Accounts Payable & Receivable
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Aging Analysis Cash Application Collections & Bad Debts Credit Control Invoice Processing Payment Runs Purchase Orders & 3-Way Matching Reconciliations Vendor Management
Accounts Payable & Receivable

Invoice Processing

24 question(s)

What is invoice processing in accounts payable?

Beginner
Invoice processing is the end-to-end handling of a supplier invoice from receipt through to payment: capturing the invoice, validating it against purchase orders and receipts, coding it to the correct general ledger accounts, obtaining approval, and posting it for payment. Accurate processing ensures suppliers are paid correctly and on time and that expenses hit the right period.
Real-world example An AP clerk receives 300 supplier invoices a month and processes each through capture, matching, coding, approval, and posting before the payment run.

Common follow-ups: What are the main steps of the AP invoice cycle? | What is a PO vs non-PO invoice?

Purchase Orders & 3-Way Matching Payment Runs Vendor Management

What is the difference between a PO and a non-PO invoice?

Beginner
A PO invoice references a purchase order raised before the goods or services were ordered, so it can be matched automatically to the PO and goods receipt. A non-PO invoice has no prior purchase order (common for utilities, rent, or professional fees) and must be coded and routed for manual approval by the appropriate budget holder.
Real-world example Office rent arrives as a non-PO invoice routed to the facilities manager, while raw-material invoices are PO-based and auto-matched.

Common follow-ups: Why do non-PO invoices carry more risk? | How is a non-PO invoice approved?

Purchase Orders & 3-Way Matching Vendor Management Invoice Processing

What key data fields must be captured from a supplier invoice?

Beginner
Essential fields include supplier name and ID, invoice number, invoice date, due date, PO number (if any), line items with quantities and unit prices, net amount, tax/VAT amount, total amount, currency, and remittance/bank details. Capturing these accurately drives matching, tax reporting, and payment.
Real-world example An OCR tool extracts the invoice number, date, PO, net, VAT, and total, which the clerk verifies before posting.

Common follow-ups: Why is the invoice number important? | What happens if the tax amount is wrong?

Reconciliations Vendor Management Invoice Processing

What is invoice coding?

Beginner
Invoice coding is assigning the correct general ledger expense account, cost center/department, and tax code to an invoice (or each line) so the cost is recorded in the right place for reporting and budgeting. For PO invoices the coding often flows from the PO; for non-PO invoices the approver or AP clerk applies it.
Non-PO invoice for marketing software, $1,200 + $120 tax:
  Dr  6500 Software Expense (Marketing dept)   1,200
  Dr  1360 Input VAT/Tax Receivable              120
      Cr  2100 Accounts Payable                        1,320
Real-world example A consulting invoice is coded to account 6200 Professional Fees under the Finance cost center so it lands in the right budget line.

Common follow-ups: Where does coding come from on a PO invoice? | Why use cost centers?

Reconciliations Purchase Orders & 3-Way Matching Invoice Processing

Walk through the journal entry when a supplier invoice is recorded.

Intermediate
When an invoice is posted, you debit the expense or asset account (and any recoverable input tax) and credit accounts payable, increasing the liability. When it is later paid, you debit accounts payable and credit cash/bank, clearing the liability. This two-step accrual approach records the expense when incurred, not when paid.
On invoice ($1,000 + $100 VAT):
  Dr Expense           1,000
  Dr Input VAT           100
      Cr Accounts Payable      1,100
On payment:
  Dr Accounts Payable  1,100
      Cr Bank                  1,100
Real-world example A month-end review confirms expenses were booked when invoices were received, matching costs to the period they relate to.

Common follow-ups: Why credit AP instead of cash at invoice stage? | How does this support accrual accounting?

Payment Runs Reconciliations Invoice Processing

What is a duplicate invoice and how do you prevent duplicate payments?

Intermediate
A duplicate invoice is the same invoice entered more than once (e.g., resent by the supplier or scanned twice), risking a double payment. Prevention includes enforcing unique supplier+invoice-number checks in the ERP, matching to POs/receipts, blocking payment of unapproved items, and running duplicate-detection reports before each payment run.
Real-world example The ERP rejects a re-keyed invoice because the supplier ID and invoice number already exist, preventing a $8,400 double payment.

Common follow-ups: What controls catch near-duplicates? | How do duplicate payments get recovered?

Payment Runs Reconciliations Vendor Management

How does electronic invoicing (e-invoicing) and OCR improve AP processing?

Intermediate
E-invoicing exchanges structured invoice data directly between systems, while OCR extracts data from PDFs/scans. Both reduce manual keying, speed up capture, cut errors, and enable straight-through processing where clean PO-matched invoices post automatically. This lowers cost per invoice and shortens cycle time, freeing staff for exceptions.
Real-world example After adopting OCR with auto-matching, a team's touchless invoice rate rises from 20% to 65%, cutting processing cost per invoice by half.

Common follow-ups: What is straight-through processing? | What invoices still need manual handling?

Purchase Orders & 3-Way Matching Invoice Processing Vendor Management

What are invoice exceptions and how are they handled?

Intermediate
Exceptions are invoices that can't process automatically: price or quantity mismatches to the PO, missing goods receipts, no PO, coding errors, tax discrepancies, or blocked/held vendors. They are routed to buyers, receivers, or approvers to resolve, and tracked so they don't delay payment or age unnecessarily.
Real-world example An invoice priced $2 above the PO is held as a price exception and released only after the buyer confirms an agreed price increase.

Common follow-ups: Who resolves a quantity mismatch? | How do exceptions affect DPO?

Purchase Orders & 3-Way Matching Aging Analysis Invoice Processing

What is an approval workflow and why is it important?

Intermediate
An approval workflow routes an invoice to the people authorized to approve the spend, based on rules like amount thresholds, cost center, or GL account (a delegation of authority matrix). It enforces segregation of duties, ensures budget holders sign off, creates an audit trail, and prevents unauthorized or fraudulent payments.
Real-world example Invoices over $10,000 automatically require a second approval from the department director per the authority matrix.

Common follow-ups: What is a delegation of authority matrix? | How does approval support SOX controls?

Vendor Management Payment Runs Invoice Processing

How is input VAT/sales tax handled on purchase invoices?

Intermediate
Recoverable input VAT is recorded separately (debited to a VAT receivable/input tax account) rather than as expense, so it can be reclaimed from the tax authority. The correct tax code and rate must be applied per line, and the invoice must be a valid tax invoice. Non-recoverable taxes are added to the expense.
Invoice $1,000 net, 20% VAT:
  Dr Expense            1,000
  Dr Input VAT            200
      Cr Accounts Payable       1,200
(Input VAT of 200 is reclaimable on the VAT return.)
Real-world example The AP team applies a zero-rate tax code to an export-related invoice and standard rate to domestic ones, keeping the VAT return accurate.

Common follow-ups: When is input VAT non-recoverable? | What makes a valid tax invoice?

Reconciliations Invoice Processing Vendor Management