Question

Why would a business choose to enter a bill and then later pay the bill (2 steps) instead of just recording the check or expense when you pay the bill (1 step)?

a. It is against the law to not enter a bill if you receive one
b. You can't write a check without a bill to attach it to
c. Entering and paying bills allows you to track accounts payable
them (proper accrual accounting)
d. The funds won't have anywhere to go

Answer 1

A business may choose to record a bill upon receipt and pay later to manage cash flow and accurately track accounts payable, aligning with accrual accounting principles. This two-step process helps match expenses with generated revenues for a clearer financial picture.

Step-by-step explanation:

A business might choose to enter a bill when received and pay it at a later date versus recording the expense at the time of payment due to the benefits of accrual accounting. This process allows businesses to better manage their cash flow and keep track of their accounts payable. When you enter a bill, it's recorded as an outstanding liability, which then transitions to an expense when paid. This method ensures that expenses are matched with the revenues they help to generate, providing a more accurate picture of financial health. Banks facilitate easy access to funds, allowing businesses to securely withdraw the funds when needed to settle these liabilities. Additionally, balancing a checkbook is important for personal and business finance to keep tabs on cash flow and avoid overdraft fees.