Closely monitoring expenses and accounts payable is crucial to the financial health of your business.

Do you know the difference between an expense and an account payable? Many business owners do not.

According to Merriam-Webster Dictionary, an expense is an item of business outlay chargeable against revenue for a specific period.

The definition of an account payable is the balance due to a creditor on a current account.

What does this mean in layman’s terms?

Expenses are costs that have already been paid. For example, a businessperson attending a conference might incur meal and transportation costs. They would pay for their meals upon eating them, pay for their gas upon filling the tank, etc. The financial burden or outlay is paid when charged; there are no balances due or IOUs.

Good bookkeepers, like the ones at Sherman Oaks Accounting & Bookkeeping powered by One Source Services Inc., post a detailed account of all expenses and attach receipts or other paperwork as backup, recording the amount, vendor, bank account or credit card it was paid out of, category to track spending (meals, gas, office supplies), etc.

An account payable, on the other hand, is a charge that has not been paid but will come due in a short period of time, usually in 30 days. An account payable is most often received in the form of a bill or invoice with a due date.

The bookkeepers at Sherman Oaks Accounting & Bookkeeping powered by One Source Services, Inc. enter the bill into Quickbooks, attach an image of the bill as backup, then ensure the payment is made on time and applied to the bill, closing out the account payable.

Essentially, an open account payable is a liability.  Examples of other payable liabilities are taxes that a company expects to pay (taxes payable), interest owed on loans from creditors (interest payable) and obligations like mortgages that come with promissory notes (notes payable).

Some businesses choose to operate on an expense-only basis, recording payments made to vendors but not documenting invoices when they are received.

Operating this way does not give business owners an accurate report of their company’s financial situation. They do not really know their liabilities and often find it harder to keep track of money owed to creditors, sometimes resulting in late fees and penalties. To top it off, it is unlikely that a company will obtain loans or funding without an accurate, separate accounting of expenses and accounts payable.

Sherman Oaks Accounting & Bookkeeping powered by One Source Services, Inc. can review your business’ unique situation and help determine the best way for you.

How does properly recording expenses and accounts payable help a business big picture?  It will provide meaningful data on which to base better informed decisions.

Liabilities including open accounts payable appear on the balance sheet, essentially a snapshot of a company’s financial standing for a specific date. Expenses appear on the income statement, an itemization of revenues and expenses to show net income for a period of time; money in/money out. Both reports are critical to understanding your business and making educated decisions.

The financial health of a company is often directly correlated to the quality of its bookkeeping. Most entrepreneurs don’t go into business with the intent of becoming a bookkeeper.

In spite of that, business owners often feel they must do their own bookkeeping because it’s difficult for them to justify hiring outside help. As accounting and bookkeeping professionals, we meet these folks every day and many times, entrepreneurs who hire accounting help discover they weren’t doing nearly as well on their own as they thought they were.

As incoming bookkeepers, we routinely cleanup expense records and fix improperly recorded accounts payable.

For some of our clients, the savings on late fees alone justifies paying us to manage their accounts payable. Not to mention the value of making better, more informed decisions based on meaningful financial data.

A bookkeeper that spends a few hours each month sorting through bank statements, expense receipts and vendor invoices will paint a clear picture of how a business’ expenditures stack up against its income.

Knowledge is power; go further with Sherman Oaks Accounting & Bookkeeping powered by One Source Services, Inc. to understand your accounts payable and expenses.