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An accounts payable ledger is a list of accounts with information relating to money owed to vendors, suppliers and other businesses. Companies use this ledger to separate short-term financial obligations from the major portion of its general ledger. Companies can have several different financial accounts in their accounts payable ledger, depending on the size of their business. Larger companies usually employ accounting clerks to manage their accounts payable information.
Accounts payable is a very cyclical process in the company’s accounting system. Accounting clerks must often sift through copious amounts of paperwork when managing the accounts payable ledger. External accounts payable documents include vendor or supplier invoices, monthly bills and other paperwork requesting payment for goods or services. Information from these external documents is contained in the company’s accounts payable ledger. Most companies set payment due dates for these external documents. Controllers and accounting supervisors will run schedules from the company’s accounts payable system to determine which invoices currently require payment.
Companies also use internal documents to manage accounts payable information. Purchase orders are the most common internal document relating to the company’s accounts payable system. Purchase orders contain specific information regarding authorized purchases for goods or services. This information is contained in the company’s accounts payable ledger so accounting clerks can match vendor invoices to purchase orders. Matching vendor invoices to internal purchase orders ensures the company has all necessary paperwork to compare and review accounts payable items. Purchase orders also represent an internal control to match the quantity of items received, dollar amounts for products and other information matches previously agreed-upon information.
The company’s general ledger will usually include an aggregate total of the company’s accounts payable ledger. Information in the company’s general ledger is used to create a company’s financial statements. Rather than including copious amounts of information relating to business operations, companies use sub-ledgers (such as accounts payable) to hold detailed information outside of the general ledger. Companies will prepare financial statements at the end of each accounting period based on the information contained in the general ledger.
Accounts payable information is listed on the company’s balance sheet. Because accounts payable is a financial obligation liability, the account will normally carry a credit balance. Accounts with credit balances in accounting are included in the company’s liabilities information on their balance sheet. Accounts payable is a short-term liability and will usually be listed in the company’s current liabilities. External business stakeholders often compare a company’s short-term financial obligations to short-term assets. This comparison will help stakeholders determine whether the company has enough money for receivables to pay for their accounts payable.
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