ABC Solutions

Watch Out for These Five Common Accounts Payable Errors

Paying bills is never fun, but paying bills you shouldn’t pay in the first place is even worse. There are many risks that can part a small business owner with their hard-earned cash, and here are five to watch out for when it comes to your bill-paying process.

1. Fraudulent invoices

Some companies will send marketing documents disguised as invoices to businesses. You may have to read the fine print to notice it’s not really an invoice. In some cases, it’s simply outright fraud, trying to get you to pay something that is not owed.

Many times, these invoices look official, similar to legal filing requirements, but don’t be fooled.  Examination of the fine print can save you a lot of money.

Set up procedures to catch these types of invoices. Managers should be careful not to approve these invoices for payment. Bookkeepers should be trained to question their supervisors about these invoices.

2. Item(s) not received

Three-way matching can prevent paying an invoice for which the goods were never received. Put into place a couple of procedures to prevent this accounts-payable error:

  1. Have warehouse staff match the shipping receipt to what’s in the shipment when it arrives.
  2. Have accounts payable staff match the marked-up shipping receipt to the invoice when it comes in. If the invoice shows that more items were billed for than received, a call to the vendor to correct the invoice is in order.  The invoice amount should be adjusted on the books and a check can be cut for the reduced amount.

3. Wrong amount

Sometimes the wrong price can be listed on the invoice.  If this happens, there may have been a misunderstanding during the sales process.  A call to the vendor is needed in this case as well so that a corrected invoice can be issued.

4. Math error

This hardly happens in these days of computers, but it can.  All invoices should be reviewed for reasonableness.  If it doesn’t make sense that something should cost so much, it probably shouldn’t.  In rare cases, a price may have been entered wrong or a computer bug could have occurred.

Spot-checking the invoice’s math can save money if an error has been made.

5. Duplicate invoice

This happens way too often.  We may get an emailed invoice; then the same invoice comes in the mail.  We need procedures in place to keep it from being paid twice.

Many accounting systems do this automatically, but if one character is off related to vendor name, the system could break down.  Review a list of disbursements monthly to make sure payments don’t get duplicated.

Procedures are the answer to reducing accounts payable errors and making sure you pay only the invoices that are truly due.

Get Organized with This 32-Item Year-End Close Checklist

A great way to make a wonderful start to 2020 is to wrap up 2019 feeling organized and on top of the world. Here’s a checklist of items that you can start on now to make your year-end close go smoother than ever before. And don’t worry if you don’t know how to do some of these tasks – that’s what we’re here for.

  1. Catch up on your books, especially if you do them only once a year. By doing it now, you’ll be able to get into your accountant faster this time of year and they will appreciate getting the work done ahead of their crunch time.
  2. Catch up on bank reconciliations in case they are not up to date. Don’t forget your savings accounts, PayPal, and any other cash equivalents. Void any old uncleared checks if needed.
  3. Review unpaid invoices in accounts receivable and get aggressive about collecting them, especially if you are a cash basis tax payer. Clean up any items that are incorrect so that the account reconciles.
  4. Write off any invoices that are no longer collectible.
  5. Ask employees and vendors to update their addresses in your payroll system so that W-2s and 1099s will reflect the correct addresses.
  6. Collect any W-9s that you don’t already have on file for contractors that will receive a 1099 form from you.
  7. Collect workers compensation proof of insurance certificates from contractors so you won’t have to pay workers comp on payments you have made to them.
  8. Collect sales tax exemption certificates from any vendor who has not paid sales tax.
  9. Decide if you’ll pay employee bonuses prior to year-end.
  10. Review employee PTO and vacation time and reset or rollover the days in your payroll system.
  11. After the final payroll runs, contact your payroll software company to make any W-2 adjustments necessary for things like health insurance.
  12. Set the date to take inventory, and once you have, make adjustments to your books as necessary.
  13. Write off any inventory that is unsalable. If possible, sell scrap inventory or other waste components.
  14. Prepare a fixed assets register, calculate depreciation, and make book adjustments as needed.
  15. Record all bills due through year-end, and reconcile your accounts payable balance to these open bills.
  16. Make loan adjustments to reflect interest and principal allocations.
  17. Perform account analysis on all other balance sheet accounts to make sure all balances are correct and current.
  18. Make any additional accrual entries needed, or if you’re a cash basis taxpayer, make those adjustments as needed.
  19. Get an idea of what your profit number will be. Choose whether you want to maximize deductions to save on taxes or whether to want to reflect more income. Decide what you can defer into 2020 or what you want to have as part of your 2019 results.
  20. Match all transactions with their corresponding documents – receipts, bills, packing slips, etc. – to make sure you have the paper trail you need.
  21. Download your bank statements and store them in a safe place.
  22. Download any payroll reports and store them in a safe place.
  23. Scan in paper documents so that they’re stored electronically.
  24. File any important papers such as new leases, asset purchases, employee hiring contracts and other business contracts.
  25. Prepare a budget for 2020 and enter it into your accounting system.
  26. Take a look at the 2020 calendar to determine which holidays you’ll close and give employees a copy.
  27. Review your product and service prices if this is the time of year you do that and make any changes you decide on.
  28. Update your payroll system for any new unemployment insurance percentages received in a letter each year.
  29. Update the mileage deduction rate if that rate has changed at the beginning of the year.
  30. Set a time with your accountant to go over 2019 results and get ideas on how to meet your financial goals in 2020.
  31. Review the metrics you’ve been using in 2019 and decide on the list of metrics and corresponding values that will take you through 2020.
  32. Celebrate the new year; it’s a wonderful time to gain perspective and be hopeful about the upcoming year.

Start 2020 with a bang and this year-end checklist, and feel free to reach out if we can help with anything.

Using Custom Fields in Your Accounting Software

Custom fields in your accounting software are data fields that you can define yourself. They are typically associated with customers, vendors, employees, and items, and they can help you store and categorize additional information about these stakeholders and your products and services in your business.

An example custom field that can be associated with customers is their anniversary date with you. You could also decide to store their birthday, their spouse’s name, their favorite color, or their shoe size.

Custom fields add functionality to your accounting system. Here are a few examples of practical uses for custom fields:

  • Staff contact for customer – if customers are assigned a particular staff member, you can add their name in a custom field
  • Frequency of service – daily, weekly, monthly
  • Warehouse location
  • Type of customer; for example, hospitals, pharmacies, retirement homes
  • Referring physician
  • Preferred method of contact: email, phone, fax, text, chat
  • License number

Some software allows you to choose the type of custom field you want to add. In some cases, this allows for cleaner data as the data can be limited to a certain type or certain values upon entry. Here are the most common types:

  • Free form text – this is the default type; it can come as a single line or paragraph
  • Check box – choose one or more values from a limited number of choices
  • Radio button – choose only one value from a limited number of choices
  • Drop down – choose a value from a dropdown list
  • File upload – add an attachment
  • Image upload – upload an image that will be displayed
  • Date/time – enter a date or time
  • Number – enter a number; it can be currency, integer, or another mathematical type of number

Custom fields allow you to meet your company’s unique needs over and above what the software provides by default.  It’s a great way to make your data more meaningful. If you have some ideas for custom fields in your accounting software and want help setting them up, feel free to give us a call anytime.

Avoiding Accounts Payable Errors: What to Watch Out for

When you pay a bill in your business, are you 100 percent comfortable that the bill payment is correct and justified? Is there ever a chance that that bill is fake or fraudulent? What about duplicates? With so many fake bills being mailed to businesses these days, it makes sense to think about controls you can put into place to reduce the risk that you might write a check out of your hard-earned profits that should never be written.

Accounts Payable Controls

In the accounting profession, the term “internal controls” refers to processes, procedures, and automations you can put into place to reduce errors. In accounts payable, there is a specific subset of rules and controls you can put into place to reduce risk in this area. Here are just a few ideas.

1. Approvals

All bills should be approved by the appropriate level of staff in your business. Sometimes a bill gets approved that is fake or shouldn’t be approved, especially in areas where the approver doesn’t have technical knowledge of what they are buying. Be sure to read the fine print on the bill and make sure you know what you are paying for.

2. Segregation of duties

The person who pays the bill should be different from the person who submitted the bill. These people should be different from the one who signs the check. This reduces employee fraud.

3. Receipt confirmation

A packing slip or other confirmation of receipt of the goods or services should be matched to the invoice, line item by line item.

4. Math check

A prudent step is to check an invoice’s math, at least for reasonableness.

5. Duplicate payments

If a vendor emails their bill as well as mails a hard copy, controls should be put in place (usually automated) to avoid duplicate payments on the same bill.

6. Reconciliation

If there are a significant number of transactions between you and a vendor, an accounts payable reconciliation should be performed each month via a statement.

7. Missing check numbers

Most systems provide a missing check numbers report that you can use to make sure all checks are accounted for.

8. Bank reconciliation

A bank reconciliation is a sure way to see exactly what checks cleared your bank account.

9. Coding

Coding each transaction to the correct expense account, inventory, asset, or cost of goods sold account is an essential part of the process.

10. Income statement review

Each month, a review of the balances in your expense accounts as well as a disbursements ledger review for reasonableness can provide added peace of mind.

11. Purchase order

Requiring purchase orders is another control you can add to your process. Purchase orders should be matched to packing slips and invoices before payment or approvals are made.

12. In-depth knowledge of your business’s numbers

The more you get to know the numbers in your business, the greater chance you’ll have of accurate accounts payable handling.

And if you’d like to discuss your accounts payable function with us and how it can be improved, we’re happy for you to reach out any time.

Buying a Car or Truck for Your Business?

When you purchase a new vehicle, you get the fun of riding around in a new car with the new car smell! Our job has just begun – to get your new asset recorded properly on your books. We thought it’d be fun to give you a behind-the-scenes sneak peek at our part. 

Sales Contract

The first thing we’ll ask you for is the sales contract.  It will give us the payment price of your car, and we’ll use that number to record your new asset on your balance sheet.  If you paid cash with no trade-in, the journal entry we’ll make is:

Debit: 2019 Toyota RAV4

$25,500

Credit: Cash

$25,500

Then we’ll decide on a depreciation method and book depreciation monthly or at year-end.

Debit: Depreciation Expense

$5,100

Credit: Accumulated Depreciation

$5,100

Trade-in

If you traded in a vehicle that is on your books, we’ll need to make an adjustment to your books. Effectively, your old car will be eliminated from your balance sheet. If this asset had a book value and it was not fully depreciated, the net value would be compared to the trade-in value and a gain or loss on the asset sale would be recorded on your income statement. 

Let’s say the balance sheet value of the three-year-old car you traded in was $10,000 and you got $8,000 on the trade-in. Here’s what we would record:

Debit: 2019 Toyota RAV4

$25,500

Debit: Accumulated Depreciation

$15,000

Debit: Loss on Sale of 2016 Car

$ 2,000

Credit: Old 2016 Toyota RAV4

$25,000

Credit: Cash

$17,500 ($25,500 – $8,000 trade-in)

We’d also start the depreciation for the new car.

New Car Loan 

Most often, a new car purchase will be financed, so we have a new liability to record too.  We’ll need to get a copy of the loan documents from you and an amortization schedule of the payments. Let’s say you made a ten percent down payment with no trade-in.  Here’s how that would look:

Debit: 2019 Toyota RAV4

$25,500

Credit: Cash

$2,550

Credit: Toyota Loan

$22,950

Then, each time you make a monthly payment, the amount will need to be split between principal and interest and those amounts will need to change each month.

Debit: Interest Expense

$390

Debit: Toyota Loan

$60

Credit: Cash

$450

We left out a few trade secrets just to keep it intriguing. There are a lot of other numbers on a car purchase: taxes, licenses, warranties, add-ons, fees, and more. Some of these can be directly expensed, while others need to be included in the value of the asset. So if you’re happy that we’ll take care of this for you, we’re happy to do so. 

Let us know if you purchase an asset this summer so we can get it booked right for you.