Free consult & free copy of book

E-Myth – “Why most small businesses don’t work & what to do about it”

Contact Us


Most 5 star CPA Google reviews in Canada

Read Reviews

Chartered Professional Accountants E Myth

1 Fixed Monthly Fee - Planning | Accounting | Taxes | Consulting

Helping Canadian businesses beat the odds!

Accounts Payable AP Aging Summary | Edmonton Bookkeeping

Hi, thanks for joining us again for another episode of ask spurl CPA. Today we’re talking about accounts payable or AP aging summary. I have me here with me again. So, uh, may, what’s the maybe, what’s one thing you’ve learned so far since you’ve been here that’s maybe a little different than what you learned in school

time management? A lot better up time management at school it was just study, homework and bed. Here it’s okay, what do I have to work on first? How can I finish it quickly so I can move on to the next one before the deadline? It’s a lot more compress but it’s able to adapt. I was able to adapt really quickly.

Right on. Yeah. One of these days, one of these schools are going to, you’re going to pick it up on me and they’re going to teach, they’re going to show the accounting students what the actual schedule of her real life CPA looks like. A, that would be nice to know before your four year degree probably. But yes, they for sure. So I’m the one that we have here today and Warren Buffet all time green investor. Your accounting is the language of business. You know the statistic, 50% of all Canadian small business or out of business, but only 11% of the business get professional help. And in terms of the, the AP aging summary Number view, the financial statements of businesses and these reports, they’re supposed to include an accurate total of who you will and how you know, how much you all, um, how are we dig into the accounts payable. We look at that AP aging summary and often the amounts, you know that you’re in that eight AP aging summary, they’re either missing or they don’t make any sense at all, which means that the underlying income statement and balance sheet that you’re making good business decisions on, key business decisions on, they’re unreliable. I’m so mean. What are the questions you think these business owners should be asking? Conserving their accounts payable or AP aging summary? Right.

Well the first one is how does entering expenses upon invoice date rather than payment date help reports?

So we’re entering the expenses based on the, the, the building of the invoice date. Your accounts payable needs to be kept up and when you Edmonton Bookkeeping they can do that. So, uh, again, it, it will make sure that that amount shows up in the correct period. So, you know, we might’ve got a bill for supplies and February, but we’re not going to pay it until May. Well that expense happened in February. We want to know, you know, what the, what we can match the income with the expenses then. So we know we’re not looking, you know, later on we might have a huge project in February and we’re working on it and everything was fantastic. And then march the big, we pay the big bill. Well we want the, you know, the expense to match the time period that we have that income. So we know what we’re making on a project by project basis or period by period basis. Um, and it gives us a little more reliability on the reports

and what is an account payable or accounts payable, aging summary.

So the accounts payable, aging summary is the listing of all the people that you owe money to. And then the next column is the current column. So it’s emailed that owe them currently, so it’s, it’s not past due. Um, and then we have usually call them spore, you know, the amounts that were, were passed to one to 30 days past due and other column for mounts that are 30 and 60 days past due and other columns that are 60 to 90 days past due. Now they’re calling for 90 days or more past due and usually another column with a total total in all of those amounts. So we can know what we all, each one of our suppliers, supplier by supplier and find the yet

grand total at the bottom. Why are we normally concern with a mouse that 90 days past due are fictitious expense.

Yeah. So like, unless we’re in, you know, huge financial peril at this point and we haven’t paid some legitimate payables, a lot of times what happens is the business owner knows, you know, uh, that they didn’t need to pay that bill. Maybe it was a duplicate bill. Maybe it was a, they weren’t happy with the work that person. Um, and maybe it was, eh, you know, um, you know, paid twice. I, I guess for whatever reason, they they’re not going to pay it. And so it just sits there on their AP aging summary and then Alice 90 days past due and they haven’t paid it. So they haven’t made the mistake of a painting as a bill that’s passed through yet. Although I could likely happen. Um, but you often, there’s an adjustment that has to be made there. So there’s a mistake usually on the income statement. Keeping up with those expenses is hard and if you Edmonton Bookkeeping they can help.Usually that expense doesn’t exist. So again, we booked that a expense and the time period of the, the invoice date. So when we are invoiced, it affected our income statement at that point in time. But we never paid it because we didn’t feel it was legitimate. Well, now we have an expense that exists there and it needs to be corrected.

Is it generally true that a negative number is either a deposit or a fictitious expense?

Yeah, so usually if you have a negative number, uh, what happens is you prepaid for something. So maybe you prepaid the rent or you, you, you put a deposit down for a contractor to do it, in which case it’s going to show up as a negative AP. So we paid it before they build us. And that can be negative. Um, in terms of, you know, fictitious, you know, sometimes what happens is it was, it was a very, you know, legitimate expense. Um, and we booked the pit. That’s why we paid it. That’s why we sent them the money. When you Edmonton Bookkeeping  Uh, but we never booked the expense. So the your suppliers happy cause they have their money. But our income statement is wrong because we haven’t showed the expense yet. All it’s showing is cash has gone out and we’ve made a prepayment. So when you, when you look at a negative number in your AP aging summary, you got to ask yourself, did I prepay something? Do I have a credit on file with these guys? Or is it an expense that’s missing?

What accruals and what do you recommend putting them in a separate account?

Yeah. So accruals are normally, uh, we’re, we’re always trying to match the revenue with expenses. We don’t book the expenses in the same period that the revenue occurred. So, you know, often we have to accrual for um, you know, like accounting fees, wages payable, vacation pay of oil that can be, uh, an accrual. But I wouldn’t recommend putting them in accounts payable because they’re an estimate. We don’t have the bill yet. We don’t usually accruals by nature are an estimate. So we want to accrue them, put it in a separate account and call it a, you know, uh, call it a crew rules rather than put it in the payables because we want that pail to be a list of these. These are things that we’re, we’re obligated to pay. We’re on the clock now. This is the amount and this is how much debt we have to pay.

If we have to make an accrual that that’s great. And it was reasonable if it’s going to make a material impact on the, on the financial statements. But because it’s an estimate, I, I wouldn’t suggest putting it in the accounts payable. Finding someone to keep up with your Edmonton Bookkeeping doesn’t have to be hard. I would suggest having a separate uh, accrual account for them or corporate tax and mask also be in a separate account. Yes. Do not put these in your AP. You should not see cra or the Alberta government or GST. Um, you know, a specific GC only payment in there. They belong in their own separate accounts. Um, we should have a, a corporate tax payable account. We should have a provincial tax payable account. Um, there’s no reason to commingle that. We should just be able to get that one balance from looking at that one account. Don’t, don’t take it after a certain period of time and put it in the accounts payable.

There’s, there are no use for that and just making it more complicated than it needs to be. Should shareholders or related party amounts of normally be in an accounts payable? Same thing. Same thing with shareholders related parties. They’re very much just like the tax accounts. They have their own accounts anyways. We already have a shareholder loan account. So why would we put the payables in the payable account then? If we want to know what we all the shareholder, we have to go through the receivables, the payables and the show. The loan account just leaves them in the show with a low account. That’s where they belong at the day anyways because they have to be, you know, classified separately. We do the financial statements, so let’s, let’s, let’s keep them separate the whole time. It makes it super clear and you know exactly what the show loan balance is.

Same with the related parties. They’ll the related parties that will generally have their own separate account on the balance sheet. So we don’t need every, you didn’t commingle it with the, the third party suppliers in the AP aging summary. You know, often the Cheryl, the loan account and the related party account, they have, you know, uh, terms that’ll be well outside the norm. You know, we always talk about it. Most of the time it’s net 30 and sometimes up to net 90. But sometimes Shirley, the load accounts can be years and everyone’s okay with that because it’s, Eh, you know, you and your business are almost one in the same, same as the other. The other company, you might own both companies. So when the bill gets paid is kind of irrelevant because you won’t both of them anyways. So it’s more of a, uh, an operational concern rather than an exercise in fairness

are round numbers and indication something is in AP that shouldn’t be.

Yeah. You should always be concerned about round numbers like this. Whenever you see round number, you’re thinking, this is an estimate, this isn’t a real number. This is an estimate. And normally when people build their attacking on, you know, 5% GST or the, it’s a specific billing amount. So whenever you see a round number that you have to pay exactly $10,000 in AP, you know, I have a question. Why is that legitimate? I want to see a bill rafter to pay exactly $10,000. So do you see round numbers a immediately? You’re, you’re a warning level should go off and you should think of, although it’s possible you could owe someone a round number. Exactly. $1,000. Exactly $3,000, but it’s unlikely, um, new, even if we’re just missing the GST, it’s usually unlikely. Um, but it’s what can be, it can be a problem, but you, you better be extra sure in that case. Finding someone to take care of your Edmonton Bookkeeping is important.

So what does it mean when you see a positive and a negative amount from one supplier?

Yeah, so you’ll have often, you’ll see in the current column you got it a, a negative, a $1,000 and then past due column, so the, let’s call it the 30 to 60 day call on your AP aging summary, you have a positive $1,000. They just haven’t been applied against each other. So it’s kind of a two step process. And most accounting softwares, you have to book the payment to the correct supplier and then you have to make sure that that payment coincides with a specific bill and check off of that bill. And then it will cancel the amount out rather than show up as a negative number in one call. I’m in a positive number in the other column. So normally you means that the payments, there’s been a payment made, but that payment hasn’t been applied to a specific bill. So it’s the payments just kind of kind of sitting there.

If you’re having a cash crunch, what should you do with the AP aging summary?

Yeah. Ultimately, this turns it into a powerful tool because you know, running out of cash as a, as a problem in business, and if you have a reliable AP aging summary, you can go through that AP aging summary. It’s your quick reference. Do you know you’re not going to have hours and hours to go through every, every single bill that’s come in forever, but you can look at it and started identify. What I would suggest is, is number one, you want identify your key suppliers who are the ones who can completely cut off your business. You know, I’m a home builder and I buy lumber from this person and then if I, if I don’t pay this bill, they’re not going to sell me any lumber. Okay. We can prioritize then I would suggest, um, normally you want to look at small amounts to, you don’t want to grind your day down because you owe someone 80 bucks. Take care of your Edmonton Bookkeeping now and give us a call.

So even if you have a cash, so you know, you look at those key suppliers first, you know, you can get as much to them as possible. You look at the small suppliers, just get them knocked off cause you don’t want to have, you know, 20 people calling were $80 a piece that’s just going to grind you down and it’s it, it’s going to prevent you from, you probably have a revenue problem. You probably need more business and do work to get more business. So you don’t want to be dealing with those small issues. But then those other ones you can, you know, kind of allocate a reasonable amount of funds that we got to get them paid. And once our plan, how are we going to pay the rest of them, you know, 50% of what we owe or 75% of what they owe.

And then they’re going to see a payment comes in. Might not be the whole amount, but this guy’s, you know, and trying to make good on it. Don’t waste time on hyour Edmonton Bookkeeping. I, I he sent me 50%, then I feel pretty confident that it’s going to send me the other 50% students. So it allows you to kind of triage, uh, very quickly, um, because when you have a cash crunch in your business, normally used to spend a little more time on revenue generating activities. So you want to minimize the time that you’re now spending, uh, dealing with these, uh, El suppliers who can become unhappy very quickly if you’re not paying them. So it gives you the ability to go through that exercise quickly and usually it’s a time when you need it the most. So thanks so much for tuning in today as always at the likened subscribe button so we can continue to deliver you tips on how to beat the odds at business. And if you have any questions, you’ll please leave them in the, in the comments below and we’ll try to address them in future videos. Thanks very much.