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Basic Accounts Payable Flowchart

written by: •edited by: Jean Scheid•updated: 4/13/2011

The accounts payable function within an enterprise is an important part of the day to day functioning of the business. Adequate internal controls are, therefore, vital and procedures need to be documented for referenced by management and staff, hence the need for an accounts payable flowchart.

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    The Accounts Payable Function in an Enterprise

    Accounts Payable Business and accounting functions may be clearly represented by means of flowcharts. The importance of the accounts payable function in an enterprise is the reason why it is necessary to document procedures within the department by means of an accounts payable flowchart.

    The accounts payable function is responsible for approving payments of funds of the enterprise to third party organizations such as trade creditors and service providers. It is also responsible for correctly and accurately recording the transactions in the relevant ledgers and keeping control of the amounts owed to creditors at any particular time.

    This means the accounts payable department is a vital part of the daily functioning of the organization. An accurate record must be kept of the amounts owed to creditors at any time and the amounts that will be becoming due at various times in the future. This enables the enterprise to prepare accurate cash flow forecasts and keep a check on any liquidity problems that will arise at any point in the future.

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    The Need for Internal Controls

    To protect the assets of a business and ensure the accounting records are not subject to error, certain internal controls need to be in place all the times. These will consist of a set of procedures that ensures suitable checks and approvals are carried out as part of the daily procedures within the department. Correct processes need to be put in place and understood by management and staff of the department. These procedures need to be carried out in practice as part of the ongoing routine within the department and regular checks must be carried out to ensure that the procedure is still being carried out as originally envisaged. A vital part is employee training for members of the accounts payable department and a standard training course for new members of the department, which they need to undergo in their first few weeks in the department.

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    The Staff Procedural Manual

    The necessary procedures for ensuring strict internal controls in the accounts payable function need to be documented in a staff procedural manual. This should be made available to management and staff and to internal and external auditors. An accounts payable flowchart could be a part of this procedural manual as it supplements a verbal description of the procedures in dealing with accounts payables and provides a visual learning aid for management and staff involved with the procedures.The procedural manual including the accounts payable flowchart, could also be used in staff training sessions.

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    Accounts Payable Assessment

    Despite written procedures and staff training, it is always possible that over time, the actual procedures carried out in the department may diverge from procedures laid down in the manual Staff members may begin to take short cuts when under pressure, and new staff members learn these incorrect habits from their colleagues. For this reason, it is necessary to carry out a regular accounts payable assessment that requires staff to fill out a questionnaire. Employees must confirm they are following procedures in practice and point out areas where actions carried out are different to those documented in the staff procedural manual.

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    Features of the A/P Flowchart

    Payments to Creditors An accounts payable flowchart shows documentation and other flows within the accounts payable function. The purchase invoice is received from the purchasing and inventory departments and can be matched to the original order when supplies are received. An entry will then be authorized from the purchase ledger and authorization for payment requested. Where the invoice received does not match the original order placed with the supplier, or the materials received from the supplier, a query should be lodged with the purchasing department who will need to follow up with the supplier.

    A request will subsequently be made for payment to the supplier to be authorized, by presenting the invoice and other documentation as evidence together with other information such as details of discounts available for early payment. Where the manager authorizing the payment considers the payment to be in order, authorization should be given by means of a signature or other method of confirmation. If there is a query, this will be referred back to the staff member who dealt with the matter and will need to be resolved before authorization for payment is given. When authorization is completed, the payment process will proceed in the normal way and finally the payment will be entered in the purchase ledger. Normally the software will provide additional controls by means of checks on the reasonableness of the figures entered into the system. You can download a basic sample accounts payable flowchart from our Media Gallery that shows how this could be illustrated in a staff manual.

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    References

    PR Web - "Accounts payable process assessment service" retrived at http://www.prweb.com/releases/accountspayable/automation/prweb1265824.htm

    Audit.net - "Audit program trade accounts payable" retrieved at http://www.auditnet.org/docs/acc_pay.txt

    Image credits:

    ronnieb on morguefile

    earl53 on morguefile






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