Tuesday, August 14, 2012

Accounts Payable - ERP Basics - Glossary of Terms


Accounts Payable: The amount due to the suppliers/vendors for the goods and services provided on credit.
Accounts payable Dept: It refers to the department within the organization that manages Accounts Payable activity.
ERP: A large software application that is implemented across a corporation, which helps it to coordinate across the different processes in the enterprise.  It consists of modules supporting each of the key processes in the corporation like order fulfillment, billing, supply chain, procurement, finance & accounting, etc.
Invoice:  Often termed a “bill” in colloqurial speech.  It is a commercial document issued by a seller to the buyer, indicating the item(s) bought with the quantity and agreed rate for the goods or services the seller has provided the buyer.  An Invoice specifies the amount that the buyer needs to pay the seller of the goods or services.
Procurement: The team/ business function that is responsible for vendor selection/ negotiation and placement of orders from the vendor.
Receiving: The process of receiving products or services supplied by the vendor at the  customer’s premises. The receiving activities also include checking for the quantity and quality of the goods supplied.
Sourcing: The process of identifying suitable vendors for supplying certain material / services.
Vendor: A person or a business which supplies/sells certain goods and services to the customers as per some pre-decided commercial terms.
Requisitions: This activity relating to the request raised by the business users within the  organization for purchase of any goods/Services.
Goods: Any tangible material or item that is purchased within an organization.
Services: A service is the non material (tangible) counterpart of physical goods.  A service compromises sequence of activities, that doesn’t result in change in ownership of the outcome.  

Working Capital: Money that is used to run the day to day operations of an organization.  This Money is typically borrowed from banks and hence attracts interest costs.
Credit Note:  A document generated by the seller giving credit to the buyer for the goods returned or excess payment etc.  It is called a “credit” note because it credit (lower the assets/accounts receivables) the customer’s account.
 Debit Note: It is a similar document like a “credit” note.  The only difference is that it is initiated by the buyer instead of the seller.
Goods received note: the document generated by the buyer indicating the quantity and Other particulars of the goods received.  It is used by the seller as a proof of delivery of goods.
Invoice: A document sent by the vendor/supplier/seller to the buyer, requesting Payments for the goods/services provided.
Purchase requisition: An internal document within the buyer’s organization generated by the end user department and forwarded to procurement/purchase department.  The purchase
Department creates a purchase order based on receiving a PR.
Vendor Master: The data base maintained by the buyer which contains a detailed list
of all the vendors that the buyer purchases from.
Document Management System: A software tool used to store and manage digital documents  or digital images of paper documents.
EDI: (Electronic Data Interchange) It refers to the set of standards that enable a Structured transmission of commercial data between organizations by electronic means.
ERP: (Enterprise Resource Planning) It is a software tool which allows transactions from all the business functions of an organisation to be recorded within it and provide a single view of the state of the business.
 Indexing: The process of classifying a document in a document management system by assigning attributes like document number, date etc. And associations with other documents.  Indexing helps to search and retrieve documents faster from the document management system.
ISP:  (Internet Supplier Portal) This refers to a website created by a buyer for its vendors for them to do transactions directly with the buyer.  The kind of transactions done by the vendors on an ISP are Acceptance of a purchase order, confirmation of purchase orders, submission of invoices, enquiring about the status of payments on the invoices etc.
Metrics: Measurements taken on an activity to measure its quality.
Non-PO Invoice: The invoice which is raised for items that were purchase with a PO.
PO Invoice: The process of converting a paper document into a digital image and Storing it on a computer.
Three way match: The process of comparing the contents of PO, invoice and GRN to clear the invoice for payment.
Two way match: The process of comparing the contents of PO and invoice to clear
the invoice for payment
Hold: A status assigned to the invoice while further information and approvals are being
sought  on it from the client.

Account code: A numbering system given to specific kinds of work for the purpose of
organising the cost control process of a specific project or department.
Payment batch: A computer program in the ERP environment, which identifies all the Invoices that need to b e paid and creates a list of payments to be made.
Payment batch name: Unique name to identify the payment batch.  Different companies use  different formats for defining this name.
Payment date / Value date: Payment Date is the date by which the supplier can expect the
money  in his account.
Pay-through date: Pay through date is the date, until which the invoices due for payment will   be picked up in the payment batch.
Payment run date: The date on which the payment process is executed.
Payment Currency: The currency in which payments get transacted.
Payment Document: Payment Document is the document through which the payment are made.  There are various types of documents for various payments created in the ERP. There is one document created for each payment.
Payment register: The payment documents created in a single payment run are combined
into a payment register
Service Level Agreements: (SLAs) These are the agreements between the Centralisation service provider and the client where client’s expectations out of the process Centralised
are documented.  These SLAs are measured through various performance metrics.

Vendor Helpdesk: It is team which receives and responds to vendor queries about whether  the invoices have been received and found to be in order, when the payments can be expected etc.
 Workflow: It is a tool which allows for a transaction to be defined as a series of tasks
and automatically assign the transaction to the next person when the initial task has
been completed.
Asset: An asset is a source of current or future economic benefit for the business e.g. cash,
Money receivable from the customers, land, buildings, machinery, vehicles etc.

Cash-in transit: This indicates an asset account in the company’s books of accounts.  It is
used to indicate the money that has been paid by the company but is not reconciled against
any other liability that the company had to pay or against an asset that the company acquired.

Credit entry: The entry which indicates source of funds i.e. a decrease in an asset, increase
in a liability or increase an income or profit.

Debit entry: The duality principle requires us to maintain accounts by making double entries
together one for credit and one or more for debit or vice versa.  Where amount under credit
is equal to the amount of debit.

Duality principle: The principle of accounting which states that each transaction has two
aspects i.e. source of funds (credit) and use of funds (debit) and that in any transaction, amount
of debit is equal to amount of credit.  This principle is the foundation of the double entry system
of accounting.

Expenses: The money spent by a business on it day to day operations.

General Ledger: The general ledger, sometimes known as the nominal ledger, is the main accounting record of a business which uses double-entry bookkeeping.  It will usually include accounts for such items as current assets, fixed assets, liabilities, revenue and expense items, gains and losses.

Income: The money earned by a business due to its day to day operations

Liability: It is a source of current or future economic obligations of a business e.g. monies payable To the vendors, loans taken from lenders etc.

Month-end process: The process followed by an organisation to close the books of accounts/
financial at the end of a month.  This is done to prepare reports and financial statements at the
close of month end.

Subsidiary Ledger: (Also called sub-ledger) This is the supporting ledger of related accounts. The balance of all sub-ledgers of the same type should reconcile with the general ledger balance.

Withholding tax: It is an amount withheld by the party making payment to another (Payee) and
paid to the taxation authorities.  The amount the payer deducts may vary, depending on the nature of the product or service being paid for.







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