When you’re running a small business, you rely on accurate and complete financial data to make informed purchasing and budgeting decisions.
If you lack a precise understanding of what you still owe vendors at the end of the period, it can give you an inaccurate view of your current cash flow positioning and lead to overspending in the following weeks and months.
As a result, you can create liquidity problems for your business, putting even further pressure on your ability to meet your financial obligations to vendors.
For better visibility into your current financial health and any open invoices you have at a given point in time, preparing an accounts payable trial balance report can provide you with the critical information you’re looking for.
In this guide, we will explain what an accounts payable trial balance report is, the information it contains, and the important role it plays in a business’s financial planning and reporting functions.
What is an accounts payable trial balance report?
In accrual-based accounting, an accounts payable trial balance report provides a snapshot of any outstanding payments you owe vendors as of the current date.
Within this report, you’ll find a breakdown of the total amount of unpaid and partially paid invoices for each vendor or supplier, giving you a better idea of your outstanding liabilities when the report is prepared.
The AP trial balance report allows you to reconcile the ending balance of your AP account with what’s reported in the general ledger to ensure accuracy in your financial reporting.
Keep in mind that accountants will prepare an overall trial balance for all general ledger accounts at the end of each period, which is separate from the AP trial balance report we’re discussing here.
Parts of an accounts payable trial balance report
An accounts payable trial balance report contains key pieces of information, like:
- Vendor names: A list of all the vendors/suppliers who have issued you invoices in the current period
- Invoice numbers: The individual numbers of each invoice you’ve received from vendors
- Invoice date: When each invoice was issued
- Payment terms: The payment terms imposed by the vendor
- Invoice amount: The total amount owed on each vendor invoice
- Outstanding balance: Any remaining amount owed on open invoices, taking into account any payments already made
Your accounts payable trial balance report will contain the transactions from a specified date range, typically spanning from when you last prepared the report to the current date.
This means the report may contain details on vendor invoices you’ve already closed out alongside those that you still owe.
Because of this, an AP trial balance report may include some level of aging analysis, which helps you categorize invoices based on the length of time they have been unpaid, such as:
- Current invoices
- Invoices that are 30 days past due
- Invoices that are 60 days past due
- Invoices that are 90 days past due
Using aging analysis, you can better prioritize which payments you should address most immediately, like those that are the most overdue.
Sample accounts payable trial balance report
Here is an example of what an AP trial balance report might look like for a fictional company, JJ Enterprises:
From this report, you can see each of the invoices that have been issued to JJ Enterprises throughout the first quarter of the year, totaling $15,750.00.
Of that amount, we can assume that $9,050.00 has been paid out, resulting in an outstanding accounts payable balance of $6,700.00. This is the amount that you will reconcile against the general ledger.
Unlike standard financial reports like the income statement, balance sheet, and cash flow statement, there are no GAAP-compliant standards for creating an accounts payable trial balance report.
Thus, there is some flexibility for each organization to design and customize this report to fit their internal processes and financial objectives.
The importance of the AP trial balance report
The accounts payable trial balance report offers several crucial insights for business leaders, including the following:
Better financial visibility and cash flow management
First, the trial balance provides granular details about the bills you still owe at the end of the period, to which vendors, and at what payment terms.
As we mentioned above, this is a key piece of information that can guide your spending as you enter the new month, quarter, or year.
In other words, the amount of AP liabilities you have at the end of the period helps you time and forecast future cash outflows as you close out any outstanding invoices in the coming month or quarter.
This can form the basis for a realistic budget, giving you a better idea of how much capital you’ll have on hand to devote to strategic investments after taking care of your obligations to vendors.
More accurate financial reporting
The AP trial balance report also helps you maintain accurate financial records, as you can compare the balance from your report to what’s posted on the general ledger.
If the amounts are equal, it’s a positive indication that your reporting is accurate.
However, if there are any discrepancies, you need to explore further to determine which balance is incorrect and why.
Enhanced fraud detection
This report can also help you detect and prevent fraud attempts.
In some cases, discrepancies you recognize between your AP account balance and the general ledger may stem from honest mistakes or oversight by someone on your or the vendor’s team.
For instance, maybe the vendor forgot to cash a check you sent or didn’t apply the appropriate discount, or your team made an error while making the corresponding journal entry.
But, you may uncover fraudulent activity while reviewing the AP trial balance report.
Let’s say you notice there is a payment to a vendor recorded in the trial balance report, but there is no corresponding documentation to support this.
This discrepancy could indicate that a team member has made a fraudulent payment to themselves of the same amount, which you would need to investigate.
Improved vendor relationships
An accounts payable trial balance report can also help to foster better vendor relationships.
Since this report tracks invoice due dates and outstanding amounts owed, it can help you make timely and accurate payments.
As a result, this shows vendors that you are a reliable customer and respect their payment terms, which can help you develop trusting relationships with them.
Plus, if you do recognize a billing error or discrepancy from the trial balance report, you can proactively bring it to the vendor’s attention to minimize possible disruptions in your partnership.
Best practices for generating an AP trial balance report
To ensure accuracy, consistency, and transparency in your financial reporting, here are some best practices to adhere to when preparing an accounts payable trial balance report:
Generate an accounts payable trial balance report regularly
You should generate an AP trial balance on a regular basis, typically before the period ends, to ensure you’re maintaining up-to-date visibility into your payable liabilities.
Depending on your reporting requirements and accounting cycle, you may prepare the report monthly, quarterly, or annually.
Reconcile your AP transactions against supporting documentation
For better data accuracy, reconcile your accounts payable transactions with supporting documents like purchase orders, vendor invoices, and payment confirmations.
Conducting a thorough review will help you catch unusual or abnormal invoice details, missing documentation, and payment errors.
Promptly investigate each discrepancy to avoid overpaying, accidentally missing due dates, or making fraudulent transactions for illegitimate invoices.
Leverage automation for easier report generation
One of the major benefits of preparing this report is that it can help you ensure the accuracy of your financial reporting, but only if the report itself is accurate and reliable.
When preparing an AP trial balance manually in a spreadsheet, there is a lot of room for human error given how tedious it can be to copy over invoice data by hand.
To reduce the amount of time it takes to prepare this report and mitigate the risk of natural human error, use an automated accounting program (like BILL) that includes an AP trial balance report feature.
When you’re using an automated AP tool, it can pull current invoice data for the given period into the report, providing you with an up-to-date and accurate summary of your outstanding payables liabilities without all the manual effort on your end.
Monitor report trends over time
As time passes and you generate more AP trial balance reports, you can begin to recognize patterns in your payment data and look for ways to improve your workflows.
If you notice you’re consistently overdue on vendor invoices, for instance, you might need to take a deeper look into your workflows to uncover the source of this issue.
Plus, based on your typical trends, it may become easier to spot anomalies or unusually high invoice amounts. You can investigate these situations further to ensure there’s no fraudulent activity underway.
How to automate your accounts payable trial balance report
The AP trial balance report gives you better visibility over your payables liabilities, ensures accuracy in your financial statements, and helps you manage upcoming spending so you can meet your obligations to vendors.
While it can be challenging to complete this report by hand at each period end, using an automated tool like BILL makes it much easier to generate an AP trial balance with accuracy and efficiency.
In BILL, you can access a version of the accounts payable trial balance report that’s generated automatically from the invoice data you’ve uploaded to the platform.
Taking it one step further, our system will manage and schedule on-time payments to vendors, resulting in better billing accuracy and financial visibility for your team.
Learn more about how our automated AP solution can make your financial reporting process more efficient.
