Accounts Payable [PROCURE TO PAY (P2P)]
Complete Beginners Guide
The following notes on Accounts Payable will be very helpful for working professionals and fresher’s
who aspire to work for large MNCs and become a part of Accounts Payable domain.
Accounts payable is the process in which a company owes money to its suppliers/vendors for the
purchase of goods/services on credit and the same is shown as liability on the balance sheet of the
company. It’s a liability account.
Procurement Cycle:
1. Need to buy materials
2. Raising Requisition (documenting the requirements)
3. Receiving and analyzing Requisition
4. Supplier/Vendor Selection
5. RFQ (Request for Quotation) & Price Determination (Quotation includes the price of goods,
goodwill of supplier and after sales services)
6. PO (Issue Purchase Order)
7. Follow up and delivery
8. GRN (Goods Received Note) Receiving and accepting goods
9. Payment to supplier/vendor
Accounting/Journal Entries sequence in Procurement Cycle:
1. Goods received from supplier (1st Transaction)
Stock A/c … Dr.
To GRIR A/c ………. Cr. (liability is created on GRIR)
[Note – Liability to vendor is created only when GRIR & PO is matching (i.e., 3 way match)]
[GRIR stands for Goods Received Invoice Received Account]
,2. Invoice is received and 3 way match is done (2nd Transaction)
GRIR A/c … Dr.
To Supplier A/c ……… Cr.
3. Payment to Supplier (3rd Transaction)
Supplier A/c … Dr.
To Bank A/c …………. Cr.
Proforma Invoice – A Statement of an Invoice is a Proforma Invoice, which lets the purchaser know
of his liability. It is an unofficial document that serves as a notice to the buyer. It states the amounts
outstanding, amounts paid and other charges, if any incurred as on a particular date.Accounts
Payable is not supposed to pay against the statement of an invoice
Intra Company Billing is referred to as one ABC Ltd. company billing its other business. AP is not
involved in payments between components. Internal accounting procedures have been established
for Intra Company billing. The procedure mandates use of the Intra Company billing system (IBS).
Embargo- Payments to countries embargoed are prohibited.
Controllership is an effective method to check errors that might occur in AP. It helps to maintain a
sound, dynamic, and cost-effective system of internal controls, which provides assurance.
Need for Controllership - Accounts Payable is a liability to a company and such liability should be
rightly accounted for. Even small errors are big blunders in Accounts Payable. Controllership is an
effective method to check errors that might occur in AP. It helps to maintain a sound, dynamic, and
cost effective system of internal controls, which provides assurance that:
1. Financial position, results of operations, and related disclosures are reported in a fair and timely
manner in accordance with generally accepted accounting principles.
2. Compliance with company policies, appropriate laws and regulations is monitored and enforced.
3. Extent of control is in consistent with exposure.
4. Transaction economics and risks are evaluated, approved, and documented.
5. Assets are safeguarded.
, Probable Errors & their Implications
9 AP Controls:
1. Authorization Controls
2. Exception Reports / Edit Reports
3. Configuration Controls / Account Map Controls
4. Segregation of Duties
5. System Access
6. Interface / Conversion Controls
7. Key Performance Indicator
8. Management Review
9. Reconciliation
Complete Beginners Guide
The following notes on Accounts Payable will be very helpful for working professionals and fresher’s
who aspire to work for large MNCs and become a part of Accounts Payable domain.
Accounts payable is the process in which a company owes money to its suppliers/vendors for the
purchase of goods/services on credit and the same is shown as liability on the balance sheet of the
company. It’s a liability account.
Procurement Cycle:
1. Need to buy materials
2. Raising Requisition (documenting the requirements)
3. Receiving and analyzing Requisition
4. Supplier/Vendor Selection
5. RFQ (Request for Quotation) & Price Determination (Quotation includes the price of goods,
goodwill of supplier and after sales services)
6. PO (Issue Purchase Order)
7. Follow up and delivery
8. GRN (Goods Received Note) Receiving and accepting goods
9. Payment to supplier/vendor
Accounting/Journal Entries sequence in Procurement Cycle:
1. Goods received from supplier (1st Transaction)
Stock A/c … Dr.
To GRIR A/c ………. Cr. (liability is created on GRIR)
[Note – Liability to vendor is created only when GRIR & PO is matching (i.e., 3 way match)]
[GRIR stands for Goods Received Invoice Received Account]
,2. Invoice is received and 3 way match is done (2nd Transaction)
GRIR A/c … Dr.
To Supplier A/c ……… Cr.
3. Payment to Supplier (3rd Transaction)
Supplier A/c … Dr.
To Bank A/c …………. Cr.
Proforma Invoice – A Statement of an Invoice is a Proforma Invoice, which lets the purchaser know
of his liability. It is an unofficial document that serves as a notice to the buyer. It states the amounts
outstanding, amounts paid and other charges, if any incurred as on a particular date.Accounts
Payable is not supposed to pay against the statement of an invoice
Intra Company Billing is referred to as one ABC Ltd. company billing its other business. AP is not
involved in payments between components. Internal accounting procedures have been established
for Intra Company billing. The procedure mandates use of the Intra Company billing system (IBS).
Embargo- Payments to countries embargoed are prohibited.
Controllership is an effective method to check errors that might occur in AP. It helps to maintain a
sound, dynamic, and cost-effective system of internal controls, which provides assurance.
Need for Controllership - Accounts Payable is a liability to a company and such liability should be
rightly accounted for. Even small errors are big blunders in Accounts Payable. Controllership is an
effective method to check errors that might occur in AP. It helps to maintain a sound, dynamic, and
cost effective system of internal controls, which provides assurance that:
1. Financial position, results of operations, and related disclosures are reported in a fair and timely
manner in accordance with generally accepted accounting principles.
2. Compliance with company policies, appropriate laws and regulations is monitored and enforced.
3. Extent of control is in consistent with exposure.
4. Transaction economics and risks are evaluated, approved, and documented.
5. Assets are safeguarded.
, Probable Errors & their Implications
9 AP Controls:
1. Authorization Controls
2. Exception Reports / Edit Reports
3. Configuration Controls / Account Map Controls
4. Segregation of Duties
5. System Access
6. Interface / Conversion Controls
7. Key Performance Indicator
8. Management Review
9. Reconciliation
