It is easy to put transactions in Accounts Payable (A/P) Aging Summary, and them forget about them. When writing a check from the checking QuickBooks does not automatically go look to see if you put something in Accounts Payable. Sometimes Accounts Payable will have transactions in Accounts Payable that do not belong there.
For Example:Credit card balances or monthly payments. Credit cards like checking and savings accounts need to have all their transactions entered in and reconciled. Short-cutting and putting in a bill will distort the financial statements and will not have a clear understanding of details.
Taxes due to the Internal Revenue Service, State, and Local Payroll taxes or Sales tax-related obligations. Employee or owners child support payments do not belong in Accounts Payable.
Payments to and from the company and between owners is Owners Draw, Loan to Members or Loan To Shareholder and related transactions do not belong in Accounts Payable because you are not an outside vendor.
Do not create a bill for the company to pay. Anytime it is a company expense; the company should pay direct. There is nothing messier than constant reimbursements to the owner by the company. A bill with no detail just looks like a bogus payment to the owner trying to take money out the company that is being masked as an expense.
The old saying “Devil In The Details” Transactions in QuickBooks need to be explainable without any need to have a story problem to go with it. The Memo line in QuickBooks is short for a reason – less is better and more transactions are better than fewer transactions. Annual tax returns are many pages giving the detail (which may be stated over and over again on numerous pages). As with Accounts Receivable, the same type of detail applies to Accounts Payable (A/P) Aging Summary.
Are the transactions Current, 1-30, 31-60, 61-90, >90 and Total?
Add in the dimension of payment can be done from multiple banks, credit card accounts and in the case of suppliers, there may be credited to be applied. Any time there are unpaid balances the first place to look is, did the amount get paid directly from the checking account? Was the amount slightly different (including a late charge or additional vendor bill not entered into QuickBooks)?
Again if transactions are in as Accounts Payable, that should not be it gives the appearance of overinflated expenses. To be in QuickBooks under Accounts Payable, the transaction is being entered in as a bill. Any payments paid directly by the checkbook does not automatically know that a bill has been created. Same with any payment made with a credit card; there is no link between the credit card payment and the bill unless QuickBooks is told the bill was paid by credit card.
Negative numbers in Accounts Payable (A/P) Summary means that vendor was paid as a bill but without any bill being entered. Accounts Payable aging report reflects how long it is taking you to pay your bills.
Unless you have won the lottery (which we all want to do), then you need to collect before paying your bills. The most favorite way for Contractors to pay their bills is to Collect a job deposit, buy a new vehicle, tools or equipment and then pay any outstanding bills. When paying Old Bills with New Money (not money collected from the job that the billed were associated with) is “Robbing Peter To Pay Paul” (author unknown)
I get it. It is a more natural number to know. How much the customer owes you (especially if the job is Time and Material or Cost Plus) is hard. Not all of the bills may not have arrived from your Vendors or Sub Contractors. Then there is the issue of how you billed. Was it clear and easy for the customer to pay you?
What is guaranteed is the Bills will come and continue to occur. You may forget or forgive to the bill and receive payment from your Customer, but it is unrealistic to expect or hope that your Vendors, Suppliers or Subcontractors will do the same.
Bills, bills, and more bills are setups on auto-pay so they will get their money.
Question is how will you pay the bills? When will you pay the bills? Are you paying with Income from Customers? Credit Cards racking up your debt? The line of Credit which again is racking up debt? Personal savings or investments? (borrowing from tomorrow to pay for yesterday) Borrowing on your House?
Borrowing from a Pay Day Type of Lender (some take repayment daily automatically from your banking account) Borrowing from the Government by not filing and paying by the due dates.
Keeping up and paying bills is a challenge in the best of times. With proper bookkeeping you can know Whom You Owe, When Your Payment Is Due, If you plan you can pay off the balance in full. Moreover, my favorite is not double pay if it can be avoided.
It is a big deal to know the rules. Sometimes asking for a payment plan is the only option. If it is necessary, ask nicely, ask politely, ask as long of time pay as possible, for as small of a monthly payment as they will give you. It is better to double up on a low payment (to pay off sooner) then have a large payment that is impossible to pay.Conclusion:
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About The Author:
Sharie DeHart, QPA is the co-founder of Business Consulting And Accounting in Lynnwood Washington. She is the leading expert in managing outsourced construction bookkeeping and accounting services companies and cash management accounting for small construction companies across the USA. She encourages Contractors and Construction Company Owners to stay current on their tax obligations and offers insights on how to manage the remaining cash flow to operate and grow their construction company sales and profits so they can put more money in the bank. http://www.fasteasyaccounting.com/sharie-dehart/ 206-361-3950 or sharie@fasteasyaccounting.com
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