8.0 - Accounts Payable
SUBJECT: |
Accounts Payable |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
SOURCE: |
Auxiliary Accounting, Financial Management Services |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
DATE ISSUED: |
May 2003 |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
DATE OF LAST REVISION: |
March 2009 |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
ASOP NO: |
8.0 |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
RATIONALE: |
To record a liability for goods or services purchased/received but not paid for. This entry should be done so that the income statement and balance sheet are fairly stated, satisfying the matching principle1 to comply with Generally Accepted Accounting Principles (GAAP). |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
ASOP: |
Accounts payable are recorded in Kuali Financial System (KFS), either by using the KFS PURAP (Purchasing/Accounts Payable) module or by manually recording payables by processing KFS documents. The processes and guidelines for both are identified as follows. The organization should ensure that all unrecorded expenses are accrued for. This is discussed in detail later.
KFS PURAP:
Conditions:
Using KFS PURAP results in the creation of two automatic accounting entries. The first entry records accounts payable and is generated when an invoice is processed by the Accounts Payable office, thus resulting in an accounts payable balance. The second entry records the invoice payment.
Example: An organization receives office supplies worth $100 and the accounts payable department enters the invoice.
The following entries recognize the liability, match the expense in the period incurred, and then reduce cash when the invoice is paid.
1) Recognizing the liability
2) Paying the invoice and removing the liability
This entry is generated when a Payment Request is disbursed. The timing of this entry is equal to or after the due date recorded on the document.
January Effect: Accounts Payable increased $100.00 Expenses increased $100.00
February Effect: Cash decreased $100.00 Accounts Payable decreased $100.00
Total Effect: Cash decreased $100.00 Expenses increased $100.00
ACCRUING FOR UNRECORDED EXPENSES
It is important to check the transaction listing report in IUIE for expenses that have been incurred by the unit but not recorded in the KFS by the end of the fiscal period. Any expenses that are identified that need to be accrued for should be done so using the Periodic Method described below.
NON-KFS PURAP PROCESS:
Conditions:
Three entries need to be made in order to record and process accounts payable.
This third entry occurs because the liability is paid in one period and the offsetting expense also hits in the same period. If the entry did not get reversed, the expense would be double the true amount on the general ledger.
Note: KFS automatically assigns a reversal date in the following month when an AVAE is used (the initial entry). Then KFS automatically reverses the initial entry on that date. The organization should use the appropriate reversal date (changeable on the initial manual AVAE) if the payment will not occur in the following month.
Example:
PERIODIC METHOD
1) Recognizing the liability (January)
2) Issuing the check (February)
3) Automatic reversal of the January entry (February)
January Effect: Accounts Payable increased $600.00 Expenses increased $600.00
February Effect: Cash decreased $600.00 Expenses decreased $600.00 Expenses increased $600.00 Accounts Payable decreased $600.00
Total Effect: Cash decreased $600.00 Expenses increased $600.00 |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
DEFINITIONS: |
Accounts payable – Thisarises when an account receives goods, supplies, or services in a given month and does not pay for them at the time of purchase. Accounts payable are usually recorded at their face value since the time between purchase and payment is usually short. Note: Encumbrances are NOT accounts payable.
External payable – This is a payable outside the university (paid for by check, etc.)
Internal payable – This is a payable within the university (paid for by internal documents).
Periodic method – Balances are adjusted periodically to reflect changes instead of being kept current through the year. |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
CROSS REFERENCE: |
ASOP 3.0 - Accruing vs. Adjusting Entries--Auxiliary Voucher Use |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
RESPONSIBLE ORGANIZATION: |
Auxiliary organizations reporting accounts payable. |
1"The matching principle means that revenues generated and expenses incurred in generating those revenues should be reported in the same income statement. Revenues for an accounting period are recognized in accordance with the realization principle. Then the expenses incurred in generating those revenues are determined in accordance with the matching principle. Thus, expenses are reported in the income statement for the accounting period in which the related revenues are recognized." (Intermediate Accounting, by Chasteen, Flaherty, and O'Conner; McGraw-Hill, Inc.; p. 60).