Accounts Reconciliation Blog

I’ve been operating my business now close to two years. When I stated it I tried to grow it as fast as I could possibly can. I went after bulk orders of corporate accounts and dealers. I gave favorable and lenient terms to them. What I didn’t do is do enough due diligence. The result of my miscalculation is some bad debts. Some of this bad debts I had to write-offs accounts payable.

Bad debts write offs of accounts payable is not fun to do. The only good that came of this experience is I’m now a better judge of character. I also learned to grow my business slowly and steadily. I gave credit to companies that were already on the red.  Of course at that time I didn’t know they were on the red. It was just a matter of time till they declared bankruptcy and put a hurt on my cash flow.

When I was growing up I dreamt of being a CEO of a Fortune 500 company. I imagined myself merging and taking over various companies. So, during my bookkeeping classes in both high school and college, I didn’t pay much attention. Why need it? I didn’t want to be an accountant anyway. I figure, if I needed any accounting work done or need to analyze accounting figures I’ll hire someone to do it. But truth is, it’s not as easy as that. Accounting is vital to business success. Learning how to do bank reconciliations, make and read ledgers and learn how to do accounts payable turnover is as vital as learning how to market and sell.

Doing bank reconciliation will allow you do spot discrepancies between your books and actual bank statements. The cause of these discrepancies can either be because of human error or outright stealing. If you are able to make and read ledgers then you keep your accounting department on their toes. They will respect you all the more.  Learning how to do accounts payable turnover computations will help your cash flow.

A small design shop opened a year ago in a busy city. The design shop specialized in baby clothes. Baby clothes were bought from manufacturers and sold at retail prices. The shop was doing very well on its first year of operations. The design shop hired an accountant to streamline their accounts payable process.

The accounts payable process had to be reviewed and streamlined because the company was going to expand. Just like most small businesses, the shop used the traditional methods. Generally when the shop orders clothes and products from manufacturers, they are paid on credit. The clothes are delivered and the shop is billed for the delivery. The shop is usually given several days to settle the payment. The payables are entered into the ledger then written off when they are paid.

I have always wanted to put up my own business. A few years ago, I joined a company owned by a friend of mine to learn the ropes. He started a jewelry business. The company was already growing by then; he needed to streamline the company’s operational policies and procedures. One of my responsibilities was how to write an accounts payable procedure.

I pondered for days on how to write an accounts payable procedure. I had to study how payments were made. The company could purchase products and services from other companies on credit. The procedures I needed to formulate would cover when accounts payable should be settled. Ideally accounts payable should be settled immediately. However if the money has extra cash flow, the 30-day, 60-day or even 90-day credit line cold enable the company to gain interest on its cash flow if it were deposited in a short term investment fund.

There are business basics that all entrepreneurs need to learn. The basics include how to market products and services. There is also the need to turn a profit. You also need to minimize your accounts payable. What are accounts payable? What the companies owe on credit is a simple explanation of accounts payable.

Another explanation of accounts payable could go like this: Accounts payable is the money that a business owes to suppliers for products and services purchased that have not yet been paid for. These accounts payables are entered into the company’s ledger. This is also classified as a liability. When the balance sheet is prepared, it is listed under the company’s liabilities.

All businesses strive to make a profit if not stay afloat. In these hard times it is very important to minimize our debts and expenses. There are certain departments of a company that have the responsibility of making sure that the company does not go into debt. If you happen to be in the accounting department, you need to get to do basic accounts payable procedures. The basic accounts payable procedures entail how a company should manage its payables.

The basic accounts payable procedures are simple. The entries have to be done on the ledger. Someone has to be in charge of managing accounts payable. These accounts payables have due dates. The person in charge should make sure that these payments are done on or before the due date. This will keep the company from acquiring penalties.

In college I had to learn to study bookkeeping. Accounting subjects were a prerequisite for my major. One of the questions we often had to ponder on was “how do you reconcile accounts payable”? If you are good at numbers and liked math in college, this should not be a problem. If you’re not that good in numbers, you might find accounting and reconciling accounts payable tricky.

So how do you reconcile accounts payable? You could begin with the general ledger; get a general ledger and the detailed ledger. The detailed ledger should show the details of all the entries in the accounts payable. The entries in the subsidiary ledger should match the entry in the general ledger. This is one way to reconcile your accounts payables.

Times are hard if you’re a businessman. Well, times are always hard for most businesses. Companies are always facing challenges. There are always ways to improve bottom line. One way to do it is to improve accounts payable. 

Improving accounts payable will give you more money to play with. You can do this by talking and convincing your creditor to extend your credit line. If you have a longer credit line, your cash position will be better. You can take in more clients. You will also impress your investors. If you don’t have an investor, you can attract them easier with your long credit lines.

A small travel agency in the early 90s folded up after two years of operation. The company could not manage the fluctuation of the dollar. The travel agency did not have a competent accountant. The agency’s payables were not managed well. There were no clear policies procedures for accounts payable established.

The policies procedures for accounts payable are there to guide the company’s accountants and finance people. These policies and procedures must be drafted as early as possible. They should also be revised as needed. These procedures should be in place and be easy to understand so that in case an accountant resigns, the person who replaces him or her will know how to go about things. These policies should be strictly enforced so that the company will keep track of all its payables.

Learning how to manage your funds is crucial when you are in business.  Part of proper management is learning how to penny a pinch.  Part of penny pinching is letting government policies work for you.  Study tax breaks and other exemptions.  You can also use the web to make queries.  One popular query is about overtime payment exemption, accounts payable manager exemption overtime to be exact.

The company’s records must always be accurate. If your accounts payable manager did over time work to minimize your accounts payable, this effort should be reflected and compensated accordingly. An accounts payable manager exemption overtime pay should be declared as well. This way, all work done to eliminate the company’s payables are reflected.