The Accounts Payable/Cash Disbursement (AP/CD) Process:


AP/CD Process Activities:

  • Handles the repetitive work routines of the accounts payable department and cashier by capturing and recording data related to their day-to-day operations, such as recording vendor invoices and paying those invoices. The recorded data then can be used to create source documents and produce internal and external reports.
  • Supports the decision needs of management.
  • Assists in the preparation of internal and external reports such as the financial statements.

STUDY THIS CHAPTER FOR THE TEST...IS IMPORTANT

AP/CD Process Information Flows:


1. The invoice is received, in the accounts payable department, from the vendor.
2. The AP department sends a notice to the general ledger indicating an invoice has been received and recorded, so the general ledger account may be updated.
3a The AP department sends a payment request (approved voucher) to the cashier to initiate the cash disbursement.
3b The AP department sends a notice to the general ledger to indicate a payment is pending (this will later be matched with the actual payment).
4a The cash disbursement is made by the cashier; a payment, in the form of a check, is sent to the vendor.
4b The cashier sends a payment notice to the AP department, indicating a payment has been made and the invoice may be closed.
4c The cashier sends a notice to the general ledger to indicate a payment has been made. The general ledger matches the payment notice with the pending payment notice (3b) so the general ledger accounts - cash, accounts payable and possibly discounts taken - may be updated.

Recommended Control Plans:
Control plans that are particular to the AP/CD business process:
- Independent validation of vendor invoices
- Match invoice with purchase order and receiving report
- Independent authorization to make payment
- Reconcile bank account

Vertical Information Flows, explain: Vertical Information Flow allows an organization to communicate with data through different levels of the company. The goal is transparent flow of information from management to lower levels and back.

Technologies Supporting AP/CD Process:

1. Electronic Data Interchange - EDI is the set of standards used to transfer data between organizations. Using this formatting allows transactions to be automatically recorded in the system. This improves accuracy and reduces costs.
2. Electronic Invoice Presentment and Payment Systems (EIPP) - these systems are B2B that combine the invoicing and e-payment processes to send invoices to customers using a Web portal or secure network and to receive electronic payments that have been initiated by the payer, processed by a third party, and settled by the ACH network, wire transfer, or credit card company. This saves the A/P department the cost of labor, paper, and postage. In addition, these transactions can be recorded more efficiently and accurately because the processes are more automated.


Narratives of the AP/CD Process:

  • Write narratives for each of the models provided in chapter 13 starting with:

AP/CD Process Context Diagram: Invoices are received from the vendor. An invoice notice is sent to the general ledger. An approved payment request is then sent to the cashier/treasurer as well as to the general ledger for notification purposes. The cashier/treasurer then sends the payment to the vendor. The paid voucher (payment notice is sent to the accounts payable department and a payment notice is sent to the general ledger.
AP/CD Process Level-0 Diagram: The first bubble involves establishing the payable. A receiving report is sent by the Purchasing process as well as a Purchase Order Accounts Payable Notification. This receiving report is compared with the vendor invoice. The General Ledger Process and Accounts Payable Master Data are both updated. The second bubble involves making the payment. The payment is sent to the vendor. The General Ledger Process, Cash Disbursements Events Data, and Accounts Payable Master Data are then updated.
AP/CD Level-1 (process 1) Diagram: The vendor invoice is received and matched to the vendor master data to ensure it was sent by an authorized vendor. Then it is matched against the PO to ensure items, quantity and prices match. Then it is matched against the receiving report to confirm the receipt of the items (this is called a three-way match). Lastly the invoice is checked for terms, discounts and amount due accuracy. The vendor master data is then updated to show purchase history. If the data does not agree the item is rejected (procedure not shown). When the data agrees, the invoice is approved and validated and sent to be recorded. This is done by creating a record in the purchase events data store which includes the GL accounts (sales tax, AP, freight, etc.) to be updated. A record is also created in the AP master data to show the open invoice. Inventory master data is updated to show cost of items received. Lastly the GL is notified of the payable recorded (either per individual invoice or periodic updates from purchase events data)
AP/CD Level-1 (process 2) Diagram: The system uses due date and terms, from the AP master data which payments should be made and sends a list to be reviewd and adjusted if necessary (to combine additional invoices for a particular vendor or remove invoices not due for payment yet, or if there are insufficient funds). The approved payments are sent to be prepared and are stamped as paid and updated in the AP master data. Also data is entered in the cash disbursements event data store and sent to the GL to reflect payment and the payment is sent to the vendor.
Processing Noninvoiced Disbursements Level-0 Diagram:
(a) Assuming a true voucher system used:
(b) Assuming a nonvoucher system used:
AP/CD Process Systems Flowchart: