Question 11.2: 2%, Net 30 terms mean that the payer will deduct 2% from the...

The supplier will ship a product and after that will issue an invoice, with later collection of the payment from the customer. The cash conversion cycle is defined as the time occurring between the payment of raw materials by the firm and the payment to the same firm of the receivables by the final customers (Capon et al. 1990).
Upon reception of an invoice, the purchases match it to the purchase order and the packing slip. After a check that everything is in order, the invoice is sent to payment, in a process called the three-way match. The three-way match can slow down the payment process, so the method may be modified.
In order to prevent the accounts payable staff from engaging in unethical behaviors, there are several checks that the firm can put in place. A common control is segregation of duties, in which a junior employee processes and prints a check, and a senior employee reviews and signs the check.
In most cases the software for processing the payables will not accept operations that overcome the limitations of functions assigned to a specific employee. So there is no way any one employee—even the controller—can singlehandedly make a payment.
In some companies the two functions of entering a new customer in the system and entering vouchers in the system are separated, so that no employee can make himself a vendor and write a check for himself.
The only way to do that in this case would involve colluding with another employee having access to the so-called master vendor file, namely, the repository of all significant information about the company’s suppliers. In addition, most companies require a second signature on checks whose amount exceeds a specified threshold.
If a purchase order system is not in place, then an approving manager must be put in charge of approving payments. The staff should be familiar with the common problems related to it.

In accounts payable, in fact, simple mistakes can lead to large overpayment issues. Duplicate invoices are an example of such an issue, and sometimes an invoice may be temporarily misplaced or still in the approval status when the vendor calls to inquire into its payment status.
Audits of account payables can solve many issues related to missed or duplicated payments. Auditors often focus on the existence of approved invoices, expense reports, and other supporting documentation to support checks that were cut.

In order to get a tangible proof of the existence of any account, it is a normal practice to ask for a confirmation or statement from the supplier. It is also common to lose some of the relevant documentation by the time the audit rolls around. An auditor may decide to expand the sample size in such situations.
The work of the auditors involves preparing an aging structure of accounts payable, allowing the understanding of what outstanding debts are in existence over different periods, normally counted on steps of 30 days.
One should note that an account payable for the consumer company corresponds to an account receivable for the supplier. This creates a symmetry between the payables of the customer and the payables of the supplier.
The accounts payable process or function is immensely important since it involves nearly all of a company’s payments outside of payroll. The process involves the intervention of a dedicated department or small team of employees depending on the size of the firm.
The mission of the accounts payable team, regardless of the size of the firm, is to make sure only the bills are paid and that all the recorded invoices are accurate.
Before a vendor’s invoice is entered into the accounting records and scheduled for payment, the invoice must reflect what the company had ordered and received, the proper unit costs, calculations, and other terms.
Internal controls must be put in place in order for the accounts payable process to safeguard a company’s cash and other assets. Reasons for internal controls include the prevention of payment of a fraudulent invoice, or in the case of an accurate invoice, paying it twice. Internal controls are also in place to make sure that all vendor invoices are accounted for. Periodically companies should seek professional assistance to improve their internal controls.
Efficiency and accuracy are the keys for the accounts payable process to be successful, with positive impact on the accuracy and completeness of the firm’s financial statement as well.
For example, if a repair expense is not recorded in a timely manner the liability will be omitted from the balance sheet, and the repair expense will be omitted from the income statement.
Another consequence of a bad accounts payable process is that discounts for early payments of some bills could be missed. By not paying the invoices when they become due, the commercial relationship with the supplier may also deteriorate.
Just as delays in paying bills can cause problems, so could paying bills too soon. If vendor invoices are paid earlier than necessary, there may not be cash available to pay some other bills by their due dates (Cheatham 1989).
A purchase order is normally prepared to communicate what the company is ordering from a supplier in an ordered and precise manner. It consists in a multi-copy form including all the information about the purchase and distributed to several people.
The employees receiving the purchase order are the person requesting that a purchasing order is issued for the goods or services, the accounts payable department, the receiving department, the vendor, and the person preparing the purchase order.