October 24, 2019

How to Keep Track of your Accounts Payable Balance?

Naveen Shayan

LedgerMax specialist

As a small business owner, you must be aware that accounts payable is actually the overall amount you are obligated to pay to your suppliers/dealers who have allowed deferred payment arrangements to you for buying merchandise or supplies. Thus, you۪'re required to count in any sort of pertinent discounts while paying off the accounts payable balance in order to fix up the amount to be paid as well as to record that in your bookkeeping system.

Accounts Payable

The accounts payable is listed in the current liabilities part of the balance sheet. All of the unsettled and unpaid invoices are included in this amount. Sometimes, a discount may be offered by the supplier on an invoice in order to entice the business to settle the amount early. To assess the most appropriate time to settle a certain invoice, it is important that you choose whether it is advantageous to go for an early payment and get discounts, or to save your money and pay far along.

Invoice Conditions

Generally, the date of invoice, credit terms and outstanding balance is listed on an invoice. At times, the supplier can mention his credit conditions on his invoice; for instance, as 2/15, net 45. This denotes that the supplier is offering you a percent discount for paying off the amount within 15 days of the invoice date. However, if you are unable to pay in 15 days, you're required to settle the full amount within 45 days from the date of invoice.

Calculation of Payment

When you choose to pay the balance ahead of time with the intention to avail the discount, multiply the discount percentage by the invoice�۪s outstanding balance for determining the discount. Now minus the discount from your outstanding balance and pay the calculated amount. Though, if you decide to make the payment after the time limit of the discount then just pay the unsettled amount mentioned on the invoice. For instance, if you opt for a discount on a Rs.60,000 balance through credit conditions 2/10, net 30, multiply 0.02 by Rs.60,000. The discount offered is Rs.1200. Now subtract Rs.1200 from Rs.60,000 to calculate the payment amount, which is Rs.58,800.

Payment Records

Once you are done paying off, debit the entire amount on the invoice to the records of your accounts payable. This lessens the balance of account payable by the owed amount. Now, the amount in the cash account is required to be credited. This credit diminishes the cash or asset account. However, if you have availed the discount, the discounted amount should be credited to the account of purchase discounts. So, if we use the above mentioned example, debit Rs.60,000 to accounts payable, then credit Rs. 58,800 to cash and credit Rs.1200 to purchase discounts.This all seems a bit complicated to handle. However, there is a solution. LedgerMax is one amazing accounting software that allows you to receive payments from the customers and record them without any hassle. This is how LedgerMax works:

LEDGERMAX BLOG

Our Featured Blog Posts

November 3, 2022
The significance of supply change management for a business is massive. It is a vastly comprehensive system that all organizations use in order to put up their products; starting from acquiring raw materials, processing them and finally delivering the end product to the consumer. Thus, an efficient supply chain is all about improving the functionality of operations and making them more well-organized and swift.
Read more
October 4, 2022
There isn’t any business that doesn’t need cash. As a small business owner, you must be aware of the significance of having an adequate amount of rupees in hand. Irrespective of the profits your business is making, if the cash is occupied in any way, be it pending receivables or excessive inventory, the money is worthless. In contrast, when you maintain a strong cash flow for your business, it lets you fulfill your financial duties effortlessly and the resilience it needs to rise with more opportunities. In short, you won’t have to think before saying YES to any new venture that comes in your way.
Read more
September 1, 2022
Also known as a delivery note, a GRN (Goods Received Note) is a significant document which is used by the accounts division to authenticate invoices prior to settling the payments. The accounts department relies on the GRN made by the stores division to scrutinize if all the ordered products are delivered by the supplier and then settle the supplier’s payments for the said goods.
Read more