cost Accounting. The accounts payable system can record cost information that the costing system uses to determine unit inventory costs. In a standard costing environment, this includes being a source for purchase price variance reporting. In an actual costing environment, the accounts payable system feeds the average unit cost computation for purchased inventory.
Fixed Assets. When a voucher is used to purchase a fixed asset, the accounts payable system may allow the accountant to link into the fixed asset system and set up a new fixed asset record. This allows the accounts payable operator to load the appropriate information into the fixed asset record based on the invoice or other information that is present at the time.
Next Month's topic: Voucher Processing
| About this article and the author: |
Doug Potter is the owner of The Newport Consulting Group a professional management consulting organization that provides clients with information systems planning, selection, and implementation services. He can be reached at dpotter@newportconsulting.com or through his Web site, http://www.newportconsulting.com.
Note: The contents of this article were excerpted from Mr. Potters book "Automated Accounting Systems and Procedures Handbook" Copyright 1991 by Douglas A. Potter, published by John Wiley & Sons, Inc. New York
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