5 Assets and Liabilities Accounting\5.

14 Operating Liabilities

Title: 5.14.6 Account Payable

Accounts payable (A/P) is money owed to a supplier shown as a current liability on the balance sheet. It
should only include liabilities to pay for goods (inventory) or services (expensed) that has been received or
supplied and that has been invoiced or formally agreed with the supplier. An entity that places an order does
not recognize a liability at the time of the commitment but, rather, delays recognition until the ordered goods or
services have been shipped, delivered or rendered (IFRS 9). This can vary depending on which International
Commercial Terms (Incoterms) is agreed for delivery of goods.

A supplier invoice should normally be recorded in an Account Payable sub-ledger when received.

A supplier invoice can only be shown as an accounts payable in the general ledger when the buyer has
ownership of the goods/service.

If the buyer has ownership of the goods/service but hasn’t received the invoice the liability to the supplier
shall be booked as an accrued expense.

If the buyer has received an invoice but not the goods/service, the invoice should not be booked as an A/P
in the general ledger until the goods/service is received.
Suppliers can 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.

The Incoterms rules are a series of pre-defined commercial terms that are widely used in international
commercial transactions when purchasing physical goods. A series of three-letter trade terms are intended to
clearly communicate the tasks, costs, and risks associated with the transportation and delivery of goods.
Frequently used Incoterms are:

CFR – Cost and Freight - states that seller must pay the costs and freight to bring the goods to the port of
destination. Insurance for the goods is not included. The ownership and risk is transferred to the buyer
once the goods are loaded on the boat. The invoice should be booked in general ledger when the goods
are loaded on to the boat.

DAP - Delivered at Place (replaced DDU) means that delivery occurs at the named destination, at the
buyer’s disposal ready for unloading from the arriving vehicle. The seller bears all risks involved in bringing
the goods to the named place. The invoice should be booked in general ledger when the goods are ready
for unloading.

DAT- Delivered at Terminal (replaced DDU) states that delivery occurs at the named destination, at the
buyer’s disposal unloaded from the arriving vehicle. The seller bears all risks involved in bringing the
goods to and unloading them at the terminal at the named port or place of destination. The invoice should
be booked in general ledger when the goods are unloaded.

FOB - Free on Board - is commonly used when shipping goods to indicate who pays loading and
transportation costs, and/or the point at which the responsibility of the goods transfers from shipper to
buyer. The buyer is the owner of the goods after the load of goods into the boat. The invoice should be
booked in general ledger when the goods are loaded on to the boat.

EXW - Ex Works - means that the seller has fulfilled the obligation to deliver a good when it's been made
available at the seller's premises for the buyer to pick up. The seller is therefore not responsible for
transporting the good and risk is transferred to the buyer as soon as the good is available. The buyer is
responsible for all costs related to the transport of the good, including clearing the goods through customs.
This rule places minimum responsibility on the seller. The invoice should be booked in general ledger
 when the goods are made available.

Group Payables
Invoices and credit notes from Group companies must be booked immediately upon receipt, even if the
company receiving the documents should object to their contents. If price, terms, quantities received etc. are
considered incorrect, adjustment must be sought after booking the document concerned. The receiving
company must not correct the invoice received. Instead a new invoice/credit note must be requested and
booked. See also AM 5.1.

Approved by: Bengt Larsson v.2 For internal use only Approved Date : 2015-08-07

Modified by: Bengt Larsson, 2015-08-04

Created by: Bengt Larsson, 08/04/2015