A supplier statement reconciliation or vendor statement reconciliation involves reconciling an individual supplier balance in the accounts payable ledger with a statement submitted by a supplier.
Supplier statements are an important accounting source document regularly issued to the business by a supplier of goods or services. The statements contain details of all invoices, credit notes, discounts and payments made on a supplier account according to the supplier. By reconciling the statement to the supplier’s account in the accounts payable ledger any discrepancies or errors are revealed.
Supplier Reconciliation Process
A typical four step process for carrying out a supplier statement reconciliation is as follows.
Step 1: Agree the Opening Balance
The starting point for the supplier statement reconciliation is to agree the opening balance shown on the supplier statement with the opening balance on the accounts payable ledger account for the supplier.
Step 2: Agree this Periods Entries
All the items which appear on both the supplier statement and on the supplier’s account in the accounts payable ledger should be marked with a tick mark. These items can now be eliminated from the reconciliation process.
Step 3: Allocate Credit Notes and Payments
All credit notes and then payments shown on the supplier statement should be allocated against invoices.
Step 4: Differences
All remaining items not eliminated in steps one to three above represent either items on the supplier statement not in the accounts payable ledger, or items in the accounts payable ledger not on the supplier statement. These items will form the basis of the supplier statement reconciliation.
Supplier Statement Reconciliation Items
Reconciling items generally result from one of the following reasons.
As with bank reconciliations differences can arise due to the timing of postings made by the supplier and postings made by the business itself.
If a business issues a payment to a supplier is might immediately record that payment on the account of the supplier in the accounts payable ledger. The supplier, on the other hand, might not have received or been notified of the payment before issuing its period end statement to the business. When the statement is received by the business the payment is not shown and becomes a reconciling item in the supplier statement reconciliation. Such items are normally referred to as payments in transit.
A similar situation can occur if an invoice or a credit note is posted in the accounting records of one business but not the other. A supplier might for example issue an invoice at the end of an accounting period and then immediately produce the supplier statements. The business receiving the statement might not have had time to process the invoice and it will therefore not appear on the supplier account in the accounts payable ledger and therefore show as a reconciling item on the supplier statement reconciliation.
Due to an omission, an invoice, credit note, payment, discount, or adjustment might appear in the accounting records of one business but not the other. This type of reconciling item is not due to timing, and will not correct itself in a later accounting period. The amount has simply been omitted in the accounting records of one of the businesses.
Errors can occur for many reasons. Again, an invoice, credit note, payment, discount, or adjustment might have been incorrectly posted in the accounting records of one of the businesses. Perhaps the wrong amount has been recorded due to a transposition error, or the amount has been allocated to the wrong supplier account in the accounts payable ledger. Either way, the error will result in a reconciling item on the supplier statement reconciliation.
Supplier Statement Reconciliation Example
Suppose a business receives a statement from a supplier showing a balance of 1,800. On checking the supplier account in the accounts payable ledger the balance is shown to be 1,370.
The business has agreed the opening balances (step 1), and marked off the items shown on both the statement and the ledger account (step 2), and has identified the following unreconciled items.
- A recent payment of 200 has not been recorded by the supplier.
- An invoice for 350 has not been recorded on the accounts payable ledger
- A credit note for 120 has not been recorded on the accounts payable ledger.
The supplier statement reconciliation would be shown as follows.
|Supplier statement balance||1,800|
|Payment in transit||-200|
|Invoice not recorded in ledger||-350|
|Credit note not recorded in ledger||120|
|Accounts payable ledger balance||1,370|