The Accounts Payable Cash Disbursement Procedure explains practices for documenting, recording and issuing payments for purchasing transactions. It is a critical source of funds in the cash to cash cycle (good review of the nine methods to help your accounts payable).
This Accounts Payable Cash Disbursement Procedure ensures only valid and authorized purchase requests are recorded and paid, it secures the accuracy of the general ledger accounts and ensures appropriate timing of payments. The accounts payable procedure applies to all purchases and describes the responsibilities of the CFO, purchasing, accounting and accounts payable functions as they pertain to the disbursements process. (6 pages, 1556 words)
Properly recording liabilities is generally a three-step process, particularly, for merchandise purchases:
The first step in an accounts payable procedure, is properly recording the liability upon receipt of merchandise, using the purchase order estimates as a guideline. For accuracy and timeliness of data, a liability should be recorded as soon as the company receives the purchased items. By necessity, this initial recording is usually an estimate and can be finalized when the actual invoice arrives. This is why a Purchase Order is so important for merchandise purchases. It documents the company’s understanding of how much each item will cost, per the vendor’s terms. This includes estimates for freight and any other charges.
The second step in an accounts payable procedure, takes place when the vendor’s invoice is received. At this point the actual liability is finalized, with any necessary adjustments to the item costs, freight, or other charges.
The third step involves the preparation, issuance of payment for the goods received, and subsequent filing of all paperwork for easy retrieval.
- Documenting Accounts Payable transactions
- Recording Merchandise Payable
- Recording Non-Merchandise Payables
- Payment of purchasing transactions
- Manual Checks