When your business gets larger, or if you’re more of a Techie type, it might make sense to step up to an accounting software package.
It’s relatively easy to set up a computerized accounts payable system, and it automatically does all the posting to journals and ledgers for you.
There are plenty of simple accounting software packages out there, from QuickBooks to Peachtree to Zero and more. You can easily purchase and install one of these packages on your computer for your business.
Who should use a simple accounting software package for their small business?
If your business is on the large size, or you have several employees, or you need to track more information than the manual worksheets and journals give you, a computerized system will definitely help you out.
Using a computerized accounts payable system will help you stay organized and keep track of more small business accounting info than using a manual system.
A computerized accounts payable system will:
**hold all your vendor information, so you don’t have to enter that information when writing checks
**enable you to pay bills and print out checks right on the computer
**post your check to the correct account in your chart of accounts, all you do is enter the account, i.e. Telephone Expense.
**track all payments to each vendor, so you can pull this information up at any time.
**tell you what bills are due on any given day.
How does computerized accounts payable work?
The exact specifics depend on the brand of simple accounting software you decide to use, but I’m going to give some general guidelines here.
The first thing you need to do is “set up” your computerized Accounts Payable system.
First, you need to set up your Chart of Accounts. The software package should have a few options for you, based on your type of business. If not, check out my sample Chart of Accounts, which you can use as a starting point.
Now you need to set up your Vendors. Gather up all your bills from last month. Under the Vendors section, there should be an Add feature. Add your vendors one at a time, inputting the name, remit to address, phone and fax numbers, email and website info, and any account number or contact info you may have.
NOTE: if the vendor is not a corporation, you may want to collect their Federal ID Number (or Social Security Number – be sure to keep it safe! I would suggest not putting it into the software) because you will need this information at year end for your CPA to file 1099 Forms. These are like a self-employed Form W-2.
Now that you have the initial information in the computer, you can enter your bills.
A computerized accounts payable system makes use of vouchers and checks to post and pay bills.
What is a Voucher?
Remember, a bill is a Liability (something you owe). When you enter your bills into the computer, you will enter them onto what is called a Voucher. What is that? When you think of the term voucher, you think of a promise to pay, right? That’s what we mean, here. You will pay this “voucher” at a later date – the due date of the bill.
So you will enter your bills, and the computer will automatically post them to a liability account titled Vendor Payables, and it will enter them in the correct account in your Chart of Accounts based on what you entered on the Voucher, like Telephone Expense or Office Supplies Expense.
Then when you pay the bills and print out checks, the computer automatically takes that amount out of the Vendors Payable account and out of your Checking Account.
This is all done behind the scenes, so to speak. You don’t have to worry about it, trust me, your computerized accounts payable system takes care of it. I just want you to know what is happening behind your screen, so you will understand the process.
Entering a Bill
On your computer, you should have a section titled Vendors, and you should have an option to Enter a Bill.
Click there, and you should have a Voucher open on your screen. Take your first bill, and enter the required information – vendor name (you should have a drop down list to choose from) – date of the bill – amount of the bill – due date – account (you should have a drop down list here too, your Chart of Accounts, to choose from).
That’s it. Go on to your next bill.
On the software main page, there should be a list of reminders, one of which is Bills that are due. You can also run a Vouchers Due report, or Bills Due, that will list them all out for you at any time.
In the Vendors section, there should be an option to Pay a Bill. You can pick one bill or choose all that are due, and print the checks all at once.
When I enter my bills, I keep a “Bills Due” file folder in my current files, and then when I pay them, I have a “Paid Bills” file folder (several, actually!) in my reference files.
Keep these paid bills for 3 to 7 years to back up your deductions on your tax returns.
So that is all there is to a computerized accounts payable system. Take your bills, enter them into the software (a Voucher), then pay the bills by printing out your checks. You can track what bills are due when by pulling up a report on your screen.
If this all sounds like a bit more than you can handle, what with all the other hats you’re wearing as a small business owner, you may think about hiring a bookkeeping service. And don’t think that means your books will be taken out of your hands. With QuickBooks, there’s an ‘accountant’s copy’ that can be shared between you and your bookkeeping service. So you can do as much or as little as you want to, and then hand it over to an accountant to go over and make corrections, or actually enter bills and deposits for you. Then they will send it back to you so you will have the updated version of your books.
Check out my website for more information on me and my services. Let me do what I’m passionate about, and free you to do more of what you’re passionate about. I’m sure you’d rather concentrate on sales and your customers than paying bills.