(gentle music) There are several ways to implement basic business accounting. After completing these lessons, you will have a better understanding of concepts, such as accounts payable and receivable, using a journal, what goes into a general ledger, and cash management. Accounts payable are the financial obligations that business owners owe to suppliers after they purchase products or services on credit. A business can have an open credit line with a supplier. An open credit line is a business's borrowing agreement for the amount of money, supplies, or inventory they need to purchase. The option to borrow from a supplier can be exercised at any time within an agreed upon time period. An accounts payable account is a liability account, and so it normally has a credit balance. When an invoice from a supplier is recorded by a business, the accounts payable account will then be credited and another account will have to be debited. When an accounts payable balance is paid by a business, it will then be debited and cash will be credited. The credit balance in accounts payable must be equal to the amount of a supplier's invoices that the business has recorded but not yet paid. Under the accrual method of accounting, a business that has received goods or services on credit has to report the accounts payable liability no later than the date the goods or services were received. This same date must be used to record the debit entry to an expense or asset account. Keep in mind that in using the accrual method of accounting, business expenses are reported when they are incurred, not when they are paid. The process for an accounts payable account has to be done efficiently and accurately so that a business owner's financial statements are free from errors. Due to double-entry accounting, any invoice from a supplier that is omitted will cause two accounts to have incorrect amounts reported. For example, if a repair expense has not been recorded by a business when it should be, the liability will be left off the balance sheet and the repair expense will also be left off of the income statement. The accounts payable process is very important to a business because it involves nearly all of a business's payments outside of the regular payroll. Regardless of a business's size, the only accounts payable they're required to pay are bills and accurate invoices. This means that before a supplier's invoice is entered into the accounting records and a business schedules it for payment, the invoice must reflect what the business ordered along with what the business received.
