 0. Accounting Software. Vendor Expense or Payment Cycle. Get Ready to be an Office Hero with 0. Support Accounting Instruction by clicking the link below giving you a free month membership to all of the content on our website broken out by category further broken out by course. Each course then organized in a logical, reasonable fashion making it much more easy to find what you need then can be done on a YouTube page. We also include added resources such as Excel practice problems, PDF files and more like QuickBooks backup files when applicable. So once again click the link below for a free month membership to our website and all the content on it. Here we are in our personal zero home page. We set up in a prior presentation going to zoom in a bit by holding control down scrolling up on the mouse wheel. I'm currently at 175% zoom in opening up the demo file. We're going to go into the demo file which already has information in it. It already has constructed therefore the end result of the balance sheet and income statement and related reports. I want to open those up. I typically open those reports up every time going to right click on the tab up top to do so and duplicate it then I'm going to go to the second tab right click it again duplicate it again. Let's go back to the first tab open up the reports in the accounting drop down the reports. We want to be looking at the balance sheet and then the next one on the income statement. Let's open the next tab accounting drop down and this time the reports but we want the income statement. Those are the major two financial statement reports. This one is showing for the year of 2022. I think that's what we want. So let's go back to the balance sheet and this one's for 2021. Let's bring it up to 2022. So year in 2022 I'll update it. So everything we do we're thinking about the construction of the end result being the financial statements balance sheet and the income statement. Let's go back to the first tab now. This is the layout. I'll be opening up pretty much every time meaning I do the actual work for me on the first tab and then I've got the other two tabs open with the end results so I can see the impact on it balance sheet and income statement. Later on we might simplify that which is one tab of the trial balance but we'll talk about that more later. Now this time we're going to be looking at cycle by cycle. So if I hit the drop down up top this gives us or the plus button. It gives us the major forms that we enter into the system. So typically if we think about these types of forms it's useful not just to think about the date or like the timing and just the date of when things happened but the date in alignment or in the inner circle of a particular cycle. So to consider the cycle first I want to just take a look at a flow chart so I'm going to jump out of here for a second and go to a flow chart. This flow chart is actually QuickBooks desktop but the flow of the reports is basically the same. So I just want to get an idea to visualize the arrows because once you have that in your mind then you could just go to the proper reports and it'll be easier to navigate. So normally if you're working in a larger company you'll probably be working in just one of these areas the vendor cycle or payment cycle or expense cycle or the revenue cycle customer cycle sale cycle or possibly the employee cycle the payroll cycle. We're first going to consider the vendor cycle up top and consider what might happen in a particular business in terms of the general activity the flow of activity. Now if you're on the easiest kind of vendor cycle then you might just be paying things as they come up just decreasing the checking account paying for the bills like the utility bills and so on and you might be using just what this would be called like a check form or a decrease to the checking account type of data input form which might be a physical check but more and more these days it might be an electronic kind of transfer and you might record it with the use of the bank feeds waiting till the bank fleets clear the bank and then adding the information necessary to record that decrease to the checking account transaction. We'll talk more about bank feeds in the future but just note that that's basically kind of like a check form without a check number that's in essence going to clear the bank a lot quicker due to it being electronic. If we actually write physical checks then we typically want to write the check first and then we want because we want to track the outstanding checks meaning how long does it take for it to clear the bank. Now then we could go to an accrual process in which case we enter bills this usually happens for a little bit larger kind of mid-sized types of businesses that really want to manage a little bit more closely their cash flow and try to pay their bills as late as possible. Note that from a cash management standpoint we would typically like to hold on to our money as much as long as possible and then pay it as late as possible although we want to take advantage of any discounts we can get to pay as little as possible and not annoy our vendors. We want to have good relationships with the vendors. That's not as important if you don't have that many transactions. You might say like does it matter if I pay my credit card bill today when it's due or 15 days the last day that it's due. It doesn't really matter if you don't do a lot of transactions but if you're processing many transactions a day with large dollar amounts or even small dollar amounts with a lot of transactions then those small time differences on when you pay the longer you can hold on to the money becomes more and more significant. So large companies are going to have people that just manage the bills and try to cash manage and hold on to the money as long as possible. In that case you're going to enter the bill which is an accrual component increasing the accounts payable and then you'll have to track the outstanding bills that are there the accounts payable track the accounts payable and then later on you'll pay that with basically in essence a check or decrease to the checking account type of form. Also note that if you have inventory involved then you might have say a purchase order. Now purchase orders are only going to be there typically for larger type of companies that have the leverage on the purchasing side of things. So in other words for example if you purchase something personally from an online retailer like Amazon or something then you have to pay for it at the point in time that you'd request or make the purchase even though you haven't received the goods. However if you have leverage sometimes as a as a business you might be able to request the inventory without having been paying for it they send you the inventory and then we're going to enter the bill once we get the inventory at that point. In that case that's when you'd use a purchase order so you'd have the purchase order then you'd enter the bill when you receive the inventory possibly in that instance. So also note that we've got you can consider the sales tax or some kind of like a usage tax when which would be a tax when a purchase is made to the purchaser meaning the customer is the one that's supposedly being taxed and the owner of the business is the one that's basically being forced to be the tax collector by the government that is imposing the tax. In that case then you can kind of think of the increase in the payable as another kind of vendor in some ways because it's going to be an increase in a payable if you'll have to pay it we'll talk more about taxes in the future. So if I pull that over that flowchart when you have that flowchart in your mind and I look at the kind of forms that are going to be involved in the process if I'm just going to be paying my checks or my bills right when they come do then I'm just going to have a send money form and we'll talk about the send money form you can think of it kind of like a check but some of the forms might be electronic transfers. Also note that if you do have your system set up so that they're electronic kind of payments then that's the easiest kind of system to line up with the bank feeds so that you can wait till something clears the bank feeds possibly and then match it or then enter it when it clears the bank feed which still would basically create the form of a spend money type of form generally because that's the form that decreases the checking account however in a full service accounting system generally what happens is we enter the transactions on our end and double check it to the bank if we're just waiting till something clears the bank before we record it we're simplifying the accounting system to some degrees we're removing some of the internal controls but that might be well worth doing for many small businesses and the easiest time to do that is if you're not doing if you're doing a cash type of of business and you're paying electronically and so then we've got the bill form the bill form represents us doing the accrual process meaning the bill comes in like a utility bill and then we're going to enter it into the system as a bill without paying it yet that system can be useful because one it allows us to enter the bill when we get the bill which is usually closer to the point in time that the actual expense was incurred in other words utility bill for example usually we consume the electricity they then bill us on the electricity that we consumed and then when we enter the bill if I enter it at that time it's closer to the time that we actually used the electricity which is good from an accrual kind of conceptual standpoint then we'll have to track the accounts payable and then we're going to have to pay off the bill with basically money going out in the future so we'll have to track the bill in that case that'll be the accrual process and then we've got the purchase order and the purchase order is that one where we have inventory so you if you don't have inventory you will not have purchase orders even if you have inventory then you still might not have purchase orders unless you have some leverage over the vendors and the capacity to order something before paying for something which is required there's required to have some trust with your vendors and whatnot to have that kind of situation so we'll talk about them a bit more in the future note that if I then go into the drop down up top in the business we can sort the bills which are going to be the outstanding items here and we'll dive into this a little bit more in a future presentation but now we're going to have to organize the bills and whatnot we can also if someone had a question a vendor had a question we can go into the the contacts and go to the suppliers now notice I'll use the term vendors oftentimes because many softwares will use vendors business people will use vendors and then suppliers as an as another term which is a little bit less confusing to some degree but no matter what term you use you kind of have to get used to the idea that what side of the table are you on when you're using the terminology so notice if I say the vendors it that means I'm a kind of a vendor I sell stuff so I'm a vendor but from the standpoint of the software the zero software the vendor are the people that I'm purchasing goods and services from if I call them suppliers it's the same thing the thing about suppliers is they often kind of that term kind of indicates more that you're buying a thing like supplies physical things as as as opposed to basically service I guess vendors kind of does to there's no perfect terminology but I might actually sell supplies to I might be a supplier selling supplies but from the software's standpoint I am the one purchasing the supplies you gotta you gotta understand the terminology on which side of the table you're on just note as well that's also the case if I go to the drop down here and I go to like the bill a bill in normal kind of just normal language could mean that someone is billing me or could mean that I'm billing a client I might be sending out a bill to the client but from the software's perspective the bill represents something that I received from a vendor someone that I purchased goods and services from that that I'm entering into the system as a bill notice that gets confusing because I might get let's say I got a utility bill I got a bill from the from the vendor the person I purchased the utility from and I might say well I don't enter it into the system as a bill because I might just pay it right I might just say it's going to just be a spend money form so even though I got a bill in normal terms I'm not entering a bill I'm just going to pay it off with in essence a check or an electronic transfer type of form and the same thing is true with an invoice an invoice we may receive something that's called an invoice from from the utility company it might say it's an invoice because to them it is an invoice but to us in our in our accounting software in zero it's going to be a bill but the invoice to us from our side of things in the accounting software is that that's when we send out the bill to our customers so us charging the customers our invoices that's the side of the table that we're on when we're using this terminology it takes a little while to get used to that because you can use these same terms interchangeably on either side of the table in a normal business transaction you got to know which side of the table the accounting software is taking the perspective of when using these terms and so so that's going to be important con concept so if I go to the contacts drop down and I go into the suppliers these are the people the vendors the suppliers that we purchase goods and services from and then we can go into each of these suppliers and get some detail about them again we'll talk more about the suppliers and future presentations note from the financial statement perspective balance sheet and the income statement if I were to I'm zooming in a bit if I were to just to just start spending money on the utilities paying it with a check for example that would just be a decrease to the checking account typically and then the other side of the transaction would be going to the income statement oftentimes when we're paying for stuff in the form of an expense so normally when we when we have the purchasing cycle of stuff or the expense cycle you might say the outflow of cash at the end of the day at some point we're typically going to have an expense and at some point at the end of the cycle at some point we're going to have a decrease in the cash that's typically the purchasing cycle expense cycle or vendor cycle whatever you want to call it so we'll get into a little bit more detail on some of these components of it which will include sorting the bill payments and the contact list a little bit more in future presentations and then we'll dive into some examples of the of the forms involved in more detail the bill forms the the spend money forms and the impact of them on the financial statement and related reports