Many entrepreneurs start their business, and have very basic knowledge of business finances says Edmonton bookkeeping. In fact, into it, who are the makers of QuickBooks surveyed several small business owners in order to test them on their basic business financial literacy. The entrepreneurs were asked questions such as what the role of a balance sheet is, and how to improve cash flow. 82% of all of the business owners that were surveyed scored less than 70%. This proves that entrepreneurs should learn very quickly some of the most important financial and accounting information for their business, so that they can make informed financial decisions early on their business, which can improve their chances of succeeding.
One of the first things that entrepreneurs should understand is what an account payable is. This refers to an amount of money that an entrepreneur owes a vendor, by making a purchase, but not paying for it immediately. It is technically counted as a liability, and has the entrepreneur enter into a creditor/debtor relationship with their vendor until they have paid the amount in full.
Edmonton bookkeeping says that since this is counted as a liability, is going to show up in the financial statements of an entrepreneur and more specifically on their balance sheet. The balance sheet is going to show an entrepreneur list of all of their assets, in order of liquidity including cash at the very top followed by accounts receivables. The second section in the balance sheet will include all the liabilities of the business including the accounts payable. This is considered a short-term debt, and it will stay in this section of the balance sheet until it is paid.
Entrepreneurs should understand that as they pay down their liabilities, it will show up on the balance sheet is a decreased liability, but since entrepreneurs will be making the payments in their business from the cash available, it will also decrease the assets they have on their balance sheet as well. Entrepreneurs goal will be to bring in the cash and the Accounts Receivable into their business, at a faster rate than they are paying their liabilities.
In order for an entrepreneur to gauge the financial health of their business, they will look at their balance sheet and determine what the differences between their liabilities and assets. They should be doing this before they make any financial decisions in their business whether it is running payroll, or paying invoices. Because of how important this is for helping entrepreneurs make informed decisions, entrepreneurs should ensure that they are entering all of their accounts payable into their accounting software in a timely manner.
When business owners are able to understand what the accounts payable is in their business, and how important it is to keep track of, Edmonton bookkeeping says that they can ensure they are entering in their invoices timely, so that entrepreneurs can end up with an accurate balance sheet that can help them make informed decisions.
Edmonton Bookkeeping | Should Entrepreneurs Know What Accounts Payable Are
Not only is it very important for business owners to understand what accounts payable are in their business, says Edmonton bookkeeping. But it is also very important for entrepreneurs to have a well-defined accounting system on how they are going to process those account payables that they receive, is that not only can they ensure the accuracy of the invoices that they get, but so that they can ensure that they are entering those invoices and their accounting software in a timely manner, so that they can ensure that they are getting those invoices paid in equally a timely fashion.
One great system that entrepreneurs can utilize to ensure the accuracy of their invoices, is called a three-way match. This is where business owners will use the purchase order, the receiving a report and the invoice to verify the accuracy of the purchase that was made, and the amount owing on the invoice. When an entrepreneur makes a purchase, they should be receiving a purchase order from their vendor that has a list of all of the items that an entrepreneur has ordered. This will include the quantity as well as the unit price for each. There might be additional information listed on the purchase order, depending on the type of business, or the industry.
Edmonton bookkeeping says an entrepreneur should have their purchase order on hand when they receive the product, and ensure that they also get a receiving report along with the shipment. Business owners should be comparing the receiving report to the purchase order. What they are looking for on this report, is verifying that all of the products that were ordered are now being received. If products are missing, an entrepreneur can simply use the purchase order number as a reference when the contact their vendor to find out what happened to the missing items.
Once all of the items that are expected to receive have arrived, an entrepreneur will then get the invoice. By comparing the invoice to the items that they received, as well as the price on the invoice compared to the price on their purchase order, Edmonton bookkeeping says that entrepreneurs can verify very quickly the accuracy of the invoice. As soon as they do that, they can enter it into their accounting software, so that they can process payment for the invoice in a timely fashion, as well as ensure the accuracy of their balance sheets.
Not only is this system great for helping entrepreneurs ensure the accuracy of their invoices, so that they can pay them in a timely manner as well as ensure the accuracy of their balance sheet, but this is also extremely important to help entrepreneurs minimize errors when they have multiple employees, and a different person making the purchase, receiving products, and entering the invoice. This triple check system can ensure the accuracy of the items received, as well as the invoice itself.