Whether a business is large or small, the same basic principles and practices of internal control apply. One of the key components of internal control is the accounts payable cycle. Large or Small, the Control Concepts are the Same Whether a business is large or small, whether it is operated from a separate facility or you operate it from your home, the same basic principles and practices of internal control apply.

Staying on Course Direction is key – in what direction are you going, and where does your direction come from. In the case of a sole proprietorship or home-based business, for example, you are the source of your own direction. You decide where you are going and how you want to get there. Maintaining a clear focus on your direction will help you avoid making unnecessary or unproductive expenditures, and veering off the course you have set. Your focus will be on making those disbursements that are necessary and reasonable in order to help you achieve your goals.

The Business Plan as the Starting Point Clarity as to your goals, objectives, and direction comes from going through the process of developing your business plan. It is here where you think through the product or service you will offer on the market, what it will take to produce the product or provide the service, the resources you will need in order to do so, and the efficiencies you hope to utilize in your favor. The business plan could be thought of as a description of the destination (the goals and objectives of the business), and the business strategy as the means to get there.

Budgets, Forecasts and Projections A budget for capital expenditures and start-up costs is generally prepared once, when a business is commencing operations. An operating budget is often prepared on an annual basis. Many changes can occur during the year. While some changes can be foreseen and programmed into the budget, there will undoubtedly be other fluctuations that cannot be easily predicted, such as variations in the prices of materials and supplies, the cost of fuel, and other expenses. And selling prices may need to be adjusted according to fluctuations in market conditions.

Flow of Control The steps involved in an accounts payable control system, or the thought process involved in decision-making, can be seen in terms of a logical flow, that starts with the business plan and ends with the disbursement. This flow is as follows:

1. Business plan
2. Business strategy
3. Budget
4. Forecasts and cash flow projections
5. Requisitions
6. Quotes and bids
7. Competitive comparison
8. Purchase order
9. Proof of delivery
10. Invoice verification
11. Payment

End Results Within the context of overall internal controls, the controls that apply to the accounts payable cycle affect, or form a part of other, more general internal controls, such as variance analyses of budgeted versus actual expenses, or forecasted or projected expenses versus actual expenses.