It’s Finance Friday yet again. I am happy that we are celebrating the last Friday of February. This weather has been amazing. I hope the Ground Hog was wrong and Spring will be early this year! is just around the corner now. Today we are going to look at accounts payable and how that impacts your cash flow.
A few weeks ago we looked at accounts receivable and saw that accounts receivables brought cash into the company. This week we look at accounts payable. Accounts payable is the opposite, it sends cash out of the company. Every company has various expenses or costs. Cost or expense are interchangeable terms which mean that we have an obligation to pay a third party.
Pay for it now
How and when you pay your obligations will affect how you record and track them on your books. Sometimes you will pay your bill at the time of purchase or service. Let say you go to an office supply store to pick up a printer cartridge you pay the cashier before leaving the store. When you pay at the time of purchase, your cash leaves the company immediately. The transaction is complete, and you do not have to worry about the purchase in the future. On your books, your would record the expense and see your cash account decrease.
Or Pay for it Later
Often there will be expenses that you will incur the cost before paying; this will generate accounts payable. Accounts payable would include salary expenses that haven’t been paid to employees yet, taxes that are incurred but not due or any other cost that has been incurred but not yet payable.
There are many reasons why you want to track this data. Today we will talk about two of them. First you want to make sure you have enough cash to pay your expenses as they are due, and second, you want to make your expenses are paid on time to avoid any late payment fees or penalties.
Last week we spoke about monitoring your cost and creating a process to track them. The process that you create should include the ability to track your payables as well. Depending on the size of your firm you may want to establish a process of controls related to who can sign off on expenses. Often a company will have a clip level with regards to who can sign for items. This process will also help you keep your expenses and payables in check.
Once you have completed the review of revenue, accounts receivable, expense and accounts payable you now have pertinent information you can use to understand your business. Over the next three weeks, we are going to be pulling the rest of the financial process overview. By understanding the financial elements at play within your organization, you can now find your profit, cash flow and plan for the future through the forecast process. By taking the time to work on your financials monthly, you will have the insight you need to make the strategic decisions for your business.
Keep checking back weekly to learn more about profit, cash flow, and the forecast. Finergy is a unique company because we can provide you both bookkeeping services and the analysis you need to understand the numbers.
See You Next Week!
*We hope you enjoyed our blog. Please note that the intent of this blog is to provide general information and should not be construed as financial, financial tax, accounting, legal, consulting or any other type of advice regarding any specific facts and circumstances, nor should they be construed as advertisements for financial services.