Businesses that purchase goods and services on credit generally use a subsidiary report called accounts payable (AP) to manage vendor (supplier) accounts. In this chapter we describe how payables are managed in NewViews.
A subsidiary report with a simple structure can be used in NewViews to manage vendor payable accounts. This report contains one account for each vendor and it totals to an AP controlling account on the trial balance or balance sheet. Vendors can be ordered in any way on the report and they can be rearranged at any time using /Block Move when sorted by line number. Vendors can also be grouped and sub-totaled by any category.
Ledger views of vendor accounts display the vendor's transactions along with opening, closing and running balances. Therefore a vendor account should correspond to statements received from the vendor. Typically, transactions consist of invoices, payments, credit memos and service (finance) charges. As you browse through a vendor account you can restore, if necessary, the top pane of the Ledger Explorer to see invoices and other transactions for more detail.
Different ledger views provide useful alternatives for viewing a vendor account. The account ledger view displays all transactions whether open, closed, debit or credit. The credit view displays only invoices, service charges and debit memos received from vendors. The debit view displays payments remitted and credit memos received. Open and closed views can be used to separate reconciled and unreconciled items for the balance forward method, or to separate open and closed items for the open item method. The history view provides a historic summary of the vendor account. In addition, the address view is used to record contacts, phone numbers, addresses, ordering information. The notes view is used to record miscellaneous comments and instructions.
Invoices are added to a purchase invoice journal. Crediting a vendor account and debiting appropriate purchase accounts if the periodic inventory method is used, or directly to inventory accounts if the perpetual inventory method is used. Payments are added to a bank payment journal, debiting the vendor AP accounts. Note that NewViews provides the ability to automatically print checks in any format, including the use of check stubs that include all details. Also, as an alternative to adding invoices directly to the invoice journal, you can add them to a vendor accounts as distributions.
If you record invoices at gross then discounts are taken by adding a distribution for a payment remitted. The gross invoice amount is posted to the vendor AP account and any discounts taken are posted to a purchase discounts account. As an alternative, invoices can be recorded at net, assuming that discounts are always taken. In this case, discounts not taken are added to the customer AP account, posting to a discounts lost expense account. Discounts lost are included in the calculation of cost of goods sold whether the periodic or perpetual inventory method is used. The net method has the advantage of highlighting procedural problems to management.
Instead of recording purchases when invoices are received, you can record purchases at the time orders are placed, dating them on anticipated delivery dates. The ability to add transactions dated in the future is useful for planning and order management. Transaction detail can be printed as a purchase order and the order becomes an invoice when goods or services are received. The decision of when to add distributions for purchases depends mainly on the timing of orders and deliveries, and on your planning and control requirements.
In NewViews, any vendor account can be managed using either the balance forward or open item method and these methods are not mutually exclusive. You can use the balance forward method for some vendors and the open item method for others and you can switch from one method to the other at any time. However, if you employ both methods you should separate balance forward from open item accounts on the same or different reports to easily identify the method used for any vendor and to conveniently produce aged reports that include only open item vendors. It should be clear that in NewViews open item and balance forward accounts differ only in the way you decide to manage them.
For balance forward accounts, invoices, payments, and other transactions are added to AP accounts as they occur. For open item accounts, payments remitted to a vendor are applied to open invoices. The payment and the invoices to which it applies are closed. In this case, the invoices to which a payment applies should be indicated on the payment remitted to the vendor. You can apply payments to invoices at any time, but they should be applied in a systematic manner. For example, you can apply payments immediately on remittance or they can be applied when vendor statements are received. Tool Commands can be used to automate the application of payments to open items and the printing of checks.
The vendor should always accompany the delivery of each order with an invoice but the vendor may not necessarily provide statements. If regular statements are provided, they can be either balance forward or open item. You can manage any vendor account using either the balance forward or open item method regardless of the format of the statement issued by the vendor. However, the balance forward or open item methods are typically used for all accounts or else the method used for each vendor account is matched with the method used on statements issued by the vendor.
Since your vendor accounts are not used to produce statements as in accounts receivable, reconciliation with vendor statements is the main area of concern for payables. If the vendor does not issue statements then there is no need for reconciliation. Otherwise, reconciliation depends on the method used for the account and on the format of the statement received.
When a vendor account is managed using the balance forward method and the vendor provides balance forward statements then they are reconciled using the straightforward reconciliation method. That is, ensure that the reconcile balance of the account equals the opening balance of the statement. Close all items on the account that appears on the statement. Add any items that appear on the statement but not on the account, such as service charges, and close them. Then ensure that the reconcile balance equals the closing balance of the statement. The open view is convenient for reconciliation because items that have been reconciled move to the closed view and only items requiring further operator attention remain.
When a vendor account is managed using the balance forward method but the vendor provides open item statements then reconciliation is performed by visual inspection. Many items such as payments never appear on open item vendor statements. Also, payments may be applied by the vendor to invoices before the invoices have a chance to appear on a statement. Check the transactions on the open item statement against the account ledger view. Add any items such as service charges that appear on the statement but not on the ledger. The running balance of the account ledger at the date of the statement should equal the closing balance of the statement. Any difference should be due to transactions added to the ledger that were not received and processed by the vendor in time to appear on the statement.
When you use the open item method and the vendor provides open item statements then these statements do not necessarily correspond to the open view of the vendor account. Payments that you have remitted and applied against invoices on the account may not have been received and processed by the vendor in time to remove the invoices from the statement. Reconcile by visual inspection. The opening balance on the statement should equal the running balance of the account at the date of the oldest item on the statement. Check transactions on the statement against the account ledger view and add any items such as service charges that appear on the statement but not on the ledger. The closing balance on the statement should equal the running balance on the ledger at the date of the statement. Any difference should be due to transactions added to the ledger that had not been received and processed by the vendor at the time of the statement.
When a vendor account is managed using the open item method but the vendor provides balance forward statements then reconciliation is performed by visual inspection. The account ledger view should correspond very well to the statement. The opening balance of the statement should equal the running balance of the account at the opening date of the statement. Check transactions on the statement against the account ledger and add any items such as service charges that appear on the statement but not on the ledger. The closing balance of the statement should equal the running balance of the account at the closing date of the statement. Any difference should be due to transactions added to the ledger that had not been received and processed by the vendor at the time of the statement.
Although an account is usually kept for each vendor, some vendors are temporary in nature and do not warrant a separate account. You can instead employ a single account to manage all miscellaneous vendors. Invoices for many vendors are intermixed on this account so it must be managed using the open item method. Payments are applied to the outstanding invoices for a vendor on an individual basis. The description of each transaction should clearly identify the vendor. Note that you can use a single account for all of your vendors if your requirements are limited. For example, if the majority of purchases are on a cash basis, with credit being the exception rather than the rule, you can manage all outstanding invoices on a single account.
When the open item method is employed for vendor accounts you can use the custom analysis view for an aged accounts payable report or the Invoice Aging window of the AP Account Type. Note that aging has no meaning for the balance forward method. The sums of open amounts are displayed for up to six periods and the periods can be of varying length. The aging report is very useful for identifying problems at a glance.
Using the accounts payable report, NewViews tracks purchases by vendor automatically. Credit amounts are selected to report purchases for any period. The analysis view provides the ability to display purchases for up to six periods simultaneously in any of the forms available on the analysis view (i.e. amounts, variances, percentages and graphics). In addition, monthly credit amounts can be selected on the history view of an account to display the entire history of purchases for any vendor.