Paying the bills for your Small Business
Accounts Payable is the accounting term for all those pesky bills that you have to pay. It’s a liability account in your Chart of Accounts. Other terms commonly used are Vendor Payables or Trade Payables.
Incurring bills is a part of every small business accounting system, and the bills are as varied as the businesses we all run.
However, not all of these bills are considered Accounts Payable.
Remember your Chart of Accounts? Your liabilities consist of –
**your Accounts Payable
**any credit card balances you are paying on each month
**any loans you have, be they mortgages or auto loans
**any lines of credit
These loans, or Payables, will have their own account in your Chart of Accounts. For example, Capital One Payable, Mortgage Payable, Vehicle Loan Payable, or Fuzzy Bank Line of Credit Payable.
What is included in Accounts Payable?
The following are included:
a. utilities – electric or gas payments
b. phone bills
c. internet service bills
d. payments due your accountant or attorney
e. repair bills
f. office supplies purchased on credit
g. payments due any subcontractors
h. rent payments
i. credit card payments if you pay the balance in full each month
j. advertising bills
k. equipment lease payments
l. any maintenance agreement payments
m. insurance payments
n. freight bills
o. subscriptions or dues
p. purchases of products or materials used in your business
Accounts Payable (A/P) is the account to place (accounting term is POST) any bill you’re not going to pay right now. Anything purchased on credit or paid on a regular basis is a candidate for your A/P system.
If a subcontractor hands you a bill and you cut him or her a check right there, don’t bother with A/P, just post the check to the appropriate expense account.
But if you aren’t going to pay the bill right away, post the bill to the expense account and to A/P.
JUST WHAT IS POSTING?
Just briefly, let me explain the “posting” process. Whether you use a manual system or a computer system, when you write a check or enter a bill in your basic accounting software you will be coding it.
This code is an account in your Chart of Accounts, like Office Supplies or Subcontractors or Repairs & Maintenance.
Remember the Accounting Cycle? Activity leads to transactions which lead to entries in journals which lead to financial statements.
Posting is the “entries in journals” process. That code that I mentioned is the account in your Chart of Accounts that you post to, and it determines which financial statement the transaction shows up on.
Just real quick (more details on this later) your Balance Sheet shows your assets, liabilities, and equity (ownership), and your Income Statement shows your revenue and expenses.
Back to paying your bills…
You can keep a Manual small business bookkeeping system, and file your bills in a paper folder and do this coding as you write checks.
Or, if you use a computer, you can use a Voucher System, and record your bills in your computer’s accounting software system and then pay them later thru your pay bills feature.
Check out my post on using a manual accounting accounting system.
Or check out my post on using a computerized accounts payable system.
If you have QuickBooks, but haven’t quite gotten the hang of it, check out my training manual “Getting Started with QuickBooks”. It shows you – with text and screenprints – how to enter a bill, how to pay a bill, how to write a check, how to invoice a customer, and how to post a payment from a customer. All in an easy to understand step-by-step manual. Click here for more on “Getting Started with QuickBooks”
Need some help setting up a simple bookkeeping system? Want to save money by doing it yourself?
Check out my e-course, Keep Your Own Books! It’s available here.