Companies have two major business cycles: the revenue cycle and the expenditure cycle. Full-cycle accounting is the act of completing all necessary accounting activities within a business activity. Full cycle accounts payable is part of the larger purchasing and expenditure cycle. The full cycle of accounts payable entails matching documents, approving invoices, issuing checks and recording payments.
The Accounts Payable Cycle
Three major documents are involved in the accounts payable process: a purchase order, a receiving report and a vendor invoice.
- When the company is ready to make a purchase, a purchasing department will send a purchase order to a vendor. This document details the merchandise requested, the price and the quantity. The purchase order triggers the vendor to send the goods.
- Once the company receives the goods, the receiving department will complete a receiving report. This report documents the exact goods contained in the shipment. If the shipment contains any damaged items, the employee notes it in the report.
- The vendor sends a vendor invoice requesting payment for the goods or services rendered. This document is sent to accounts payable and triggers the payment process.
Accounts payable then performs specific steps to complete the payment process:
- After receiving the vendor invoice, accounts payable performs a three-way match of the information on the purchase order, receiving report and vendor invoice to ensure the information is consistent.
- If accounts payable can verify that the goods on the vendor invoice were ordered and received by the company, the invoice is approved for payment processing. This is done through a voucher, signature or stamp.
- In large companies, the actual payment is processed by the treasury department. However, accounts payable is responsible for issuing payments in most small companies. After an invoice is vouched for, accounts payable sends the vouched documentation along with a check to a company check signer.
- After the check signer approves and signs, accounts payable mails the check and marks the invoice as paid in the accounting system.
Full Cycle Accounts Payable Roles
Accounts payable job descriptions are often labeled as "full cycle." This means the accounts payable employee is responsible for every part of the payment process. According to Accounting Tools, potential responsibilities include three-way matching, reviewing expense reports for accuracy, applying payment discounts and issuing payments to vendors.