Accounts Payable Example

The documents and accounts payable represent present obligations arising from the operations of past transactions, such as such as the acquisition of goods or services or by obtaining loans to finance the goods that constitute the active.

The importance of accounts payable within working capital constitutes in the vast majority of companies the main amount of current obligations, due to the fact that include debts for merchandise and services necessary for production and sale operations, as well as other debts for expenses and services that do not affect production or inventories but are not considered directly in the expense accounts, such as concepts related to professional fees, advertising announcements, income, etc., which are applied to results. They also include liabilities arising from the acquisition of machinery and equipment that represent an investment and non-current assets.
An important measure to know the financing received from suppliers is obtained as follows:

Liabilities in favor of suppliers
Inventories

The result represents the financing without cost that has been received from the suppliers on the investment in inventories.
Depending on the line of business, the financing varies.
The days of inventories that are financed by suppliers are obtained as follows:

(Inventory turnover) (Supplier financing)

The policies for the administration of accounts payable must be formulated by the finance and purchasing areas with the knowledge and acceptance of the general management, since the good or bad administration of accounts payable directly affects the liquidity of the company and the flow of cash.

INFORMATION

For a good administration of accounts payable, it is necessary to have accurate and timely information from the company that allows making decisions. It is necessary to have a payment program that allows you to know your cash needs.

LEVEL OF FINANCING WITH ACCOUNTS PAYABLE

The level of accounts payable is determined mainly by the level of purchases of inventories as they are the ones that fix the expenditures that must be made and to a lesser degree for the concepts of expenses.
The level of accounts payable should be monitored due to the solvency of the company, which must have a relationship between the amount of the liability and the value of the company's stockholders' equity.

FINANCING POLICIES

The objective of financing policies with accounts payable is to maximize financing that has no cost to the company, obtain discounts for prompt payment or advance payment when conditions are presented to be negotiated and establish the level of indebtedness of the business.
The administration of accounts payable sets the policies, among which are:
To maximize the financing that has no cost for the credit company with suppliers, it is set with parameters in terms of credit days and assigned according to the different inputs that are acquire.
Take advantage of discounts for prompt payment or advance payment.
Level of indebtedness of the company.
Monitor the exposure of accounts payable to inflation and currency devaluation.

OTHER ACCOUNTS PAYABLE

They are all individual operations that do not come from representative sales production operations, nor do they constitute operations rather, they are sporadic, such as advances from clients on account of the services provided or for the acquisition of goods.

EXPENSES AND ACCUMULATED TAXES PAYABLE

They are part of the short-term liability, some examples are: interest payable, service expenses, etc.
The accumulated taxes payable are made up of income tax, employee profit sharing, social security contributions as well as withheld from employees such as the employer's share, the tax on work products, the value added tax, the INFONAVIT, the SAR and others on production, etc.
The most important concept of these are payrolls that involve significant payments, which have an important influence on working capital.

CONTROL

It relies heavily on the economic duality of operations, taking into account the basis on which it is based, which is double entry. In all transactions there will be two control points.
A basic principle is that there is a record for the purchase of goods or services. The transactions that are recorded for these concepts are very numerous and important, so there must be an internal control that safeguard the integrity of operations and allow a record that leaves information to be able to consult its movements and balances in any date.
The management of the company must ensure the existing control of accounts payable within the company and for this they must be able to be answered several questions, all aimed at providing sufficient information on whether accounts payable are being managed properly. efficient.
The company's operational control system must include:
Background procedures that must be followed in relation to the duties and obligations of each of the departments that make up the organization.
The qualities and knowledge that the staff must have in accordance with their responsibilities
An organizational plan that shows an appropriate separation of roles and responsibilities.
An authorization system and adequate registration procedure that provides an exact accounting control over assets, liabilities, income and expenses.

EFFECTS OF INFLATION AND DEVALUATION OF ACCOUNTS PAYABLE

Accounts payable are monetary liabilities and in times of high inflation that can be considered more than one digit, you must The utility that is produced in accounts payable is recognized because their settlement will be made with monetary units of lesser power of buys.
In the event of a currency devaluation, the amount payable in pesos of accounts payable in foreign currency changes and the realized loss must be recognized at the new exchange rate.
Good management must measure a company's exposure on an ongoing basis to minimize its effects. The investment position of the company in the face of inflation and devaluation is determined through the investment position status. Level positions of monetary assets and liabilities in national and foreign currency do not produce losses or profits due to the effects of inflation or devaluation due to the fact that their results are offset each.

SOURCE CONSULTED

Moreno Fernández Joaquín, et.al., The financial management of working capital, IMCP, 1996