6 Sources That Bring About Accounts Payable Understatement

Bookkeepers are in charge of managing the financial information of a business entity. The bookkeepers’ report also includes the accounts payable, reflecting the amount an enterprise must pay to creditors and suppliers. However, there can be a moment when an accounts payable understatement suddenly shows up in the records.


You can spot that your accounts payable is understated when the price a business has to pay displays a lower figure than the confirmed amount. This inaccuracy is often caused by incorrect data input, so bookkeepers should be able to report the case to the management. To prevent any further understatements, here are some common causes that you should keep an eye out for:


1. Missed Invoices


Accounts payable is an accumulation of recorded bills. Missing an invoice is the likely cause of an understatement. It’s possible an employee forgot to send an invoice to the accounts department or mixed it up with other papers. To prevent unrecorded invoices, all bills should be organised and delivered to the accounts department right away.


2. Misrecorded Purchase Date


Accounting software is unable to process invoices that have the wrong date of purchase inputted. Recheck what you entered and what was on the bill that you received. Financial reports must be precise in every detail for the generated information to be accurate and avoid accounts payable understatements.


3. Unaccounted Purchase Orders


If you have multiple managers on board, it’s to be considered that more people are authorised to make purchase decisions for the business. However, it’s imperative that bookkeepers and the accounts department are aware of the transaction. Purchase orders that aren’t accounted for can lead to an understatement.


4. Wrong Amount


Despite seeming like a small error, a miscalculated amount can cause the accounts payable to be understated. It could be mixing up the invoices or a rookie mistake in the computations. You may want to consider getting a more experienced bookkeeper on the job to avoid any issues moving forward.


5. Not Separating Liabilities


Some inventory deals were made with businesses on the basis of a long-term obligation. Others are created with short-term commitments, meaning they are current and are due sooner than the former commitments.


Bookkeepers need to distinguish which transactions count as a short-term liability and a long-term liability. If they aren’t labelled accordingly, there will be an accounts payable understatement.


6. Misplacing Accrued Expenses


Accounts payable and accrued expenses should not be placed together in the same category of a balance sheet. An accrued expense is only recorded when a purchase order doesn’t have an invoice yet. Combining both would result in the accounts payable being understated and the accrued expenses becoming overstated.


Instead, wait for an invoice to be sent after purchase. A bookkeeper will record accrued expense as an account payable instead of fusing the two.


Conclusion


Organise and keep track of your accounts payable to prevent yourself from paying the wrong price. You will also avoid giving your business a bad reputation when it comes to financial management. This impression can attract vendors and suppliers to work with you in the long run. To ensure your business’s financial side is well taken care of, work with a reliable accountant to help you out.


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