◊ Purchasing & Accounts Payable Process

The purpose of this article is to illustrate how each step of the Purchasing/Accounts Payable process affects the General Ledger. This article itself is not intended to be a tutorial on how to perform these steps. For each step in the process I will cross-reference to the GL Transaction View which will show the journal entries created by the transaction. These journal entries are automatically created by AcctVantage when the related records are posted.

Also, there are many circumstances in which different (or additional) entries will be created during this cycle. For the purposes of this lesson, I've chosen relatively basic data to use.

1. The Purchase Order

The first step in the Accounts Payable process is to issue a Purchase Order to a Vendor, typically for Inventory items. The issuance of a PO itself has no effect on the GL...you must Receive the PO Line Items and Post the Purchase Event before any GL Transactions are created.

Effect of a Purchase Order on the General Ledger

Inventory - Finished (asset) is increased with a DEBIT.

  • On this Purchase Order we received $6,925.00 worth of Inventory items. The value of Inventory was increased by that same amount.

Accrued Inventory Payable (liability) is increased with a CREDIT.

  • Even though we have not yet received the Vendor Invoice for the $6,925.00, AV still needs to create an entry to a holding account in order to balance the previous entry and record a future payable.
Effect of a Purchase Order on the General Ledger

2. The Voucher

The next step in the Accounts Payable process is to Voucher a payable when we receive the Vendor Invoice. The creation of the Voucher itself has no effect on the GL...you must Post the Voucher before any GL Transactions are created. In this instance, the Purchase Order amount was equal to the Vendor Invoice amount.

Effect of a Voucher on the General Ledger

Accounts Payable - Trade (liability) is increased with a CREDIT.

  • This entry creates the actual payable for $6,925.00, against which a check will be paid in the future.

Accrued Inventory Payable (liability) is decreased with a DEBIT.

  • This entry clears the amount previously CREDITED to AIP. The balance of this account is now $0.

Effect of a Voucher on the General Ledger

3. The Check

The final step in the Accounts Payable process is to pay the Vendor. The printing of a check itself has no effect on the GL...you must Post the Disbursement before any GL Transactions are created.

Effect of a Check on the General Ledger

Cash - Checking (asset) is decreased with a CREDIT.

  • This entry accounts for the actual payment to the Vendor. We have now reduced our Cash account by $6,925.00.

Accounts Payable - Trade (liability) is decreased with a DEBIT.

  • This entry clears the amount we previously CREDITED to Accounts Payable. The balance of this account is now $0.
Effect of a Check on the General Ledger