Account Payable Process in Construction Accounting

Updated: Aug 3


When a business entity purchases goods or services from suppliers or creditors on credit which would be paid back later, the accounting entry is called Account Payable. Despite the fact that it is a short-term loan, it’s required to be treated properly. If not, it can affect the company’s financial position. Consequently, in a company, a set of account payable procedures is essential to follow before processing payment to vendors.

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Accounting payable is a well-defined process from start to finish to avoid confusion. The process mainly involves:

  1. The company issues purchase order to require any items to the supplier.

  2. The supplier receives the purchase order and delivery items to the company along with an invoice.

  3. The company receives items, inspects whether there are any defective goods.

  4. Then, based on the invoice received from the supplier, the company enters it into the book of accounts on the liability side. The way of recording invoices could differ from companies. While some companies manually track invoices, others use accounting software to recording invoices. The less paperwork, the more beneficial the process.

  5. When the invoice is recorded, the account payable balance increases. Balance Sheet is used to show the sum of all outstanding amounts whereas the increase or decrease amount of account payable from prior period appears on the cash flow statement.

Recording invoice also matches the purchase order and the item receipt

6. Now, the company could start the payment process by release payment and make payment

7. At the end of a fiscal period, the account payable should be reconciled to ensure the process goes smoothly.


To make sure a company’s cash and assets are safe, the accounts payable should have internal controls to:

  • Prevent paying the wrong invoice

  • Prevent paying a fraudulent invoice

  • Prevent paying an invoice twice

  • Be certain that all vendor invoices are accounted for

If you need any advice or services on any aspects of construction bookkeeping, accounting or tax, our construction accounting specialists are ready to help. Get in touch with us for free quote.

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