Accounts Payable - "Short Term" vs. "Long Term"

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Posted on by Ron Wilson

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In the past, our owners have been able to look at our A/P vs A/R to get a feeling for how the company is doing (outside of P&L, Balance Sheet, Cash Flows, etc.). They always liked to see a 2:1 ratio for receivables to payables. Here is where we are having problems now. About a year ago, we start floor planning equipment (similar to how a car dealer would floor plan cars on their lot). Our floor plan payables typically carries terms of 12 months. This "long term" payables has skewed what our "short term" (Net 30) payables actually are and now the A/P vs A/R report doesn't tell them anything. Now to my question. How should we handle this? What is the appropriate accounting "method" for separating our "long term" payables (floor plan payables) from our "short term" payables (Net 30 payables)?

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Victoria Yudin 22,769 on at

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Ron,

I don't think accounting 'method' is the issue here. I am not a CPA, but I believe that if it's really something due in 12 months, then it is still a 'current' payable, so there is nothing special in the accounting method for handling this. The ultimate answer to this should be obtained from your company's CPA, however.

That said, it sounds to me like the real issue is one of reporting. The owners are looking to see data in a particular way to help them manage the business. What is the 'AP vs AR' report that you mention? Is it a custom report you've written? If so, one approach could be to exclude the floor plan payables from this report so they do not factor into the AR/AP ratio calculation. Of course, how to actually accomplish this would depend greatly on how the report is written.

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Ron Wilson 6,010 on at

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Thanks for the response Victoria. I knew that would couldn't just move the dollars from our payables...that would be too easy. This is not a report that I have written in particular. They have just always like to look at the A/R vs A/P to see if we have enough money owed to us that we have owed to others. I don't think there is anything really "accounting" about it, other than they like to see how much people owe us vs how much we owe others. Before the floor plan inventory, it was easy...they just looked at their A/P and A/R accounts in GL. I will figure a common denominator between all the floor plan items, and then write them a quick report taking the floor plan dollars out of the A/P total. That should work right?

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Frank Hamelly | MVP... 46,625 Super User 2025 Season 2 on at

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Victoria's right. Any liability of 12 months or less is a current liability. However, why don't you just code the floor plan payables to a separate GL account so they aren't included in your normal trade payables? Combine the trade and floor plan payables balances when reconciling to the AP trial balance.

Or maybe better yet, since some of the floor plan payables are more 'current' than others, use the aging bucket amounts to determine the AP balance your using in your AR-AP ratio. This would allow you to more accurately reflect the ratio if some of the floor plan payables are due within say, 90 days. You might even want to modify the calculation to include all payables that fall within the time frame that includes your oldest receivable.

Just some thoughts . . .

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Victoria Yudin 22,769 on at

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Yes, I think the options are:

1. Write a report and don't change anything in GP.

2. As Frank suggests, create a new AP account and change the floor plan vendors (or transactions) to use that account.

Everyone knows that I love reports, so that would be my preference. :-) Seriously, though, if it's simply a matter of a being able to see this information and otherwise all the accounting is working fine, I think it's a lot less work to create a report than it is to change the accounting process.

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Ron Wilson 6,010 on at

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Thanks Victoria and Frank! I really appreciate these forums and you folks. I think that I will probably leave the accounting alone and write a report to give them the info they are asking for. I just wanted someone to help me figure it out :) and you guys did. Thanks again! Ron

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Richard Whaley 25,195 on at

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Scheduled Payments is an option as well. Like the other recommendations, I would not defer 12 month liabilities into Long term but you could defer them into a Floor Planned Payables account.

Scheduled Payments takes a current payable and moves the balance to a second AP account (like Floor Planed Payables) But it also monthly moves the scheduled payment amount back to current payables to be included in the check run.

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Ron Wilson 6,010 on at

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Richard...it does this based on the "due" date of each floor planned payable? Is this an additional feature/cost to GP?

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Richard Whaley 25,195 on at

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It comes with Payables Management. You schedule payments from today to the due date of the original invoice.

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Ron Wilson 6,010 on at

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And at what point in the process are the dollars moved from the current payables account to a "floor plan" payables account (or is that manual)?

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Richard Whaley 25,195 on at

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When you create the Scheduled Payable (a deferred payable), the current liability amount is moved to an account you define (such as FloorPlanned Liability). When each scheduled payment is created as an invoice to be paid in the next check run, the amount of the payment is moved back to accounts payable, all automatically.

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