Wednesday, September 4, 2013

Accounts Payable Aging Schedules

An accounts payable aging schedule is used for listing the amounts that you owe your vendors and suppliers. Generally, it breaks down accounts payable by what is current, and what is 30, 60, and 90+ days overdue. Obviously, no company wants to be overdue in their payments to vendors. For Government contractors with contracts that are reimbursed based on cost or progress payments, the Government doesn't want the company to be overdue in its payments to vendors either. Yesterday, we discussed the consequences of asking for reimbursement from the Government before paying the expenses for which reimbursement was requested.

Auditors will, from time to time, perform testing to ensure that contractors are making timely payments against their invoices. They have a number of procedures they can perform. One procedure they might perform is to verify that there are no delinquent vendor invoices. An auditor might request accounts payable aging schedules to determine the extent of overdue invoices. The auditor might request several month-end schedules and might also request a current (interim) aging schedule. While aging schedules are inconclusive when it comes to determining whether contractors are complying with the requirement to bill only for expenses that they have already paid or expenses that have been accrued and will be paid in the normal course of business, the schedules can, if showing overdue invoices, lead the auditor to ask more questions.

Auditors have been instructed to be careful when reviewing accounts payable aging schedules. First, the auditor needs to test the reliability of the aging report. In other words, contractors could enter bogus due dates into their accounting systems far into the future and the invoice would not show up as late. In addition, DCAA says that Generally Accepted Accounting Principles (GAAP) allow for the write-off of liabilities. Now this one leaves us puzzled. We cannot think of any situation where GAAP would allow the write-off of accounts payable. If you can think of a situation, please comment to this posting. There could be returns of some items but returns would be reflected on aging schedules.

Contractors should exercise care in entering vendor/supplier invoice due dates into their accounting system. It's important for effective cash management (paying bills on-time but not too early) and for supporting requests for reimbursement.

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