Setting up the Accounts Payable Sub-ledger

The accounts payable sub-ledger will look much like the accounts receivable sub-ledger. If you're on a manual system, you will create a listing of outstanding accounts that you need to pay and will include information on how old they are (their age). If you're on a computerized system, this is one of your standard reports.

Notice that the report has the same aging "buckets" as the receivables report. It's as important to know how old your payables are as it is to know how old your receivables are. If your creditors are extending 30-day terms and most of your payables are more than 90 days old, you may have a cash flow problem that needs further investigation.

 

Cash Payments

Paying your accounts payable is a relatively easy task. Once again, here are real life and accounting world example.

Real life

You write a check your supplier and mail it off. You mark on the invoice the date paid, the check number, and the amount paid.

 

Accounting world

The entry to remove the amount from the payable is ----

             DR Accounts payable        $1,435.12

             CR Cash                                            $1,435.12

 

You would also update your accounts payable sub-ledger to show that you had paid the amount. If you are on a manual system, the accounts payable sub-ledger will simply be the list that you created when you set up the payables. If you are on a computerized system, it will be one of your standard reports.

A computerized system provides a few extra benefits here. First, if you have set up a laser printer and have purchased laser print checks, you can print off the check from your accounting system. It will record the payment in the books at the same time, saving you a few extra steps. You will also be able to look at how much you spend per month, per vendor, or per category more easily than with a manual system.