ACCOUNTS PAYABLE (AP) PROCESS FLOW:
- The AP process starts once the need for any material or service is identified at the production department or any other department.
- The production department will raise the purchase requisition (PR) through procurement, commercial team.
- The commercial / production department will then get bids or quotes from different vendors and finalize the vendor.
- Once the vendor is finalized, they will issue a Purchase Order to vendor.
- Thereafter, the vendor will deliver the goods / services to warehouse / factory.
- The warehouse person will enter the receipt of goods in Goods Receipt Note (GRN). In case of services, it is Service Receipt Note (SRN).
- Simultaneously, vendor will send the invoice copy to Accounts Payable (AP) team.
- The AP team will do a 3 way match between invoice, PO and GRN/SRN and process the invoice.
- Payment will be made to the vendor based on the payment terms.
NOTE:
Once in a while, the vendor reconciliation will be carried out. This activity will ensure that no invoice in missed or any incorrect accounting is rectified.
JOURNAL ENTRIES:
Entry 1: Receipt of Goods / Services:
- Expense Account Dr.
To SRN / GRN Control Account
(This SRN / GRN account is a control account which will be knocked off once the invoice is processed by the AP team. This is a liability account. )
Entry 2: Invoice Processing (3 way match)
- SRN / GRN Control Account Dr.
To AP control Account
- AP Control Account Dr.
To Vendor Account
(AP Control account will be knocked off once the vendor is due for payment. This AP control account is a liability account)
Entry 3: Payment Entry:
- Vendor Account Dr.
To Bank Account
