Accounts payable
From a vendor's W-9 to a paid bill: approvals, matching, terms, payment runs and 1099s.
8 lessons5 nested pages96 min2 exercisesFree
How should a startup handle bills and vendor payments? This track answers it on the books of Northwind Traders, Inc., the one company every track in the course is taught on.
The 8 lessons
- What accounts payable is: procure to payWhat is accounts payable, and how does the procure-to-pay process work?
- Vendor onboarding: W-9, W-8BEN and TIN matchingWhat do I need from a new vendor before paying them: W-9, W-8BEN, TIN matching?
- Purchase orders, approvals and three-way matchWhat is a three-way match, and does a startup need purchase orders?
- Payment terms and early-payment discountsWhat does 2/10 net 30 mean, and should we take early-payment discounts?
- Bills on the books: posting, paying and accruingHow do you record a bill in the books, and when is an expense accrued instead?
- Payment runs, payment methods and fraud controlsHow should a startup pay vendors safely: ACH, wire, check or card?
- AP aging and days payable outstandingHow do you read an AP aging report and calculate DPO?
- 1099-NEC and 1099-MISC at year endWhich vendors need a 1099-NEC or 1099-MISC, and what is the threshold for 2026?
The words this track teaches
Each links to its glossary definition, with the authority behind it.
- Accounts payableWhat we owe vendors for bills already received
- BillA claim against us
- VendorA party we buy fromConvention
- Purchase orderA commitment to buyConvention
- Goods receiptConfirmation that goods arrived
- Payment runA batch of payments released togetherConvention
- Control accountA GL account whose balance is the total of a subledger — AR, AP, fixed assets — and is posted only from itConvention
- SubledgerThe detail, by customer, vendor or asset, whose total must equal its control account in the GLConvention
- Vendor masterThe record of every approved vendor — legal name, tax classification, TIN, tax form on file, bank details, default terms and who approved the setup. Bank details are versioned, never overwritten
- Form W-9The IRS form a US payee gives a payer to certify its name, tax classification and taxpayer identification number — collected before the first payment, because it drives 1099 reporting and backup withholding
- Form W-8BENThe certificate a foreign individual gives a US payer, in place of a Form W-9, to establish foreign status. Entities use Form W-8BEN-E. Generally in effect until the last day of the third calendar year after the year it is signed
- TIN matchingThe IRS e-Services check of a payee's name and taxpayer identification number against IRS records, open to payers who file information returns. It says whether the pair matches, not what the right number is
- Backup withholdingFederal income tax a payer must withhold at 24% from reportable payments — contractor fees, interest, dividends, card settlements — when the payee has not given a correct TIN or the IRS has notified the payer to withhold. Deposited and reported on Form 945
- PayeeThe party receiving a paymentConvention
- LiabilityA present obligation of the entity to transfer an economic benefit (FASB CON 8 ¶E37)
- Three-way matchAgreeing the purchase order, the goods receipt and the vendor invoice — quantity and price, line by line, within tolerance — before a bill is approved for payment
- Two-way matchAgreeing the vendor invoice to the purchase order, without a receipt — used for services and where nothing physical arrives
- ApprovalFormal authorization of a specific version
- ExceptionA break requiring investigation
- GR/IRGoods received / invoice received — the clearing account credited at receipt and debited when the vendor invoice arrives; its balance is received-not-yet-invoiced
- Segregation of dutiesSplitting authorization, recording, custody of assets and reconciliation across different people, so no one person can both commit and conceal an error or fraud — at minimum, preparer ≠ approver
- Payment termsThe agreed timing of payment and any early-payment discount — Net 30, Net 30 EOM, 2/10 net 30, due on receipt; the due date that aging is measured fromConvention
- Early-payment discountA reduction offered for paying before the net due date — 2/10 net 30 is 2% off if paid in 10 days, an annualized return of about 37%Convention
- Perpetual inventoryUpdating the inventory account with every purchase and every sale, so cost of revenue is recorded sale by sale; the periodic alternative works it out at period end from a countConvention
- AgingGrouping open receivables or payables into buckets by days past due date — current, 1–30, 31–60, 61–90, 90+
- AccrualAn expense incurred, or revenue earned, before it is invoiced — recorded at period end so it lands in the right period
- Accrued liabilityAn obligation for goods or services received but not yet invoiced or paid — wages, interest, professional fees — recorded by an accrual
- Reversing entryAn entry dated the first day of the next period that exactly offsets a period-end accrual, so the real invoice can be coded normally without double-countingConvention
- True-upThe adjustment that replaces an estimate with the actual amount once it is known
- CutoffRecording each transaction in the period in which it occurred — the boundary tested at every period endConvention
- ACHThe Automated Clearing House network — the US batch system for electronic credits and debits under Nacha rules; same-day to two-day settlement, with limited return rights
- Wire transferA payment settled individually and in full — domestically over Fedwire, cross-border through correspondent banks via SWIFT — same-day and final once sent, which is why it carries the highest fraud risk
- Outstanding checkA check recorded as paid in the books but not yet presented to the bank — deducted from the bank balance in a reconciliationConvention
- Positive payA bank fraud control: the company sends the bank a file of issued checks (or approved ACH debits) and the bank returns any presented item that does not match for a decisionConvention
- Business email compromiseFraud that uses a compromised or impersonated email account — often a vendor's or an executive's — to have payments sent to an account the fraudster controls, typically by "updating" a vendor's bank details
- DPODPO is a liquidity and working-capital metric, calculated as (Ending AP ÷ COGS for the period) × Days in the period.Convention
- CCCDSO + DIO − DPO: the days between paying suppliers and collecting from customers. Negative means customers pay before suppliers are paidConvention
- Form 1099-NECThe IRS information return for nonemployee compensation paid to a contractor in the course of business — required at $600 a year for payments through 2025 and $2,000 from 2026 (indexed from 2027), due to the recipient and the IRS by January 31
- Form 1099-MISCThe IRS information return for rents, prizes and other listed payments made in the course of a business — $2,000 or more for payments made in 2026, $600 through 2025. Services go on Form 1099-NEC instead
- Form 1099-KThe information return from a payment settlement entity reporting a payee's gross payment card and third-party network receipts — card transactions at any amount; third-party network transactions only above $20,000 and 200 transactions, the threshold the OBBBA retroactively reinstated. Gross of refunds, chargebacks and fees, so it never ties to revenue
- Form 1096The transmittal that summarizes paper Forms 1099 (and certain others) sent to the IRS. Not used when filing electronically
- IRISThe IRS's system for filing Forms 1099 electronically, including a free web portal that needs an IRIS Transmitter Control Code. Electronic filing is required once a filer has 10 or more information returns in a year
- Combined Federal/State Filing ProgramThe IRS program that forwards 1099s filed electronically to participating states, satisfying their filing requirement — though many states still require direct filing, or a reconciliation return of their own