Accounts payable
From Wikicpa
Accounts payable is one of a series of accounting transactions covering payments to suppliers owed money for goods and services. The average individual performs this task by writing checks each month to such suppliers to the electric company, telephone company, cable television or satellite dish service, newspaper subscription, and other such regular services.
Accounts payable is classified as a liability account and as such normally has a credit balance. Accounts payable is classified as a Current Liability because the obligation is generally due within 12 months from the initial transaction date.
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Reconciliations
One of the most difficult and time-consuming tasks can be reconciling company records of invoices and payments against vendors' statements of outstanding invoices. If the two companies have applied invoices to different sets of credit memos and checks, and the situation has been going on for a long time, it can become very difficult to untangle. For instance, if a company cuts a check for invoice #3, and the vendor applies the check to invoices #1 and #2, the vendor may continue asking for a payment for invoice #3. If this situation is multiplied over hundreds of invoices, it can take hours or days to resolve the discrepancies.
Expense administration
Expense administration is usually closely related to accounts payable, and sometimes those functions are performed by the same employee. The expense administrator verifies employees' expense reports, confirming that receipts exist to support airline, ground transportation, meals and entertainment, telephone, hotel, and other expenses. This documentation is necessary for tax purposes and to prevent reimbursement of inappropriate or erroneous expenses. Airline expenses are, perhaps, the most prone to fraud because of the high cost of air travel and the confusing nature of airline-related documentation, which can consist of an array of reservations, receipts, and actual tickets.
Petty cash is also usually paid out by AP personnel in the form of a check made out to an employee, who cashes the check at the bank and puts the cash in the petty cashbox.
Internal controls
A variety of checks against abuse are usually present to prevent embezzlement by Accounts Payable personnel. Separation of duties is a common control. Nearly all companies have a junior employee process and print the checks and a senior employee review and sign the checks. Often, the accounting software will limit each employee to performing only the functions assigned to them, so that there is no way any one employee – even the controller – can singlehandedly make a payment.
Some companies also separate the functions of adding new vendors and entering vouchers. This makes it impossible for an employee to add himself as a vendor and then cut a check to himself without colluding with another employee.
In addition, most companies require a second signature on checks whose amount exceeds a specified threshold.
Audits of accounts payable
Auditors often focus on the existence of approved invoices, expense reports, and other supporting documentation to support checks that were cut. In the real world, it is not uncommon for some of this documentation to be lost or misfiled by the time the audit rolls around. An auditor may decide to expand the sample size in such situations.
See also
Source:Wikipedia, adapted
