How to Manage Business Accounts Payable Accruals?

Accrual-based businesses must ensure they have a complete and accurate record of all financial…

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Accrual-based businesses must ensure they have a complete and accurate record of all financial transactions in order to report their results in accordance with GAAP.

In preparing financial statements for year-end (i.e., the end of the fiscal year) and other accounting periods, accounts payable accruals are a special form of expense that warrants careful attention.

What Are Accruals in Accounts Receivable?

Accruals in accounts payable require familiarity with the accrual basis of accounting. Rather than waiting for the buyer or seller to send or receive money, transactions are recorded in the general ledger as soon as they occur in the cash flow.

Material orders, service fees, wages payable, and taxes are just some of the examples of assets and liabilities that are recorded immediately in an accrual accounting system. When payments are made or revenue is received, adjusting entries are made to bring the books back in sync.

Any individual or organization that has supplied products or services to your business is considered an Account Payable (AP) on your balance sheet.

Crediting Accrued Amounts to Accounts Payable

All income and all expenses incurred during an accounting period (often a fiscal year) must be shown on the balance sheet at the end of the period. Expenses that are considered “accruals” are those for which payment isn’t due until after the accounting period has ended, even though they were received or done within that time.

Supposing, for the sake of argument, that the conclusion of the fiscal year for your organization is December 31. The marketing department at your company needed new computers and you placed an order for them in November of 2019 for $12,000. Although we acquired the PCs in November, the supplier will not bill us until February of 2020, and we won’t pay the bill until March.

Although the machines weren’t paid for until March 2020, they were delivered within the preceding fiscal year. The right journal entries must be produced to reflect the actual date the item was incurred in order for your balance sheet and other financial papers to be accurate and complete.

Tips on Managing Accounts Payable Accruals

To further comprehend accounts payable accruals, let’s focus entirely on expenses recorded under the accrual approach. Some of them are persistent, recurring expenses. The cost of utilities and the salary of employees that have not been paid yet are an example of these types of expenses. Goods or services delivered by a third-party supplier may also be consistent and continuing, but they are what we are talking about when we refer to accounts payable accruals. That is to say, accounts payable refers primarily to short-term debts owed to vendors.

Like accumulated obligations such as loan payments and wages, accounts payable count as current liabilities. But typically, these types of payments might be tougher to keep up with and reconcile than something like payroll or regular loan payments. Developing an effective approach is vital for avoiding running afoul of financial restrictions. Let’s examine what measures a company might take to strengthen the reliability of its books.

Verify the Accrual Invoice, Vendor, and Goods

You must double check the Accrual Invoice, the Supplier, and the Products. Almost everyone has ordered from a drive-thru and gotten home to find that the restaurant messed up their order. It’s not just eateries that sometimes mess up customers’ orders. In the event that a supplier sends you an incorrect quantity or the wrong things, you may have to make a supplementary purchase to make up the difference. You will end up paying twice for lost or stolen items if you don’t find them right away. In addition, you’ll be keeping track of accruing costs for something that wasn’t obtained and hence didn’t result in any immediate costs.

Pay Closer Attention to Increasing Bills

If an invoice surpasses a specific amount, then further attention should be given on it. This, like the initial procedure of validating the products, should be a routine component of your accounts payable department’s routine. When there are a lot of goods on an invoice, the vendor is more likely to make a mistake. Alternatively, they are for really expensive things, which implies little inaccuracies will result in big errors on your accumulated expenses reports.

Invoices and Receipts Should be Standardized

For reliable results, it’s important to use same inputs every time. Without a system in place to ensure that each invoice and transaction is translated into some consistent form, recording accounts payable accruals can rapidly become complex. Mistakes, duplications, and omissions are more likely to occur in the absence of a reliable system. The Order platform makes this easy by providing you with a single platform from which you can monitor your incoming invoices and make payments to the vendors when the time arrives. This works with any merchant accepting payments by ACH, checking account, or credit/debit card. Mediaplanet cut costs on sourcing by 8.8 percent by consolidating all of their suppliers in Order.

Take Note, and Get Paid Later

It’s much simpler to plan for the future and pay the piper when you can see the full picture. You may avoid unpleasant surprises when it comes time to pay your suppliers if you keep close tabs on accounts payable accruals, document them accurately, and use the appropriate technological tools for management.

Keeping accurate records of your company’s short-term liabilities is critical to the reliability of your income statement. The financial projections you make at the end of the year won’t be reflective of reality if these details aren’t correctly recorded and reconciled. The accounting process is fraught with potential for error because of the presence of human error.

Clearly Define Roles

Everyone at the company hopes there are no dishonest employees among them. However, adequate segregation of duties for accumulated expenses is the most effective strategy to prevent fraud. An employee has a lot of room for misconduct if the same individual is responsible for confirming the accrued expenses, modifying the entries, and signing off on the payments. Avoid having a single employee compromise the reliability of your financial statements by dividing up these responsibilities. A robust accounts payable audit procedure will also aid in checking everyone’s work.


Order facilitates the automation of that process and does away with the room for error that comes with manual labor. It’s a convenient tool for managing your business’s financial records, such as accounts payable and receivable, as well as accounts owed and received. Would you like more information on how to better efficiently and accurately handle your accounts payable accruals? If so, you can sign up for a commerce course in Ahmedabad and learn all that you need to about accruals.

What are GST Input Tax Credit Claims under New Section 38 of the CGST Act?

The Finance Bill 2022 added a new clause to the Central Goods and Services…

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The Finance Bill 2022 added a new clause to the Central Goods and Services Tax (CGST) Act, 2017, replacing Section 38. The new Section 38 was suggested to tighten input tax credit further (ITC) claims due to the degree of ITC fraud that occurs via bogus organizations and fraudulent invoices. The requirements of this section will also assist in preventing any legal disputes.

The amended Section 38 has not yet been enacted by parliament or communicated to taxpayers. However, it may become part of the GST law in the coming months.

Let’s decode the new Section 38 and see how it affects a company’s ITC claims. The GST course in Ahmedabad are gaining utmost popularity in the recent times.

How does the existing section 38 Govern ITC claims?

The current Section 38 of the CGST Act has captioned ‘Furnishing details about inbound supplies.’ It controlled the provision of details of outward supplies (i.e., sales) by a provider, followed by the recipient (buyer) receiving such inward supplies (i.e., purchases) and claiming ITC on the same.

The extant part was built on a two-way communication paradigm but was never used. The seller provides details of outward supplies under Section 37(1), such as the GSTR-1. The buyer is then obliged to accept/modify/delete these supplies in their inward supplies report (i.e., the GSTR-2), which is subsequently transmitted back to the provider within the specified time frame.

Finally, the clause states that the receiver taxpayer must balance their inner supply with their supplier’s external supplies. If an error or omission is discovered, it should be reported to the provider. Furthermore, any tax and interest on any short payment must be paid to the government by the due date.

Understanding the revised section 38

The Finance Bill 2022 proposes a revised Section 38 headed ‘Communication of information of inbound supplies and .’ It limits input tax credit claims in several ways and inhibits two-way contact between the supplier and the customer (although it was never followed).

The new section’s objective is expressed in two subsections:

The first subsection mandates that the information of outbound supplies given by a taxpayer’s suppliers be made accessible in an automatically generated statement, i.e., the GSTR-2B. (It should be emphasized that this mechanism is already in place; the change in legislation will now support the current CGST Rules.)

The GSTR-2B is prescribed in the second subsection. In other words, it informs taxpayers about the situations in which they may and cannot claim an input tax credit (eligible and ineligible ITC).

Some of the limits under this provision involving ITC ineligibility include circumstances where the supplier has just registered under the GST law, has failed non pay their taxes, or has unlawfully obtained additional ITC, to mention a few. In the next portion of our article, we shall decode each sentence in subsection (2) using an example.

Decoding the clauses of the revised section 38

The updated Section 38 subsection (2) is significantly more difficult for taxpayers to comprehend. So, let’s go over this part clause by clause.

  1. Subsection (2) clause (a) stipulates the inbound supplies and applicable ITC for the recipient (buyer) to claim in the GSTR-2B statement. In other words, ITC is eligible.
  2. Clause (b) is more complicated. It comprises the data of inbound supplies provided by the provider in the GSTR-2B, for which no ITC may be claimed. In other words, ITC is ineligible. This clause is divided into six sections.

(i) The first portion states that ITC cannot be claimed on supplies made by a provider during the required period* following registration under the GST law.

(ii) The second section states that ITC may not be claimed on supplies provided by a provider who has not paid their taxes and has defaulted for a specified time.

(iii) The third section states that ITC cannot be claimed on deliveries for which the provider has a tax obligation more significant than the tax paid during the specified period and within the defined limit.

(iv) The fourth section states that ITC may not be claimed on supplies given by a provider if the supplier claimed ITC over what was allowed under clause (a). This section also states that the excess is decided by the stipulated limit*.

(v) The fifth section states that ITC may not be claimed on supplies provided by a provider who has failed to pay their tax due by Section 49(12), subject to the criteria and limits prescribed*.

(vi) The sixth section states that ITC may not be claimed on supplies provided by a supplier if the provider is a member of such other class of individuals as prescribed*.

Impact of ITC claims once the revised section 38 gets notified.

Most taxpayers may be perplexed as to why they cannot collect input tax credits since their suppliers are newly registered or have defaulted. When GST was implemented, it guaranteed taxpayers a continuous supply of input tax credits. Let us explain why this part was created in brief.

Since the implementation of GST, input tax credit claims have been a source of tax evasion and fraud. Every year, the government loses hundreds, if not thousands, of crores to fraudulent taxpayers who claim an input tax credit based on forged invoices. These invoices are created by firms set up expressly for this purpose and subsequently shut down. As a result, the government is now proposing this updated Section 38 to eliminate all ITC-related fraud.

When this section is notified, three things will change for taxpayers.

  1. To guarantee that their ITC claims are always eligible and correct, their reconciliation procedures will need to become more frequent, dynamic, and preferably automated.
  2. Taxpayers must guarantee that they only do business with compliant providers. Again, the market’s automated GST solutions allow taxpayers to assess their supplier’s compliance BEFORE onboarding them. Higher ITC claims result from a complying supplier.
  3. Suppose a taxpayer does not match 100% of their input tax credits or, worse, if the supplier is non-compliant (i.e., the default in paying taxes or claiming excess ITC). The receiving taxpayer (buyer) is not permitted to claim the ITC that is legally owed to them. This will raise their GST cash burden and harm their working capital.

How many taxpayers make their ITC claims process more efficient
This new part has not yet been approved by parliament. If enacted as is, taxpayers must establish a rigorous framework of vendor verification and a reasonable ITC claim procedure.

With automation, this may be accomplished in only three steps:

  • Configure the ERP to collect all invoice and vendor information.
  • Before onboarding, verify vendor compliance.
  • BEFORE sending payments to suppliers, do a dynamic matching with the GSTR-2B. If suppliers fail to comply, the buyer has the option of withholding pay.