Accounts Payable Procedures

ACCOUNTS PAYABLE PROCEDURES Prepared By: Approved By: Revision Date: Effective Date: The following process map shows the entire accounts payable function with the personnel involved, the forms used, and the major decision processes.

Vendo r

A/P receives theinvoice from a vendor.

Invoice

A/P receives

Purchasing

PO from Purchasing Receiving Report

A/P receives thereceiving

Receiving

Accounts Payable

Purchase Order

A/P files the Receiving

A/P compares theinvoice

Receiving Report

Reportand Purchase Order

Purchase Order

reportfrom Receiving.

Does the PO receivingreport &invoice match?

againstthePO and Receiving Report. Unpaid File

Yes

A/P approves

Is there another transaction?

payment of theinv oice.

No

Yes No A/P pays only for the amounton thepurchase order.

A/P prints "New A/P Transaction EditList"

New A/P Transaction EditList

Controller reviews Edit Listfor any transaction errors.

Arethere errors?

Vouchers areselected

A/P posts

No

vouchers.

for payment.

A/P prints "Pre-Check Report".

Pre-Check Report

Controller reviews PreCheck Report

Yes

A/P corrects errors.

Is Pre-Check Report approved?

Yes

A/P prints checks

Checks

A/P prints Check Register.

Check Register

Controller reviews the Check Register.

Is Check Register approved?

A/P prints

Yes

thechecks.

No

No A/P corrects errors

Checks

Controller signs the check.

Check< $5,000

Yes

A/P mails check to the

Vendo r

vendor.

No A/P files PO, invoice,

A/P voids check and reprints the Check Register.

Check President countersign s the he check.

check copy, & receiving report.

Invoice Receiving ving Report Purchase Order

Paid File

Check Copy

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FILE INCOMING REPORTS AND EXTERNAL DOCUMENTS Accounts payable receives a purchase order from purchasing, a receiving report from receiving, and an invoice from the vendor before processing payments. The purchase order and the receiving report should be filed in an “unpaid file” until the respective invoice is received.

Purchasing

A/P receives PO from Purchasing. Receiving Report

Receiving

A/P receives the receiving report from Receiving.

Purchase Order

Accounts Payable

A/P files the Receiving Report and Purchase Order.

Receiving Report

Purchase Order

Unpaid File

The invoices arrive and are placed in an incoming stack for accounts payable to review. Accounts payable examines the “unpaid file” for the purchase order and the receiving report of the received invoices in batches. In most cases, the receipt of an invoice from the vendor triggers the payment process; however, that is not always the case. Sometimes the invoice from the vendor is received before the purchase order or receiving report is received. If this occurs, place all invoices in a “pending file,” which should be reviewed once a week for status changes.

PREPARATION FOR PAYMENT General Payment Policy •

No payments over the purchase order amount should be issued. Potential exceptions, or amounts exceeding $2,000, require the controller and president’s approval.

•

Payments are allowed below the purchase order amount if the situation permits. (See Table 1: Payment Decision Chart.)


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Vendor

A/P receives the invoice from a vendor.

Invoice

A/P compares the invoice against the PO and Receiving Report. Unpaid File

Does the PO, receiving report, & invoice match?

Yes

A/P approves payment of the invoice.

Is there another transaction? Yes

No A/P pays only for the amount on the purchase order.

General Payment Factors The perfect scenario is when accounts payable matches the purchase order, the receiving report, and the invoice. In this case, the ordered amount at the ordered price equals the received amount, which equals the invoiced amount at the invoiced price. Essentially, what was ordered is what was received, what was received is what was invoiced, and what was ordered, received and invoiced is what was paid. Though this situation is optimal, other situations can occur. Please refer to Table 1: Payment Decision Chart and view the various scenarios. Keep in mind, the variables compared between the three documents are the “amount” and the “price.” The following table gives a general overview of the possible outcomes: Scenario

Probable Action

Invoice = PO = RR

Pay

Invoice = PO < RR

Pay only for the goods that were invoiced. Complete and file a returned or adjusted invoice notice.

Invoice = PO > RR

Pay only for what was received. Contact the vendor to fulfill the PO. Complete and file a returned or adjusted invoice notice.

Invoice = RR < PO

Pay when the backorder is fulfilled or negotiate with the vendor. Call the vendor to fulfill the PO. Close the old PO and issue another PO if necessary. Complete and file a returned or adjusted invoice notice.

Invoice = RR > PO

Pay only the PO amount and call the vendor to return the excess goods. Receiving accepted too much goods. Inform receiving of miscount or over-acceptance. Complete and file a returned or adjusted invoice notice.

PO = RR < Invoice

Pay only for what was received. Complete and file a returned or adjusted invoice notice.


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Scenario

Probable Action

PO = RR > Invoice

Pay the invoiced amount.

PO  RR  Invoice

View the original bill of lading and packing slips and view the original purchase requisitions.

Table 1: Payment Decision Chart **Other exceptions are permitted only by the controller and president if the amount exceeds $2,000** Other Payment Factors Besides comparison between the purchase order, the receiving report and the invoice, other factors affect payment, including: •

Sales tax was not deducted from the invoice. Solution: Accounts payable must review the taxed amount and note any corrections on the returned or adjusted invoice notice. Return the notice to the vendor.

•

The sales tax was not correctly added. Solution: Accounts payable must review the taxed amount and note any corrections on the returned or adjusted invoice notice. Return the notice to the vendor.

•

The purchase order number was not included on the incoming invoice. Solution: Accounts payable must complete the returned or adjusted invoice notice. Return the notice to the vendor.

•

Several purchase orders were combined on one Invoice. Solution: Accounts payable must complete the returned or adjusted invoice notice. Return the notice to the vendor.

•

Other scenarios exist, and the controller should be consulted when an unusual situation occurs. The procedures should then be updated.

Prepare the Payment Voucher Based on the decision to pay, a payment voucher is created electronically or manually. The payment voucher is electronically created in most cases. The system is capable of creating the purchase order and receiving report. If the purchase order and receiving report functions are utilized, the payment voucher must also be used. The payment voucher is compared with the purchase order’s quantity and price. If the price or quantity of the invoice does not match the purchase order, the system signals a warning, which is only overridden if the payment decision chart specifies. View Error! Reference source not found. if the system issues a warning.


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A supplemental payment voucher is issued with the system payment voucher when taxes deviate. The supplemental payment voucher is used at the discretion of the controller to explain deviations between the purchase order and the invoice (e.g., price or quantity), or to explain other mistakes on the invoice (e.g., taxes).

Figure 1: Payment Voucher

Post the Vouchers

A/P prints "New A/P Transaction Edit List"

New A/P Transaction Edit List

Controller reviews Edit List for any transaction errors.

Are there errors?

A/P posts vouchers.

No

Once the

Yes


payment vouchers have been entered, an accounts payable transaction edit list is printed. The controller reviews the list for any errors. If any errors exist, the errors are corrected by accounts payable and another list is printed for the controller’s review. When the controller accepts the accounts payable transaction edit list, they can then post the payment vouchers. Print Checks

Vouchers are selected for payment.

Is Pre-Check Report approved?

Yes

A/P prints checks.

Checks

A/P prints "Pre-Check Report".

Pre-Check Report

Controller reviews Pre-Check Report.

At least once per week, checks should be printed. The


controller selects payment vouchers in the system. Not all payment vouchers should be selected —only payment vouchers for the desired time period should be selected. For example, if checks are printed every Friday, the payment vouchers with payment due by the next Friday should be selected for payment. When the payment vouchers have been selected, accounts payable prints a pre-check report. The controller should review the report for any errors. If errors exist, the controller has the errors corrected and another pre-check report is issued. If the report passes the controller’s review, accounts payable then prints the checks.


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Approval and Delivery of Checks

Accounts payable prints the check register. The controller reviews the register and signs off with his initials. If the register does not pass the review, the check is voided and the check register is reprinted. If the register passes the review, the checks are signed b y the controller. If the amount is greater than $2,000, checks are countersigned by the president. Checks are delivered to the designated vendor via mail, hand delivery or office visit. Accounts payable staples and files a copy of the check, invoice, supplemental payment voucher (if applicable), purchase order and the receiving report (if applicable) in the “paid file” by vendor name. Any unpaid invoices are placed back in the “pending file,” which should be reviewed once a week for status changes. The pre-check report and the new accounts payable transaction edit list are retained after review. The check register is filed for future reference. All voided checks have “VOID” written across them and are filed with all other checks in sequential order for future reference.


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Accounts Payable Procedures

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