Accounts Payable (AP) Basics

Accounts Payable (AP) Basics

Even if you're applying for a Liquidation Staff role, many companies expect you to have a basic understanding of Accounts Payable (AP) because both functions involve verifying documents before payments are made.

Invoice

1. Invoice

What is an Invoice?

An invoice is a document issued by a supplier (vendor) requesting payment for goods or services provided.

It typically includes:

• Invoice number

• Date

• Supplier's name

• Description of goods/services

• Quantity

• Unit price

• Total amount due

• Payment terms

Example:
ABC Office Supplies delivers 10 boxes of bond paper and issues an invoice for ₱5,000.

Why it's important:

• Serves as the basis for recording the payable.

• Used to determine how much the company owes the supplier.

2. Vendor (Supplier)

2. Vendor (Supplier)

What is a Vendor?

A vendor (or supplier) is the person or company that sells goods or services to the business.

Examples:

• Office supply companies

• Internet service providers

• Equipment suppliers

• Utility companies

Example:
If your company buys laptops from XYZ Computer Store, XYZ Computer Store is the vendor.

Why it's important:
Accounting tracks all purchases and payments made to vendors to ensure they are paid correctly and on time.

3. Payment Terms

3. Payment Terms

What are Payment Terms?

Payment terms specify when and how payment should be made to the vendor.

Common examples:

• Net 30 – Payment is due within 30 days.

• Net 60 – Payment is due within 60 days.

• 2/10, Net 30 – Receive a 2% discount if payment is made within 10 days; otherwise, the full amount is due within 30 days.

Example:

Invoice Amount: ₱10,000

Payment Terms: 2/10, Net 30

• Pay within 10 days → Pay ₱9,800 (2% discount).

• Pay after 10 days but before 30 days → Pay the full ₱10,000.

Why it's important:

• Avoids late payment penalties.

• Helps the company take advantage of early payment discounts.

• Supports effective cash flow management.

4. Purchase Order (PO)

4. Purchase Order (PO)

What is a Purchase Order?

A Purchase Order (PO) is an official document issued by the company to the vendor requesting specific goods or services.

It includes:

• Items ordered

• Quantity

• Price

• Delivery date

• Payment terms

Purpose:

• Authorizes the purchase.

• Prevents unauthorized buying.

• Serves as the basis for comparing invoices and deliveries.

Example:
The Purchasing Department issues a PO for 20 office chairs.

5. Three-Way Matching

5. Three-Way Matching

What is Three-Way Matching?

Three-Way Matching is an internal control used before paying a supplier. It ensures that what was ordered, delivered, and billed all agree.

The three documents compared are:

1. Purchase Order (PO) – What the company ordered.

2. Delivery Receipt (DR) (or Receiving Report) – What the company actually received.

3. Invoice – What the supplier is charging.

Example

Purchase Order

• 10 Office Chairs @ ₱2,000 each

Delivery Receipt

• 10 Office Chairs delivered

Invoice

• 10 Office Chairs @ ₱2,000 each

✅ All three documents match, so the invoice can be approved for payment.

Example of a Mismatch

Example of a Mismatch

Purchase Order

• 10 laptops

Delivery Receipt

• 8 laptops delivered

Invoice

• Charged for 10 laptops

❌ The documents do not match. Accounting should investigate the discrepancy before processing payment.

Why Three-Way Matching is Important

Why Three-Way Matching is Important

• Prevents overpayments.

• Confirms that goods were actually received.

• Detects pricing or quantity errors.

• Helps prevent fraud.

• Ensures only valid invoices are paid.

How It Relates to Liquidation

How It Relates to Liquidation

Although liquidation deals with employee expenses rather than supplier payments, the same verification principles apply:

• Check supporting documents.

• Verify that amounts are accurate.

• Ensure expenses are authorized.

• Confirm the transaction is legitimate before recording or reimbursing it.

Quick Review Table

Quick Review Table

Concept	Meaning	Purpose
Invoice	Supplier's bill requesting payment	Records the amount the company owes
Vendor	Supplier of goods or services	Receives payment from the company
Payment Terms	Due date and payment conditions	Avoid late fees and earn discounts
Purchase Order (PO)	Company authorization to buy	Controls and documents purchases
Three-Way Matching	Compare PO, DR, and Invoice	Ensures only correct and valid invoices are paid

Why is three-way matching important?

"Three-way matching ensures that the company only pays for goods or services that were properly ordered, actually received, and correctly billed. It is an important internal control that helps prevent errors, overpayments, and fraud."

Sample Interview Answer

"I understand the basic Accounts Payable process. An invoice is a supplier's request for payment, while a vendor is the company or person providing the goods or services. A Purchase Order is issued before the purchase to authorize it, and payment terms specify when payment is due. Before paying a supplier, companies often perform a three-way match by comparing the Purchase Order, Delivery Receipt, and Invoice to ensure the order, delivery, and billing all match. This helps prevent errors, overpayments, and fraud."