ACCOUNTS PAYABLE PROCEDURES

Prepared By:

Approved By:

Revision Date:

Effective Date:

The following process map shows the entire accounts payable function with the personnel involved, the
forms used, and the major decision processes.

Ven d o
r

A/P receiv es
th e in v o ice
fro m a
v en d o r.

In v o ice

Purchas ing
A/P receiv es
PO fro m
Pu rch asin g
A/P files th e A/P co mp ares
Receiv in g Receiv in g A/P
Accounts Receiv in g th e in v o ice Does the PO Is there No
Rep o rt Payable
Rep o rt ap p ro v es
Rep o rt an d receiving report Yes another
ag ain st th e PO & invoice p ay men t o f trans action?
Pu rch ase an d Receiv in g match? th e in v o ice.
Ord er Rep o rt.
A/P receiv es Pu rch ase Pu rch ase
Receiving th e receiv in g Ord er Ord er Un p aid Yes
rep o rt fro m File No
Receiv in g .
A/P p ay s
o n ly fo r th e
amo u n t o n
th e p u rch ase
o rd er.

Co n tro ller
A/P p rin ts Vo u ch ers Co n tro ller
New A/P rev iews Ed it A/P p rin ts
"New A/P Are th ere A/P p o sts are selected Pre-Ch eck rev iews Pre-
Tran sactio n List fo r an y No "Pre-Ch eck
Tran sactio n erro rs? v o u ch ers. fo r Rep o rt Ch eck
Ed it List tran sactio n Rep o rt".
Ed it List" p ay men t. Rep o rt
erro rs.

Yes

A/P co rrects
erro rs.

Co n tro ller Ven d o

Is Pre-Check A/P p rin ts Is Check Co n tro ller A/P mails
A/P p rin ts Ch eck rev iews th e A/P p rin ts Ch eck < r
Report Yes Ch eck Regis ter Yes Ch eck s sig n s th e Yes ch eck to th e
approved? ch eck s Ch eck s Reg ister Ch eck approved? th e ch eck s. $ 5 ,0 0 0
Reg ister. ch eck . v en d o r.
Reg ister.

No
No No
A/P files PO,
A/P v o id s in v o ice,
A/P co rrects
ch eck an d ch eck co p y ,
erro rs
rep rin ts th e Ch eck & receiv in g
Ch eck Presid en t rep o rt.
Reg ister. co u n tersig n
s th e ch eck .

In v o ice

Receiv in g
Rep o rt

Pu rch ase
Ord er
Paid File
Ch eck
Co p y

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 FILE INCOMING REPORTS AND EXTERNAL DOCUMENTS

Accounts payable receives a purchase order from purchasing, a receiving report from receiving, and an
invoice from the vendor before processing payments. The purchase order and the receiving report should
be filed in an unpaid file until the respective invoice is received.

A/P receives PO
Purchasing
from Purchasing.

Receiving A/P files the Receiving

Report Receiving Report Report
Accounts
and Purchase
Payable
Order.
Purchase Purchase
A/P receives the
Order Order Unpaid
Receiving receiving report
from Receiving. File

The invoices arrive and are placed in an incoming stack for accounts payable to review. Accounts
payable examines the unpaid file for the purchase order and the receiving report of the received
invoices in batches. In most cases, the receipt of an invoice from the vendor triggers the payment
process; however, that is not always the case. Sometimes the invoice from the vendor is received before
the purchase order or receiving report is received. If this occurs, place all invoices in a pending file,
which should be reviewed once a week for status changes.

PREPARATION FOR PAYMENT

General Payment Policy

No payments over the purchase order amount should be issued. Potential exceptions, or amounts
exceeding $2,000, require the controller and presidents approval.
Payments are allowed below the purchase order amount if the situation permits. (See Table 1:
Payment Decision Chart.)

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 Vendor

A/P receives the

invoice from a
vendor.

Invoice

A/P compares the

Does the PO, A/P approves Is there
invoice against the
receiving report, & Yes payment of the another
PO and Receiving
invoice match? invoice. transaction?
Report.

Unpaid Yes
File No

A/P pays only for

the amount on the
purchase order.

General Payment Factors

The perfect scenario is when accounts payable matches the purchase order, the receiving report, and the
invoice. In this case, the ordered amount at the ordered price equals the received amount, which equals
the invoiced amount at the invoiced price. Essentially, what was ordered is what was received, what was
received is what was invoiced, and what was ordered, received and invoiced is what was paid. Though
this situation is optimal, other situations can occur. Please refer to Table 1: Payment Decision Chart and
view the various scenarios. Keep in mind, the variables compared between the three documents are the
amount and the price. The following table gives a general overview of the possible outcomes:

Scenario Probable Action

Invoice = PO = RR Pay

Pay only for the goods that were invoiced. Complete and file a
Invoice = PO < RR
returned or adjusted invoice notice.

Pay only for what was received. Contact the vendor to fulfill the PO.
Invoice = PO > RR
Complete and file a returned or adjusted invoice notice.

Pay when the backorder is fulfilled or negotiate with the vendor. Call
the vendor to fulfill the PO. Close the old PO and issue another PO
Invoice = RR < PO
if necessary. Complete and file a returned or adjusted invoice
notice.

Pay only the PO amount and call the vendor to return the excess
goods. Receiving accepted too much goods. Inform receiving of
Invoice = RR > PO
miscount or over-acceptance. Complete and file a returned or
adjusted invoice notice.

Pay only for what was received. Complete and file a returned or
PO = RR < Invoice
adjusted invoice notice.

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 Scenario Probable Action

PO = RR > Invoice Pay the invoiced amount.

View the original bill of lading and packing slips and view the original
PO RR Invoice
purchase requisitions.

Table 1: Payment Decision Chart

**Other exceptions are permitted only by the controller and president if the amount exceeds $2,000**

Other Payment Factors

Besides comparison between the purchase order, the receiving report

and the invoice, other factors affect payment, including:
Sales tax was not deducted from the invoice.
Solution: Accounts payable must review the taxed amount and
note any corrections on the returned or adjusted invoice notice.
Return the notice to the vendor.
The sales tax was not correctly added.
Solution: Accounts payable must review the taxed amount and
note any corrections on the returned or adjusted invoice notice.
Return the notice to the vendor.
The purchase order number was not included on the incoming
invoice.
Solution: Accounts payable must complete the returned or adjusted invoice notice. Return the notice
to the vendor.
Several purchase orders were combined on one Invoice. Solution: Accounts payable must complete
the returned or adjusted invoice notice. Return the notice to the vendor.
Other scenarios exist, and the controller should be consulted when an unusual situation occurs. The
procedures should then be updated.

Prepare the Payment Voucher

Based on the decision to pay, a payment voucher is created electronically or manually.

The payment voucher is electronically created in

most cases. The system is capable of creating
the purchase order and receiving report. If the
purchase order and receiving report functions
are utilized, the payment voucher must also be
used.

The payment voucher is compared with the

purchase orders quantity and price. If the price
or quantity of the invoice does not match the
purchase order, the system signals a warning,
which is only overridden if the payment decision
chart specifies.

View Error! Reference source not found. if

the system issues a warning.

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 A supplemental payment voucher is issued with the system
Figure 1: Payment Voucher payment voucher when taxes deviate. The supplemental
payment voucher is used at the discretion of the controller to
explain deviations between the purchase order and the invoice (e.g., price or quantity), or to explain other
mistakes on the invoice (e.g., taxes).

Post the Vouchers

Once
A/P prints "New New A/P Controller reviews
Are there A/P posts
the
A/P Transaction Transaction Edit List for any No
errors? vouchers.
Edit List" Edit List transaction errors.

Yes

A/P corrects
errors.

payment vouchers have been entered, an accounts payable transaction edit list is printed. The controller
reviews the list for any errors. If any errors exist, the errors are corrected by accounts payable and
another list is printed for the controllers review. When the controller accepts the accounts payable
transaction edit list, they can then post the payment vouchers.

Print Checks

Vouchers are A/P prints

Pre-Check Controller reviews
selected for "Pre-Check
payment. Report".
Report Pre-Check Report.
At least
once
per
week,
checks
should
be
Is
printed.
Pre-Check
Report
approved?
Yes A/P prints checks. Checks The

A/P corrects
errors.

controller selects payment vouchers in the system. Not all payment vouchers should be selectedonly
payment vouchers for the desired time period should be selected. For example, if checks are printed
every Friday, the payment vouchers with payment due by the next Friday should be selected for payment.

When the payment vouchers have been selected, accounts payable prints a pre-check report. The
controller should review the report for any errors. If errors exist, the controller has the errors corrected and
another pre-check report is issued. If the report passes the controllers review, accounts payable then
prints the checks.

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 Approval and Delivery of Checks

Accounts payable prints the check register. The controller reviews the register and signs off with
his initials. If the register does not pass the review, the check is voided and the check register is
reprinted. If the register passes the review, the checks are signed by the controller. If the amount
is greater than $2,000, checks are countersigned by the president.

Checks are delivered to the designated vendor via mail, hand delivery or office visit. Accounts payable
staples and files a copy of the check, invoice, supplemental payment voucher (if applicable), purchase
order and the receiving report (if applicable) in the paid file by vendor name.

Any unpaid invoices are placed back in the pending file, which should be reviewed once a week for
status changes.

The pre-check report and the new accounts payable transaction edit list are retained after review. The
check register is filed for future reference.

All voided checks have VOID written across them and are filed with all other checks in sequential order
for future reference.

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