Week 6 — Accounts Payable (AP)

Overview

Week Overview

Week 6 shifts the focus to the liabilities side of bookkeeping: Accounts Payable (AP). Students learn how to set up and maintain vendor records, record vendor bills, manage purchase orders and payment schedules, and support 1099 reporting, all while maintaining accurate AP ledgers and aging reports.

Objectives

Weekly Learning Objectives

By the end of this week, students will be able to:

Explain the purpose of the Accounts Payable function in a business.
Set up and maintain vendor records, including basic 1099-eligible vendors.
Record vendor bills using purchase orders and other source documents.
Apply terms, discounts, and due dates to create payment schedules.
Maintain and reconcile the AP ledger and AP aging report.
Distinguish between 1099 and non-1099 vendors and track 1099-eligible payments at a basic level.
Describe key AP internal controls (authorization, segregation of duties, fraud prevention).

Concept 1

Role of Accounts Payable

Accounts Payable represents amounts owed to vendors for goods and services already received. AP affects cash flow, vendor relationships, and financial reporting. Bookkeepers ensure AP balances are accurate and payments are timely, supporting both liquidity and vendor trust.

Concept 2

Vendor Setup & Master File Maintenance

Key components of a vendor record include:

Legal name and DBA (doing business as), mailing address, and contact info.
Taxpayer Identification Number (from Form W-9 for U.S. vendors).
Default payment terms (e.g., Net 30, 2/10 Net 30).
Payment method (check, ACH, credit card).
1099 flag and income type (for service vendors where applicable).

Students learn why obtaining a W-9 before paying most service vendors is important and how clean vendor data supports accurate AP and 1099 reporting.

Concept 3

The AP Cycle: From PO to Payment

Typical AP flow:

Purchase requisition (internal request).
Purchase order (PO) issued to the vendor.
Goods or services received; receiving report or packing slip created.
Vendor invoice received and matched to PO and receiving document.
Invoice entered into the AP system and coded to the correct GL account.
Invoice scheduled for payment based on terms and cash availability.
Payment processed (check/ACH/card) and recorded.
Paid documents filed; AP ledger and aging updated.

Students see how three-way matching (PO, receipt, invoice) helps prevent unauthorized or duplicate payments.

Concept 4

Recording Vendor Bills in AP

Students learn to analyze vendor invoices and code them properly.

Example: Vendor invoice for office supplies, $450, terms Net 30.

Office Supplies Expense ............. Dr 450
    Accounts Payable – Vendor X ........... Cr 450

Topics include choosing appropriate expense or asset accounts, handling sales tax where applicable, and distinguishing between short-lived expenses and capitalizable assets.

Concept 5

Payment Terms, Schedules, and Cash Flow

Common payment terms:

Net 15, Net 30, Net 45
2/10 Net 30 (2% discount if paid within 10 days; otherwise full amount due in 30 days)

Students calculate due dates, evaluate early payment discounts, and consider how AP timing affects cash flow. They learn to build a simple payment schedule to avoid late fees and maintain good vendor relationships.

Concept 6

AP Ledger & Aging Report

The AP ledger is a subsidiary ledger containing individual vendor accounts with running balances. The total of all vendor balances must equal the Accounts Payable control account in the general ledger.

AP Aging Report:

Groups payables into aging buckets (Current, 1–30, 31–60, 61–90, 90+ days).
Helps identify overdue invoices and manage payment priorities.
Supports the balance sheet and cash planning.

Concept 7

1099 Vendor Tracking (Overview)

Bookkeepers help support 1099 reporting by correctly setting up and coding vendors whose payments may be reported on Form 1099-NEC or other 1099 forms.

Key ideas:

Identify potential 1099 vendors (many unincorporated service providers in the U.S.).
Collect Form W-9 to obtain legal name, address, and TIN.
Track year-to-date payments to 1099 vendors.
Provide accurate reports for year-end 1099 preparation.

Concept 8

Internal Controls in Accounts Payable

Segregation of duties (requesting, approving, and paying are separated).
Approval workflows for invoices over specified thresholds.
Three-way matching (PO, receiving report, invoice) before payment.
Control over check stock and banking credentials.
Dual signatures on large checks or payments.
Regular AP aging review and reconciliation with vendor statements.
Procedures to avoid duplicate vendors and duplicate payments.

Activities

In-Class Activities

1. Vendor Setup Lab

Students review mock vendor information, decide which vendors are 1099-eligible (basic criteria), complete vendor setup forms, and assign payment terms.

2. AP Transaction Cycle Simulation

Using purchase orders, receiving reports, and vendor invoices, students perform three-way matching, decide if bills are ready to pay, record vendor bills, and update a simple AP ledger and aging list.

3. AP Aging & Payment Prioritization

Given an AP aging report and limited cash available, students choose which vendors to pay first and explain their payment strategy based on due dates, discounts, and vendor relationships.

Homework

Homework Assignments

Assignment 1: Vendor setup and 1099 flagging — classify vendors, assign GL accounts and payment terms.
Assignment 2: Recording vendor bills — prepare journal entries, post to vendor accounts, and compute balances.
Assignment 3: AP aging and payment plan — analyze an aging report and design a payment schedule.

Discussion

Discussion Board Prompt

How does the Accounts Payable function affect both cash flow and vendor relationships? What can go wrong if AP is poorly managed (for example, late payments, duplicate payments, missing 1099s)?

Quiz

Quiz Topics for Week 6 (AP)

Definition and purpose of Accounts Payable.
Vendor master data and W-9 basics.
Purchase orders and three-way matching.
Recording vendor invoices and payments.
Payment terms and early payment discounts.
AP aging report interpretation.
Basic 1099 vendor and payment tracking concepts.
Key AP internal controls and fraud risks.

Summary

Week 6 Summary

Week 6 teaches students how to manage Accounts Payable in a way that protects cash, maintains strong vendor relationships, and supports accurate financial reporting and 1099 compliance. A well-run AP function is essential for healthy cash flow and audit-ready books.

In the next week, students can build on this by exploring Accounts Receivable & Revenue Cycle Management.