The accounts payable process or function is immensely important since it involves nearly all of a company's 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 company's size, the mission of accounts payable is to pay only the company's bills and invoices that are legitimate and accurate. This means that before a vendor's invoice is entered into the accounting records and scheduled for payment, the invoice must reflect:
(i) what the company had ordered
(ii) what the company has received
(iii) the proper unit costs, calculations, totals, terms, etc.
To safeguard a company's cash and other assets, the accounts payable process should have internal controls. A few reasons for internal controls are to:
a) prevent paying a fraudulent invoice
b) prevent paying an inaccurate invoice
c) prevent paying a vendor invoice twice
d) be certain that all vendor invoices are accounted for
The accounts payable process must also be efficient and accurate in order for the company's 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.
In other words, without the accounts payable process being up-to-date and well run, the company's management and other users of the financial statements will be receiving inaccurate feedback on the company's 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.
Info from http://www.accountingcoach.com/accounts-payable/explanation
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