Question

What are some of the internal controls that an accountant should put into place to determine if accounts payable are being accounted for correctly?

Answer 1

Answer:

Internal Control refers to a process designed and maintained by the management for providing substantial degree of assurance in achieving goals of the business, while complying with the policies and laws, safeguarding the assets and assuring efficiency and effectiveness in the activities of the organisation for making financial statements reliable.

Internal control in Accounts Payable aims to ensure valid supplier and vendor invoices. It helps in proper recording and timely payment by the organisation. The following are the some of the controls that an accountant should put into place to determine if account payables are being accounted for correctly:

1. FRAMING POLICIES:

The management should make the effective policies and procedures for Accounts payable internal control. The management should ensure that all the employees have understood the policies so that they can have proper internal control.

2. DIVISION OF DUTIES:

There must be division of duties in the organisation. It means that the person who is responsible for physical assets like cash, inventory, supplies etc is not the person who is responsible for recording such transactions. Also, there must be another person who is responsible for Audit of such transactions. It helps to prevent fraud, errors and misstatement of Financial Statements.

3. RECEIVING DOCUMENTATIONS:

All the documents relating to purchase must be kept safely. All the amounts, calculation, date, quantities, prices, and other terms should be checked properly.

4. PURCHASE JOURNAL POSTING:

As soon as the transaction occurs, post the purchase journal from the invoice and use it for posting these transactions in general ledger.

5. ACCOUNTS PAYABLE LEDGER POSTING:

As the transaction occurs, posting must be made in Accounts Payable ledger and review its balances on a regular basis. Reconciliation of Accounts payable ledger with the Accounts payable control ledger should be made properly.

6. PAYMENT:

Payment is only made on the original invoice to avoid duplication of payments. Stamp 'Invoice Paid' across the original invoice whenever payment has been made.

7. POSTING OF CASH DISBURSEMENT:

Accountant should record payments in the cash disbursement journal to avoid the risk of double payment. Whenever transactions occur, post the transaction to the Accounts Payable ledger as per the payment documents.

Hence, these are the some of the internal controls that an accountant should put into place to determine if accounts payable are being accounted for correctly.