AP(ACCOUNTS PAYABLE) PROCESS
What is AP Process
In large companies, accounts department is very big having number of employees
There are basically 2 main departments
1. AP Process (Accounts Payable Process)
2. AR Process (Accounts Receivable Process)
AP Process deals with various expenses and their payments like payment to vendors, salary payment,
handling travel reimbursements of employees, petty cash reimbursements etc
AR Process deals with Sales and Other Revenues. Hence it is mainly concerned with Making Sales and
Collection of money from time from debtors
Types of AP Dept.
In Case of Companies
AP Department is of 2 types
1. OPEX Department
2. CAPEX Department
Opex Dept deals with Normal Expenses like Purchase, Office Exp, Salary and Other Direct and Indirect
expenses
Capex Dept deals with Purchase of Fixed Assets like Machinery, Building etc. as well as their expenses
of Capitalization like Machine Installation expenses, Building Construction expenses etc.
Vendor payments can be in case of both OPEX and CAPEX
(AP Process is Similar for both CAPEX AND OPEX)
AP Process as followed in Companies (P2P or Procurement to Pay
Process)
Example:-
Suppose a new employee Mr Akash joins a company as Sales Executive.
He needs to get Visiting Cards Printed
Whom should he ask for approval?
His Sales Department, Accounts Department or Admin Department?
Answer
Since he has joined Sales Department as Sales Executive,
He should contact his Manager in Sales Department
Which Manager in Sales Department should he approach
Assistant Manager, Sales Manager Sales, Vice President Sales or Sales Head
Answer
In Companies there is Expense Approval Matrix (Purchase Authorization Chart) for Different
Department
It contains list of expenses upto which amount can be approved by whom
Higher the amount of expense, higher the level of Manager whose approval required
Example of Expense Approval Matrix (Purchase Authorization Chart)
How should Approval be taken
Oral or Written?
By Email or Writing a Letter or Signing a Form?
Answer
Manner of Approval also depends upon Companies Policy
Different types of Approval for Different expenses like
TYPE OF APPROVAL USED IN CASE OF
Sign on Travel Expense Report For Travel Expenses
Sign on Material Requisition In Case of Production Department in Factories
Form
Sign on Printed Voucher Used for Small Day to Day expenses like
Pizza for Employees,
Also used in Govt. Companies
Email Approval Used in MNC's
Agreement Used for Services like Rent/CA Professional Service/Security
Guard Service
Note:-Oral Approval should not be taken as there is no proof of the same
Now Suppose Approval has been taken, Who will go for purchasing Visiting Cards
Mr Akash ,his manager or some other person?
Answer
There is also policy in Company about who will undertake the purchase
TYPE OF EXPENSES PURCHASE BY
Production Expenses in Factory Purchase Department
Routine Office Expenses Admin Department
Computer and Server IT Department
Accounting and Tax Softwares Accounts Department
Small Companies Purchase by Initiator (Akash in our case)
Now there are Different Vendors in Market. How to select the Vendor for purchasing goods?
Answer
In Companies, there is policy to obtain quotations of different vendors
Higher the expense, more the number of quotations required
Example
Expense Upto Number of Quotations Required
Upto 10000 2 Quotations
10000-100000 3 Quotations
>100000 5 Quoations
Now suppose a vendor is Selected, What Document to be issued to him?
Answer
A PO (Purchase Order) should be issued by Company to Selected Vendor
It contains
Name of Vendor
Quantity, Rate and Amount as fixed
Payment Terms
Now suppose Vendor sends goods to the Company, Who will receive and check it?
Answer
First it will be received by Security Guard Register who will put an Entry in his GOODS ENTRY REGISTER
Next, it will be checked by Some Designated Person
Example
1. Factory Purchases are checked by Stores Department who after checking stamps/issues a
GRN (Goods Receipt Note).GRN Mentions Quantity actually received by Company. It is
either in form of
Stamp on Invoice/Bill
Separate Page printout which is attached to bill
2. Office Expenses are checked by Admin Department who after checking usually signs on
Invoice
Note:-
Only after this is Invoice received by Accounts Department along with Attached PO/GRN
He performs a number of steps before, during and after passing the entries
Lets study these steps one by one
Things to be Checked before passing entry by Accountant
An AP accountant should check the following points before passing an expense entry
Whether expense approved by correct person as per Expense Authorization Matrix as per
Company Policy
Whether approval is by correct mode as per company policy(Mail Approval in case of MNC,
Voucher Sign in case of Indian Co, Travel Expense form for travel bills, sign on bill etc.)
Whether proper quotations from different vendors obtained as per Company policy
Vendor Selected by Purchase Dept./Admin Dept./IT Dept as per Company Policy
Selected vendor given PO(Purchase Order mentioning the details of purchase made)
Check price and payment terms as per PO with invoice
Person receiving the goods(STORES) sign GRN(Goods receipt Note) mentioning Quantity
Accountant should match invoice qty with GRN
Example
In Case of Purchase Entry
INVOICE Received of PURCHASE of 100KG*100/kg=10000
PO is of 300KG*90/kg=270000
GRN 80 KG RECEIVED
WHAT IS ENTRY?
OPTION 1
PURCHASE DR 80KG*90=7200
TO PARTY 7200
(Qty should b as per GRN(Actually received qty and Rate should be as per PO as already decided)
OR
OPTION 2
PURCHASE DR 100*100=10000
TO PARTY 10000
DEBIT NOTE FOR QTY SHORE RECD
PARTY DR 2800
TO PURCHASE 2800
What is an Open PO?
If whole Quantity of PO(Purchase Order) is not yet received, it is called open PO
A single PO may cover a number of invoices/GRN
What is the procedure to be followed In Case of Services
Normally for Services, there are agreements, hence approval not required
In case of Agreements, we should maintain Agreement Tracker in Excel mentioning
1. Agreements Entered
2. Expiry Date
3. Amt.
What is to be done in case Some Document missing/Some Approval Missing?
If some problem, send mail immediately to concerned person/vendor
If everything ok, pass entry
Points to be checked at the time of passing entry
While passing entry, following things should be taken care of
Totaling of bill (Some vendors do cheating while totaling)
Vat No if vat) charged on bill, same for service tax and excise
If tds deductible, pan no available, if no pan no 20% tds
Maintain Cost Centre
Maintain Bill Details(New Ref/Agst Ref)
Due date of payment
Also it should be ensured that it is not a duplicate bill by checking old entries of Party in Tally
Procedure after passing entry
Normally in Companies, After entry is passed in Tally, It is opened a
1. Pass Entry
2. Open Voucher(Entry)
3. Take printout of voucher(Alt+P in Tally)
4. Attach Bill+PO+GRN
5. Sign on Voucher
6. Asst Mgr sign on Verified by Columns
Note:-
IN SAP, When accountant pass the entry, it parks (i.e.it does not yet affect the accounts).
Later when Asst mgr approves it, it gets posted
This feature is now also available in Tally erp 9 (called Audit Feature of Tally)
Payment of Invoices
In some companies, Payment Day is assigned.
All the payment of invoices approved during week are made .
Cheques are prepared by Accountant
These are signed as per Cheque Authorization Matrix
Payments upto Cheque Signed by
Upto 100000 CFO (Chief Financial Officer)
>100000 CFO+CEO (Chief Executive Officer)
The cheque signing authority should be different from the one who passes the entry in tally otherwise
there are chances of fraud
They should also sample check the invoices before signing the cheque
The cheque signing power should also be intimated to banks to ensure there is no fraud
Travel Reimbursement Process in Companies
Foreign Travel Expense Report
(1) Exchange Rate Change from Day to Day.
(2) Different Exchange Rate on
(a) Date of Travel
(b) Date of Advance
(c) Date of Submission
(d) Date of Processing
(3) Exchange Rate to be taken for different dates as per Company Policy.
(4) Some Companies take Exchange Rate as follows
(a) For Advance:-Date of Giving Advance
(b) For Expense:-Average Rate of Travel
(c)For Balance Payment:- Date of Payment
How to Determine Whether Expenses is Capex or Opex
Example of Ap Process for CAPEX Department
