Accounts Payable

1. What do you mean by price variation in Purchase Invoice?

The price variation is defined by variance in Invoice unit price and Purchase Order unit. However
Invoice can be posted by users in case the variance is kept within threshold of 5 or 50 USD or
lower price.
2. How to account freight cost, handling charges, purchase tax at the time of raising a
Purchase Order?
For instance:
Item to be procured = A
Quantity to be procured = 10
Unit Rate = 100
Interior freight cost for 10 quantity (at the same time of raising Purchase Order) = 1000
Handling charges = 500
Input Tax = @ 10% (on base price)
In details, firstly you create a new name tax, for example create the name Freight Charges
Handling Charges Tax Rates while Purchase Order is being created. It means the Purchase Order
will generate Basic + Tax + Freight + Insurance.
3. What is a Non-PO Invoice?
A non-PO invoice means it does not have Purchase Order. But any invoice is required to have
approval of authorized person in order to come to payment.
4. What is a tolerance limit with respect to invoice processing?
Limit up to which small differences in an invoice are accepted by the invoice recipient without any
further verification being necessary.
5. What is debit and credit from the banks point of view?
Debit means an accounting entry which results in either an increase in assets or a decrease in
liabilities on a companys balance sheet or in your bank account. If debit bank balances show in
bank statement, this means it is unfavourable condition for the company and credit balance brings
favourable condition for the company.
Debit what comes in
Credit what goes out
And this is the golden rule
banks have confused the heck out of people by referring to payments into your bank account as
credits and payments from it as debits, so we tend to think that credits are + and debits are minus
However they are talking from the banks point of view. So you pay money into the bank it is now
"owed" by the bank to you, therefore it is actually on the minus side of the banks balance sheet.

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6. Please explain end to end process of accounts payable?

End to end of accounts payable includes the various stages involved in making the payment of an
invoice received from a vendor. The AP activities starts with the receipt of the invoice from the
vendor and ends when it gets paid .The various stages in an AP process are listed below (a) Receipt of invoice
(b) Scanning the invoice and uploading it in workflow
(c) Processing the invoice in the system (ERP)
(d) The posting going through QC - quality check.
(e) Resolving a parked invoice.
(f) Payment proposal - report of invoices falling due on the correct date.
(g) Payment run - here the invoice ultimately gets paid.
7. What is a Work flow? And take Retail shop as example and explain the Work flow of
the Retail shop?
A workflow consists of a sequence of connected steps where each step follows without delay or gap
and ends just before the subsequent step may begin. It is a depiction of a sequence of operations,
declared as work of a person or group, [1] an organization of staff, or one or more simple or
complex mechanisms. Workflow may be seen as any abstraction of real work. For control
purposes, workflow may be a view of real work in a chosen aspect, [2] thus serving as a virtual
representation of actual work. The flow being described may refer to a document or product that is
being transferred from one step to another.
8. What is the difference between Payments-Liquidation (Disbursements) & Dividend
Warrants Liquidation?
Payments: The partial or complete discharge of an obligation by its settlement in the form of
transfer of funds.
Liquidation: The winding up of a business or a firm by its members or its creditors.
The warrants provided that (i) if Distributing paid a dividend or distribution on its stock in cash or
property, Distributing would pay the warrant holders as if their respective warrant was exercised
immediately prior to the record date of such dividend declaration (the dividend right); (ii) and if
Distributing made a liquidating distribution to its shareholders, the warrant holders would receive
property as if they had exercised their warrants before the date of such liquidating distribution
(the liquidation right).
In addition to the dividend right and the liquidation right, the warrants provided that the number
of Distributing shares for which each warrant may be exchanged would be adjusted for various
events including
(i) a stock split,
(ii) a stock dividend,
(iii) a combination of shares,
(iv) an issuance of additional Distributing stock at a price below their fair market value or
(v) an issuance of additional Distributing convertible securities, warrants, options or similar rights
to subscribe to Distributing stock at a price below fair market value.

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9. What are the steps involved in finalization?

Finalization means making way to prepare TB & Balance Sheet. Check the balances of GL and Sub
ledgers and pass the rectification entries where it is to be required. Trial balance should be tally
with all GL & Sub ledgers balances. At the same time we have to do all the inter branch or
interoffice reconciliations.

10. What is the Debit Balance recovery? How we can recover if we wont have any future
transactions from supplier?

The Debit balance recovery is usually made by raising a credit memo for the regular vendors.
However if there are no future transactions from the supplier, we ask the vendor to send the check
/ make an EFT for the amount due from him.
When payment is made to the wrong vendor or payment made in excess, in that case
overpayment has gone to the vendor, so for us it is vendor debit balance.
For debit balance recovery, we can either follow-up with the vendor to send us the excess amount
/ refund back, or we can adjust that extra amount in future invoices submitted by that vendor.
In case no future transactions, we have to follow-up with the vendor, failing which we have to
write off this amount.
11. What is the meaning of TDS? How it is charged?

Tax Deducted at Source (TDS). And its charged on the Base price. Different for Salaried Income.
And rest Income Tax department has chart to charge the TDS in different kind of Income.
12. What is interest on Capital?

Capital is the fund owner starts with the Business. It is done by calculating the true profit owner
charge Interest on the Capital which he/she started with the Business. Int. on Capital is the charge
usually used in Pvt Ltd Company.
13. What is another name for a real account in accounting? Is it a permanent account or
a temporary account?

Real account represents assets. It is a permanent account.

Nominal account represents expenses/income/losses/gains. It is a temporary account.
14. What is consolidation?

Consolidation is the process by which the accounting data for two or more companies is combined
to create one set of financial reports (see reference 1). Many corporations have diversified into
multiple business lines, with each business line as a separate company. While managers, owners
and investors could take the financial statements for every branch of business and add them
together, that process might yield mistakes. It is far better to have an accounting system in place
that can generate consolidated financial statements for two or more divisions.

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15. What is different between automatic Payments Batches and automatic payments?

Automatic payments batch means auto payment is done on the bases of the batch, which u
created for the payment of particular pay group etc.
Automatic payments means auto payments is done on the bases of single transaction u selected
base for the payments.
16. What are steps to define supplier?

Five C's can define the supplier

1. Capacity of Supplier
2. Capital of Supplier
3. Credibility of Supplier
4. Coordination
5. Commitment
17. What steps would you take before making a payment?
Steps to be taken before making a payment:
1. Whom the payment is made to?? Supplier/employees/govt. etc.--establish the party to the
payment.
2. Purpose of the payment, payment against a bill or not, if against a bill, authentication &
substantiation of the invoice/bill, approval, in other words goods receipt, services rendered, salary
payable ( adjustment of advances etc.), due dates for taxes. If the payment is on account check
for the approval and the type of payment. Is the payment against future service?
3. Priority of the payment. Whether the payment is due or overdue. Check the payment maturity
status.
4. Charges & deductions against the bill. If the payment is made to any person/organisation?
Applicable taxes & charges are deducted or not?
5. Check the fund status before making a payment, as the negotiability of the cheque or
availability of funds in the bank, if the payment is thru bank.
6. Is payment is on completion of service satisfactory completion proof??
18. What is debit and credit from the customer point of view?
From the customer point of view, DEBIT is the expenditure which he/she incurs (purchase of a car,
car account). CREDIT is the payment, cash or bank account (if payment paid thru cheque)
In case of Cash transaction you paid an amount of 1000/- to customer.
In your books entry is Customer A/C Debit 1000
Cash A/C Credit 1000
In customer books entry is (reverse) Cash A/C Debit 1000
Vendor A/C Credit 1000
Non-Cash items if you have given goods on Credit worth of 1000/- to customer.
Customer A/C Debit 1000
Sales A/C Credit 1000
In Customer books entry is (reverse) Purchase A/C Debit 1000
Vendor A/C Credit 1000

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19. What is debit and credit from the banks point of view?

1. If I take money of my bank account. I debited my account?

2. If bank added money to my checking account. They credited my account?
3. If I bought something on my credit card. The store debited my account?
4. If the store gave me refund on my credit card. The store credited my account?
Your confusion is understandable for someone who is not an accountant. Those terms 'Debit' and
'Credit' are relative to the BANK'S POINT OF VIEW not yours. The bank has a Balance Sheets with
Assets on the left and Liabilities (things that it owes) on the right. Assets must always equal
Liabilities + Owner Equity.
On the Asset side, when a bank gains an Asset, it receives a Credit and when it loses an Asset it
receives a Debit. The reverse is true for Liabilities. When a bank gains a Liability, it receives a
Debit, but it is Credited when loses a Liability. When you take money out of your bank account,
the bank loses Assets and therefore records a DEBIT (remember, a loss of Assets is a 'Debit' on
the Asset side). When you add money to your bank account, the bank gains Assets, which is a
CREDIT on the Asset side.
When you use a credit card, the store DEBITS your account because you have gained a Liability, a
promise to pay (remember, a Liability goes UP when it is Debited). When you get a refund, your
account is CREDITED because you have lost a Liability (you are no longer obligated to pay that
Debt). Remember, a CREDIT on the Liability side means that Liabilities go DOWN! So 'Debit' and
'Credit' don't mean 'down and up', it just refers to what action(s) is being taken and on what side
of the Balance Sheet the action is taking place.
20. What do you understand by Intercompany Settlement?
A company may have various company codes across the different locations, there will be exchange
of goods and services between these company codes. These goods and services which are shared
or exchanged between these company codes are reconciled during the month end process. The
exchange difference has to be settled by a company code in the way of money transfer this
process is known as intercompany settlement.

21. What is the difference between EFT & Wire?

Electronic funds transfer (EFT) is the electronic exchange, transfer of money from one account to
another, either within a single financial institution or across multiple institutions, through
computer-based systems. Wire transfer is a type of EFT.
EFT or electronic funds transfer are commonly used ways to transfer money from and to accounts.
Due to industrialization and globalization, the need to send money to other cities and oversees
grew. The need was further reinforced due to large influxes of immigration. People moving to
different cities and to different countries needed a way to send money back to their families. To
counter this need the electronic funds transfer was developed.
Wire transfer is a method of electronic funds transfer from one person to another that can be
made from one bank account to another bank account or through a transfer of cash at a cash
office, such as Western Union. Wire transfer is also known as credit transfer or bank wire.

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22. What do you mean by Mischarge Correction?

An expense which is charged to a wrong account is known as Mischarge and correcting this
mischarge is known as mischarge correction. A rectification entry needs to be passed to correct
the mischarge.
23. What items would you verify when processing an expense report / invoice for
payment?
Employee Travel and Expense Report (ETER) / Direct Pay / Unencumbered Goods and Services
The ETER is examined for compliance with Travel policy by the accounting clerk prior to
submission to Accounts Payable.
Accounts Payable enters ETER information into Banner as a Direct Pay, generates a Banner
invoice number, and records invoice information
Reimbursement checks for ETERs will be processed within five business days after a completed
and correct ETER is received by Accounts Payable and scheduled for payment in the payment cycle
following.
ETERs should be submitted within 60 calendar days of incurring the expenses. TEARs submitted
for expenses older than two months will not be processed nor reimbursed.
24. What items of information do you need before you can approve an invoice for
payment?
Before make payment to the invoice, the following items should be taken into consideration:
Whether the goods received are as mentioned as in the purchase order
Verify the invoice with purchase order
Whether cash discount lost deducted or/ not (if any)
Whether any advance payment is there or/not
Whether any damage is there for goods and any loss of weight to the goods
Take authorised signature on the invoice by the authorised person
25. Tell us about an invoice discrepancy that you discovered and how you resolved the
discrepancy?
Obtain the original order that was placed
Check the order to ensure that there has been a discrepancy
Identify the discrepancy - are there too many items or not enough?
Check the work area to ensure the delivery has not been moved to a different location
Ask a work colleague to check that you have correctly identified the discrepancy
26. Why does a company/business require an Accounts payables process?
Accounts payable process is required in a company because this will help and guide the accountant
to manage their payables with in the normal course of the business.
This includes verifying and checking the invoice details including the credit terms, due date, mode
of payment, payee and the items received. Only the items received will be paid. In case theres a
discrepancy against the actual receipts, a credit note will be raised by the supplier against the
short-shipped invoice.
At the end of the month, AP reconciliation is required confirming both parties balances thru the
statement of accounts (SOA). This you can identify which invoices or payment hasnt been booked

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yet by both parties and you will end up with the same balances, (equal balance from your
company and with their company).
27. Which are the main MIS Reports of an accounts department & what the format of
preparing the MIS?
MIS or Management Information System is a computer based system used by most organizations
worldwide for transforming data into useful information for better decision making. It helps
management make better plans and carefully organize business operations.
Management information system is used for generating reports including inventory status reports,
financial statements, performance reports etc. These reports are essential for analysing different
aspects of business. These reports also help to answer 'what-if' questions like what would be the
effect on cash flows of a company if the credit term is changed for its customers etc.
MIS reports also support decision making and it helps to integrate the decision maker and the
quantitative model being used. These automated systems allow managers to make decisions for
smooth & successful operation of businesses. The systems includes computer resources, people,
and procedures used in the modern business enterprise.
MIS is monthly, Quarterly, Six monthly and yearly statements and records to Management of
Company to make them aware of Financial and Non-Financial Information.
M- Management - Senior-Middle-Bottom level management
I- Information - Financial - Nonfinancial
S- System - Method of Communication and Network of Info
System can be automated or manual and Statement Includes for e.g.
Market Analyses
Profit and Loss account
Balance sheet
Cash Flow
Fund Flow
Budgeting - Periodic & Product wise
Standard costing - Marginal costing data.
Trial Balance.
Day to day current asset and current liability.
MIS is important to Management as they are not day to day involved in management and this
information is Basic Raw material to Make Strategic decisions.
28. What documents are required before verifying invoice? What is the process if the
supplier passes an invoice for more amount?

The traditional three way match would apply here. This means the accounts payable processor
should compare the purchase order with the receiving document and the invoice. If all three
match, the invoice can be paid - although many organizations still insist that the invoice be
approved. This approval is in addition to the matching process. If the invoice is for a larger
amount, it is considered discrepant and the discrepancy must be resolved - the sooner the better.

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29. What is difference between account payable and bills payable?

Accounts payable: A debtor's accounts of money he owes; normally arise from the purchase of
products or services.
Bills payable: Bill means (An itemized statement of money owed for goods shipped or services
rendered). The outstanding bills (like for instance utility bills etc.) yet to be paid.
What I feel is that the nature of both the accounts in terms of their treatment would be the same;
as; both are Current liabilities yet to paid, think about "payable" & "paid" feel the difference.
30. What is Reconciliation Statement?

A reconciliation statement is a document that begins with a company's own record of an account
balance, adds and subtracts reconciling items in a set of additional columns, and then uses these
adjustments to arrive at the record of the same account held by a third party. The intent of the
reconciliation statement is to provide an independent verification of the veracity of the balance in
the company account, as well as to clarify the differences between the two versions of the
account.
Bank accounts: The bank reconciliation compares the balances between a company's version of
its cash balance and the bank's version, typically with many reconciling items for such items as
deposits in transit and uncashed checks.
Debt accounts: The debt reconciliation compares the debt amounts outstanding according to the
company and its lender. There can be differences requiring reconciliation when the company pays
the lender, and the lender has not yet recorded the payment in its books.
Accounts receivable: The receivables reconciliation is usually constructed on an informal basis
for individual customers, and compares their version of outstanding receivable balances to the
company's version.
Accounts payable: The payables reconciliation is also usually constructed on an informal basis by
individual supplier, and compares their version of outstanding payable balances to the company's
version.
31. How does the payment mechanism work?
As you receive an invoice in the mail, date stamp it with the date received. You can pay an invoice
when and if you have a matching PO, and receiving ticket which has been signed by the employee
receiving the item or witnessing the completion of the service. Once you are sure all three
supporting papers match, you then enter the invoice in the program for payment utilizing the
correct accounting line to ensure the correct account is being charged. It would be entered as a
Purchase Order, if one has been set up. If not, you can pay as a direct invoice (DI). Once entered,
a journal voucher will arrive, probably the next day. You would attach the supporting papers to the
journal voucher and send them to the head office, keeping a copy for your files. You need to keep
track of the amount of money available before and after the payment has been made. Also, it is
important to ensure the entire order has been received. If not, a partial payment may be
necessary or you can request a credit.

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32. What is the difference between Consigner and Consignee?

Consigner is the person who is the owner of the goods and who deliver the goods to the
consignee.
Consignee is the person who receives the goods and he just possesses the goods and not the
owner.
33. What steps would you take before approving an invoice for payment?
The following are the important steps one should take before approving the payment:
1. Refer the Purchase Order issued.
2. Refer the Goods Received Note (GRN) for having received goods / service as mentioned in the
P.O
3. Refer the terms and conditions for making the payment (any credit period)
4. Check the bank balance before approve the invoice for payment.
34. How to pass a JV when we receive bill including service tax? How to close this a/c?
First of all, there are two situations involved in this single question.
1. When you account for those service taxes and
2. When you don't account for those service taxes
Case 1: Suppose you are buying raw material and you must show government how much service
taxes you have paid for procuring the raw material then you will open separate account for service
taxes paid and account for that part of the entry in to that account
Case 2: You simply procure raw material irrespective of the service taxes paid on procuring the
same, then you will pass simple entry - Raw Material A/C DR. to Bank A/C
Entries to post is
Expense A/C DR.
Tax A/C DR.
Vendor A/C CR.
Upon end of each month we will file return with Govt. entry would appear like this.
Tax Payable A/C DR.
Tax A/C CR.
Tax A/C DR.
To Vendor A/C (Govt.) CR.

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35. What is 3 Way Matching?

In accounting, the three-way match refers to a procedure used when processing an invoice
received from a vendor or supplier. The purpose of the three-way match is to avoid paying
incorrect and perhaps fraudulent invoices.
Three-way refers to the three documents involved:
1. Vendor's invoice which was received and will become part of an organization's accounts payable
if approved.
2. Purchase order that was prepared by the organization.
3. Receiving report that was prepared by the organization.
Match refers to the comparison of the quantities, price per unit, terms, etc. appearing on the
vendor's invoice to the information on the purchase order and to the quantities actually received.
After the vendor's invoice has been validated by the three-way match, it can be further processed
for payment. The three-way match is an important step in safeguarding an organization's assets.
36. What is Q-point?
When debit and credit is same at a time.
37. What is the difference between billable and non-billable expenses?
Billable expenses are the expenses incurred by you on behalf of your customer in performing
duties / service and supply. This expenses are recoverable from your customer by way of billing.
Non-billable expenses are the expenses incurred by you for carry out your own business / duties
and responsibilities.
Billable expense would be in example billing your airfare to go to a company convention to your
employer for reimbursement. Non-billable expenses would be the pay-per-view movies you
charged in your hotel room while you were on that stay. You accumulated those expenses on your
own account, and was not necessary to your job.
38. Tell us about an invoice discrepancy that you discovered and how you resolved the
discrepancy?

Example Answer: While working in my x organization I found so many discrepancies in invoices

mostly vary with Quantity, Rate, payment terms or sending the different goods and so on. If I
found discrepancies, I report to the higher authorities and call the vendor immediately about the
discrepancies to rectify it. If necessary I send a debit note/memo to vendor or ask him to send
credit note/memo for the discrepancies caused.

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39. What is the difference between debenture and preference share?

Differences between preference shares and debentures:
- Preference Shareholders are effectively owners while, Debenture-holders are creditors.
- Preference Shareholders may vote at AGMs and be elected as directors, Debenture-holders may
not vote at AGMs or be elected as directors.
- Preference Shareholders receive profit in the form of dividends, Debenture-holders receive a
fixed rate of interest.
- If there is no profit, the shareholder does not receive a dividend, interest is paid to debentureholders regardless of whether or not a profit has been made.
- In case of dissolution of firms debenture holders are paid first as compared to shareholder.
The word Debenture is derived from the Latin term debere which means to borrow. Share
capital is the main source of finance of a joint stock company. Such capital is raised by issuing
shares. Those who hold the shares of the company are called the shareholders and are owners of
the company. Company may need additional amount of money for a long period. It cannot issue
shares every time. It can raise loan from the public. The amount of loan can be divided into units
of small denominations and the company can sell them to the public. Each unit is called a
debenture and holder of such units is called Debenture holder. The amount so raised is loan for
the company. A Debenture is a unit of loan amount. When a company intends to raise the loan
amount from the public it issues debentures. A debenture is a document issued under the seal of
the company. It is an acknowledgment of the loan received by the company equal to the nominal
value of the debenture. It bears the date of redemption and rate and mode of payment of interest.
40. What is the full form of the term WIRE in wire payment? Explain the process for
making and receiving the payment through WIRE?

A wire transfer is an electronic transfer of money. In the case of a bank-to-bank transfer, no actual
cash is exchanged, but electronic balances in the respective accounts are adjusted accordingly.
This is a very secure way to transfer funds, as positive identification of both account holders is
required, and there is no chance of a charge back, unlike with a personal check.
Companies such as Western Union offer an alternate, anonymous method of wire transfer.
Therefore, you can walk into a Western Union in Arizona, for example, and send 100 US dollars
(USD) to the Western Union in the Bahamas simply by paying the Arizona office the cash plus any
fees. Your friend in the Bahamas can go to the Western Union to receive the 100 USD in cash
within minutes. The money is transferred electronically.
A cash wire transfer is handy when someone does not have access to a bank account, but it also
has drawbacks. If this type of transfer is used to purchase something from a private party, the
seller can provide false information to the sender. Cash can be collected at the receiving end under
the false ID, and the party can disappear without ever providing the promised goods. Law
enforcement is also concerned about subversive organizations using such transfers to fund illegal
activities.
A bank-to-bank wire transfer has the advantage of being much more secure and desirable than
other forms of payment. These transfers even save paper by reducing the need for checks and
deposit slips, making them more environmentally friendly than standard forms of banking.

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41. What entry is recorded when $75.00 worth of supplies are purchased on account?

Purchase A/C DR. $75.00

To - Supplier A/C $75.00
Purchasing good two kinds of entry Either Cash or Credit If Cash Purchase A/C------DR xx To Cash
A/C (Being good purchase on cash) If Credit Purchase A/C----DR To Supplier A/C (Being goods
purchase on Credit)
42. What type of account appear on a post-closing trial balance?
The Trial Balance is made up of 2 parts, the Balance Sheet accounts and the Income Statement
(aka Profit and Loss) accounts. The P&L show Income (Revenues) and Expenses (both Cost of
Goods and General). These are the day-to-day accounts which are closed into the Balance Sheet
(Assets, Liabilities & Equity) at the end of the period. This is usually yearly, but big corporations
may close the accounts on a monthly basis.

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