Ministry of Higher and Secondary Special Education of the Republic of Uzbekistan Tashkent State University of Economics

Why the Accounts Payable Process Have Internal Controls?

Every organization must have internal processes and control over the AP process to ensure the company’s cash and assets are safe. These internal controls help you to prevent paying a fraudulent or inaccurate invoice. Also, it avoids scenarios where you might pay the vendor twice for the same bill.

Why Is Accounts Payable so Important?

Tracking and paying your accounts payable on time helps you to maintain good relations with your vendors. Also, when you pay back on time, you can save some money as many vendors offer discounts to buyers who pay their pending payments on time or early. Here we have explained the importance of AP with an example.
Example- Vendor ABC company asked the CDE company to pay an invoice within 30 days and offered two percent discount if the CDE company pays within 15 days.
CDE company ordered goods worth $2000 from vendor ABC company. When CDE company received the purchase invoice or bill, they made the following journal entry in their financial books:

AccountName	Debit	Credit
Purchases	$2,000
AccountsPayable		$2,000

The invoice sent by ABC company offered a two percent discount for paying the invoice within 15 days. CDE company wanted to save two percent amount, so they decided to pay the invoice within 15 days. Here in this example, the journal entry posted by CDE company will have following details:

• 
  The discount amount received because CDE company decided to pay early
  (2000 * 2%= $40)
  
• 
  The payment made to the ABC company ($2000- 40= $1960)
  
• 
  Updating the accounts payable for ABC company (debit $2000)
  

Here in this example, the journal entry will be