A creditor is a party that is owed money or services by another party called a debtor. Accounts payable refers to money a business owes its suppliers. There are internal controls in place for accounts payable like segregation of duties to prevent fraud. Auditors examine documentation supporting payments made to verify expenses.

1. Presented By
Name:
Roll No.:

2. CREDITOR
 A creditor is a party (e.g.
person, organization, company, or government) that
has a claim on the services of a second party. It is a
person or institution to whom money is owed.
 The first party, in general, has provided
some property or service to the second party under
the assumption (usually enforced by contract) that
the second party will return an equivalent property
and service.
 The second party is frequently called
a debtor or borrower.
 The first party is the creditor, which is the lender of
property, service or money.

3.  The term creditor is frequently used in
the financial world, especially in
reference to short term loans, long
term bonds, and mortgage loans.
 In law, a person who has a money
judgment entered in their favor by a
court is called a judgement creditor.

4.  The term creditor derives from the
notion of credit.
 In modern America, credit also refers to
a rating which indicates the likelihood a
borrower will pay back his or her loan.
 In earlier times, credit also referred to
reputation or trustworthiness.

5. ACCOUNTING
CLASSIFICATION
 The financial statements presentation is
this:
 Long-term liabilities
○ 'Long-term creditors'
 Current liabilities
○ 'Current creditors'

6. ACCOUNTS PAYABLE
 Accounts payable is money owed by a
business to its suppliers shown as a
liability on a company's balance sheet.
 It is distinct from notes payable
liabilities, which are debts created by
formal legal instrument documents.

7.  An accounts payable is recorded in the Account
Payable sub-ledger at the time an invoice is
vouchered for payment.
 Vouchered, or vouched, means that an invoice is
approved for payment and has been recorded in the
General Ledger or AP subledger as an
outstanding, or open, liability because it has not
been paid.
 Payables are often categorized as Trade
Payables, payables for the purchase of physical
goods that are recorded in Inventory, and Expense
Payables, payables for the purchase of goods or
services that are expensed.

8.  Common examples of Expense Payables are
advertising, travel, entertainment, office supplies and
utilities.
 A/P is a form of credit that suppliers offer to their
customers by allowing them to pay for
a product or service after it has already been
received.
 Suppliers offer various payment terms for an invoice.
Payment terms may include the offer of a cash
discount for paying an invoice within a defined
number of days. For example, 2%,30 Net 31 terms
mean that the payor will deduct 2% from the invoice
if payment is made within 30 days. If the payment is
made on Day 31 then the full amount is paid.

9.  In households, accounts payable are ordinarily bills from
the electric company, telephone company, cable
television or satellite dish
service, newspaper subscription, and other such regular
services. Householders usually track and pay on a
monthly basis by hand using cheques, credit cards or
internet banking. In a business, there is usually a much
broader range of services in the A/P file, and accountants
or bookkeepers usually use accounting software to track
the flow of money into this liability account when they
receive invoices and out of it when they make payments.
Increasingly, large firms are using specialized Accounts
Payable automation solutions (commonly called
ePayables) to automate the paper and manual elements
of processing an organization's invoices.

10.  Commonly, a supplier will ship a product, issue an
invoice, and collect payment later, which describes
a cash conversion cycle, a period of time during
which the supplier has already paid for raw materials
but hasn't been paid in return by the final customer.
 When the invoice is received by the purchaser it is
matched to the packing slip and purchase order, and
if all is in order, the invoice is paid. This is referred to
as the three-way match. The three-way match can
slow down the payment process, so the method may
be modified. For example, three-way matching may
be limited solely to large-value invoices, or the
matching is automatically approved if the received
quantity is within a certain percentage of the amount
authorized in the purchase order.

11. EXPENSE
ADMINISTRATION
 Expense administration is usually closely related
to accounts payable, and sometimes those
functions are performed by the same employee.
 The expense administrator verifies
employees'expense report for confirming that
receipts exist to support airline, ground
transport, meals and
entertainment, telephone, hotel, and other
expenses.
 This documentation is necessary for tax purposes
and to prevent reimbursement of inappropriate or
erroneous expenses. Airline expenses
are, perhaps, the most prone to fraud because of
the high cost of air travel and the confusing nature

12.  Not all employees are allowed to submit expense reports.
 The most common employees are salesmen. Some
organizations limit the amount that an employee can
expense. Organizations will also set the rate for mileage
for car expenses. Expense reporting should be completed
in the same period they were used. If the expense was
not processed in the same period it was used in, then the
employee whom processes the expense reports (usually
accounts payable) should create a journal entry for the
amount to be recorded in the proper period. The expense
reports are treated the same as any other expense for an
organization and that is why they should be recorded in
their proper periods. Expense reports are typically
approved by the management personal of the same
department as the employee claiming the expenses and
getting reimbursed for those amounts.

13. Internal controls
 A variety of checks against abuse are usually
present to prevent embezzlement by accounts
payable personnel. Segregation of duties is a
common control.
 Nearly all companies have a junior employee
process and print a cheque and a senior
employee review and sign the cheque.
Often, the accounting software will limit each
employee to performing only the functions
assigned to them, so that there is no way any
one employee – even the controller – can
singlehandedly make a payment.

14.  Some companies also separate the functions
of adding new vendors and entering vouchers.
 This makes it impossible for an employee to
add himself as a vendor and then cut a
cheque to himself without colluding with
another employee.
 This file is referred to as the master vendor
file.
 It is the repository of all significant information
about the company's suppliers. It is the
reference point for accounts payable when it
comes to paying invoices.

15.  In addition, most companies require a second
signature on cheques whose amount exceeds a
specified threshold.
 Accounts payable personnel must watch for
fraudulent invoices. In the absence of a purchase
order system, the first line of defense is the
approving manager.
 However, A/P staff should become familiar with a few
common problems, such as "Yellow Pages" ripoffs in
which fraudulent operators offer to place an
advertisement.
 The walking-fingers logo has never been
trademarked, and there are many different Yellow
Pages-style directories, most of which have a small
distribution.

16.  According to an article in the Winter
2000 American Payroll Association's Employer
Practices, "Vendors may send documents that
look like invoices but in small print they state "this
is not a bill."
 These may be charges for directory listings or
advertisements. Recently, some companies have
begun sending what appears to be a rebate or
refund check; in reality, it is a registration for
services that is activated when the document is
returned with a signature."

17. Audits of accounts payable
 Auditors often focus on the existence of
approved invoices, expense reports, and
other supporting documentation to support
cheques that were cut.
 The presence of a confirmation or
statement from the supplier is reasonable
proof of the existence of the account.
 It is not uncommon for some of this
documentation to be lost or misfiled by the
time the audit rolls around. An auditor may
decide to expand the sample size in such
situations.

18.  Auditors typically prepare an aging
structure of accounts payable for a better
understanding of outstanding debts over
certain periods (30, 60, 90 days, etc.).
Such structures are helpful in the correct
presentation of the balance sheet as of
fiscal year end.