Which is better accounting or administration
Accounts Payable vs. Accounts Receivable: Differences Easily Explained
Differences between accounts payable and accounts receivable
The main difference between accounts payable and accounts receivable is that a vendor acts as a creditor (supplier of goods or service providers) while a customer is the debtor (usually a customer who purchases goods or services for which he has to pay financially ). So it is basically the same issue, but viewed from two different perspectives. The customer requests goods or services from a company or places an order and in return undertakes to pay the goods or services provided financially at a later date.
The two types of accounting also differ in terms of their main tasks. Accounts receivable, for example, is more concerned with managing accounts receivable, while accounts payable is more focused on a company's debts.
What is Accounts Payable?
Accounts payable is a sub-area of financial accounting. The term "creditor" comes from the Latin term credere (believe, entrust). The creditor is a creditor who grants credit to his own company in the form of goods or services. In the accounts payable department, all incoming invoices, payment transactions and open items between the accounts payable and your own company are recorded and clearly listed.
Accounts Payable Tasks
Accounts payable is primarily concerned with the current account relationship between creditors and debtors who are in a business relationship - i.e. the provision of services or payment for goods or services provided by both parties. The main task of accounts payable is the recording of all processes that are related to the so-called incoming invoices of a company. This includes, for example, the recording of the booking and settlement of all financial obligations (liabilities) that arise from the processing of purchased deliveries and services between the company and the accounts payable (e.g. suppliers). Further tasks are:
- Processing of all incoming invoices with credit balances
- Maintenance of the vendor master record (An internal source of supply that contains important information about every vendor who has a regular or likely permanent business relationship with the company. The data record includes, for example, name, company form, address, contact details and method of payment. In addition, each vendor receives its own identification number and a reference data record from Company assigned.)
- Invoice verification and account assignment (Among other things, a check is carried out here to determine whether the quantities stated on the invoice match the scope of delivery. This check is a prerequisite for settling the outstanding costs.)
- Recording of incoming invoices and credit notes
- Management of open items (This means the chronological processing of invoices that are still open with a simultaneous systematic review in order to avoid double bookings.)
- Initiation of payments including the creation and execution of standing orders
- Archiving and reporting in the accounts payable ledger
- Processing of incoming mail
- Travel Expenses
- Supervision of credit dunning
- Keeping a vendor bank journal
- Execution of balance confirmation
- Review and monitoring of legal and corporate regulations and guidelines
- Correspondence with the vendors
Invoice verification and archiving
During the invoice verification process, the information that is given on an invoice is mainly checked. This includes, for example, the comparison of the calculated quantity of a product and the price set for it with the information in the order. If there are differences, these must be clarified and, if necessary, a booking or payment approval must be obtained. If everything is in order, a release (confirmation of receipt) is issued, which is required to initiate the posting and payment of the vendor invoice.
In the case of deliveries of goods, in addition to the quantity, the flawless condition of the goods is checked and acknowledged by the recipient of the goods by means of a goods receipt confirmation with a delivery note.
A statutory retention period of ten years is provided for all vendor invoices. It is best to sort all invoices chronologically and alphabetically so that the latest invoice is always on top and close at hand. However, it is not absolutely necessary to keep the invoices in paper form. If you electronically save and archive all invoices, this is usually sufficient.
Many companies now use so-called ERP systems (Enterprise Resource Planning; an IT system for the efficient management of internal company processes). Incoming invoices with credit balances are recorded in the system using a vendor number.
Correct selection in the ERP system
When choosing an ERP system, you should evaluate your individual needs and requirements. In general, ERP software supports companies by networking all business areas and employees and combining work steps in one system. They also create central data stores that all authorized users can work with. Cloud ERPs are particularly interesting in this context, as they allow extended access. Specifically, this means that users can access internal data from a wide variety of locations - the only requirement is that they have a stable Internet. Such a software solution is offered by the provider lexbizz, for example.
Process optimization through accounts payable
By conscientiously checking invoices and deliveries, accounts payable makes a significant contribution to internal process optimization. Based on the recorded data and facts, processes can be simplified, accelerated and thus costs can be reduced. The accounts payable department also helps to keep track of the financial situation in the company and to document and analyze the payment behavior of the customers. Should a customer be unreliable about outstanding payments, the company can react quickly, stop delivering goods or services and take appropriate action.
Accounts Receivable: What is it?
By definition, accounts receivable is also a sub-area of accounting. It is the counterpart to accounts payable. The term "debtor" is derived from the Latin term debere (owe) from. The customer is a debtor who has outstanding invoices to pay to the vendor. As a rule, these are customers who use a service from a company or purchase goods. The invoice for the service rendered or the goods delivered will only be paid at a later point in time if no other contractual agreement has been made.
Accounts Receivable: Accounts Receivable Management
Receivables management includes all measures that a company can take in the event of customer arrears. This can be, for example, reminders that are sent to the customer if the payment deadline is disregarded. If the customer does not respond to the first and all subsequent reminders, further measures can be taken in cooperation with a lawyer and a debt collection agency. If this is also unsuccessful, appropriate steps can be taken for a court hearing.
Accounts Receivable: Information Management
There are two main types of information that are important in information management:
- The outstanding payments and the associated expected cash flow
- The payment behavior of customers
The information about the outstanding payments and the associated cash flow are important for a company in order to be able to keep an eye on and assess the liquidity of its own company and to make longer-term investments more predictable. On the basis of this information, the company's management can also make important operational and strategic decisions.
The information about the customer helps the company to better assess the payment behavior and payment behavior of the customer. With regular checks, it quickly becomes apparent whether a debtor is meeting payment terms, may have financial problems or is facing bankruptcy. In such cases, the company can react quickly and stop delivering goods or services.
Accounts Receivable Tasks
The tasks of accounts receivable accounting include, for example, the documentation of receivables and receivables targets or who owes the company how much and by when the payment amount is due. In addition, it deals with the recording and administration of receivables and credit notes and the realization of open items from deliveries or other services, which are also made up of external services, among other things. In the accounts receivable department, all current business transactions that affect the customer (the debtor) are recorded. In addition, it also includes the execution of direct debits and the administration of dunning, which among other things falls under the area of receivables management.
Accounts receivable is also about managing all accounts receivable and documenting business relationships with new accounts receivable accordingly. For each new debtor, a credit check can be carried out in the interest of the company with regard to the creditworthiness of the customer and / or checked again during the term of the contract. This can be done on the basis of suitable documents that prove the seat (address) of the customer. Further relevant data of the customer can also be requested at one's own discretion, such as business license, extract from the commercial register, sales tax or identification number. In any case, you should agree a credit limit with your customers to prevent too many open items from arising.
Posting records in accounts receivable
To illustrate the typical posting rate in accounts receivable, a small example is best:
A company sells goods worth EUR 1,000 (plus 19% sales tax) to a customer with a payment term. By selling goods, the company receives revenue that counts as income. So there is an inventory and a success account. Since the sale is accompanied by a payment term, there is a claim and since the sale of goods is subject to VAT, there is also a liability to the tax office.
To create a booking record, it is important to know which accounts are affected by the business transaction and which accounts are affected. At least two accounts must be affected (simple posting record), but several accounts can also be involved (composite posting record).
A booking record could be as follows:
|Accounts receivable from deliveries and services to the customer: € 1,190||G / L account (sales 19% VAT)||1.000 €|
|G / L account (sales tax 19%)||190 €|
All invoices that the vendor issues to the customer are shown in the accounting on the corresponding customer account.
The information published on our site is all written and checked by experts with the greatest care. However, we cannot guarantee the correctness, as laws and regulations are subject to constant change. Therefore, always consult a technical expert in a specific case - we will be happy to put you in touch.
firma.de assumes no liability for damage caused by errors in the texts.
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