Waching daily Jul 3 2018

hey it's patti scharf CPA and co-founder catching clouds the leader in e-commerce

accounting today I'm gonna help you demystify accounts payable and accounts

receivable so let's just jump in with an example and get started

all right so we've got Bob here Bob is selling some stuff okay in order for him

to sell some stuff he needs a buyer so we've got Tom over here who's buying

some stuff okay Tom has some cash sitting in the bank or wherever he

doesn't want to just trade cash for the stuff or he doesn't want to write a

check or something like that he wants to actually pay on account or on terms so

what this means is he's gonna set up an account with the seller Bob and Bob and

Tom are just gonna agree hey I'm gonna pay you in 30 days instead of today and

bob is like cool that's cool with me in fact what I'm gonna do is I'm going to

sell it not just net 30 which means he would have to pay in 30 days I'm gonna

sell it to 10 net 30 and that means he will get a 2 percent discount on the

purchase if he pays within 10 days otherwise if he doesn't pay in 10 days

he just pays the full amount by 30 days okay so Bob sells the stuff to Tom see

now Tom's got this stuff in his hot little hands and Bob has a sales invoice

so the invoice is basically the same document whether you are the seller or

the buyer it just kind of depends on its interpretation depends on who you are

so for Bob it's a sales invoice he records a sale and he has this asset on

his books called accounts receivable it's because it's an account and he's

expecting to receive some money okay so not so crazy and then for Tom he has a

bill also called an account payable because he is supposed to pay it to Bob

and he works so he records it as supplies and now he has this liability

on books that he will need to pay so it's a

debt to pay okay now Tom decides to pay Bob so he takes

some of his cash and the bill becomes no more he sent some cash over to Bob Bob

gets paid in full and voila there's no more account payable no more account

receivable because they have been paid off and at the end of the day Bob's got

got sales on his books and Tom's got stuff in his hands supplies that he's

going to use in his business and he has a little bit less cash because he gave

that to Bob okay that's all it is it's it's nothing crazy it's pretty

straightforward so if you have accounts receivable it means your customers owe

you money if you have accounts payable it means you owe some other people money

let me give you a little example at the end of every month what we'll do for our

clients is we will send them a list of what's called the aged payables this is

basically just a list of any of the payables that have not yet been paid

okay and this report this just came out of

zero shows a list of all of their different vendors that they owe money to

so ABC furniture they owe eleven fifty smart agency they owe forty five hundred

of this forty five hundred two thousand came from April twenty five hundred came

from May so on and so forth so you can see how much money is still owing to all

the different vendors and specifically who they owe money to so we actually

will send this to our clients at the end of each month and ask them to review

this and just make sure that it makes sense because we're not the ones who are

actually engaging the smart agency so we don't know what bills should necessarily

be on there we only know what we've got and we only know what we've recorded so

if there's something drastic that might be missing or something that is on here

that they know they've paid that can open up a dialogue between our

accountants and our clients and just go wait no something went wrong somewhere

and we can troubleshoot that and fix it and then here's an example for aged

receivables so say thing we send a list and this is a list

of all the customers who haven't paid yet so we can see hey you know city

limousines they have not paid since March or earlier so maybe don't loan

them any more money maybe cut off their terms don't give them credit anymore so

that's the whole point of accounts payable and accounts receivable I hope

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