Skip to content
Wikiaccounting
  • Small Business Tools
    • Accounting Software
    • QuickBooks
  • Audit
    • Audit Approaches
    • Assertions
    • Audit Committee
    • Audit Opinion
    • Audit Plan
    • Audit Procedures
    • Financial Statements
    • Audit Risks
    • Internal Audit
    • Audit Sampling
  • Financial Accounting
    • Account Receivable
    • Account Payable
    • Fixed Assets
    • Bank reconciliation
    • Factoring Account Receivable
    • Financial Planning
    • Forensic Accounting
    • Financial Ratios
      • Assets Turnover Ratio
    • Accounting Principle
    • Accounting Documents
    • Financial Statements
      • Balance Sheet
      • Current Assets
      • Equity
  • Small Business Tools
    • Accounting Software
    • QuickBooks
  • Audit
    • Audit Approaches
    • Assertions
    • Audit Committee
    • Audit Opinion
    • Audit Plan
    • Audit Procedures
    • Financial Statements
    • Audit Risks
    • Internal Audit
    • Audit Sampling
  • Financial Accounting
    • Account Receivable
    • Account Payable
    • Fixed Assets
    • Bank reconciliation
    • Factoring Account Receivable
    • Financial Planning
    • Forensic Accounting
    • Financial Ratios
      • Assets Turnover Ratio
    • Accounting Principle
    • Accounting Documents
    • Financial Statements
      • Balance Sheet
      • Current Assets
      • Equity
Wikiaccounting
Search
  • Small Business Tools
    • Accounting Software
    • QuickBooks
  • Audit
    • Audit Approaches
    • Assertions
    • Audit Committee
    • Audit Opinion
    • Audit Plan
    • Audit Procedures
    • Financial Statements
    • Audit Risks
    • Internal Audit
    • Audit Sampling
  • Financial Accounting
    • Account Receivable
    • Account Payable
    • Fixed Assets
    • Bank reconciliation
    • Factoring Account Receivable
    • Financial Planning
    • Forensic Accounting
    • Financial Ratios
      • Assets Turnover Ratio
    • Accounting Principle
    • Accounting Documents
    • Financial Statements
      • Balance Sheet
      • Current Assets
      • Equity

How to reconcile accounts payable? (Explained)

Account Payable

Accounts Payable

Accounts payable are the expenses recognized on the liability side when purchases are made on credit. These are ongoing company expenses and are short term debts to be paid within 1 year so as to avoid default.

Accounts payable is the total amount of short-term obligations or debt a company has to pay to its creditors for goods or services bought on credit. Accounts payable is the result of purchases made on credit.

Let’s take an example:

 Davidson company makes purchases worth USD 1 million on December 1 with 60 days payment terms. Now at the end of the current financial year, the company shall recognize USD 1 million as accounts payable.

Process flow of accounts payable

To understand how to reconcile accounts payable, first the audit trail of accounts payable needs to be created. The following is the paper trail in the cycle of accounts payable:

  1. The buyer asks for a quotation from suppliers along with payment terms and conditions.
  2. The buyer makes the purchases from suppliers on the account.
  3. The buyer receives the inventory/purchases.
  4. The buyer checks the purchases made for the quality he ordered and decides whether to accept the order in partial and full.
  5. The buyer makes purchases return for purchases which are found to be defective.
  6. The buyer makes the payment in full.
  7. Any outstanding liability is carried forward to next year.

Why reconcile accounts payable?

Keeping accurate bookkeeping records generates trust among the stakeholders involved. If you don’t pay suppliers on time and in the right amounts, they may be reluctant to grant credit again. So, checking and reconciling accounts payable time and again, you are able to generate financial trust among your suppliers.

Related article  Accounting for Bonds Payable: (Types, Journal Entries, and Example)

The reconciliation processes:

Reconciliation must ask the following question and answer them :

  • Are the detailed list and the ending balance both from the current quarter?
  • If you’re using budgeting software, did you post accounts payable properly to the general ledger?
  • Did you print your accounts payable figure after all the posting was complete?

The reconciliation of accounts payable has to be done in the following phased manner:

1) Bookkeeping

The first step would be to match the amounts in the invoices and cross-check them with the inventory balances. The accountants shall do this process on a periodical basis say monthly. This ensures that the account agrees with the general ledger at the end of the year.

2) Vendor statements

This is basically the party confirmation about the balances that vendors have of ours in their books. The vendors also record the sales made to the buyers as accounts receivable.

3) Accounts Payable Journal

This is the balance in your accounts payable that should represent the total you owe to all vendors. This is basically the list of all individual accounts where all the balances are added for the month and checks issued are deducted arriving at the month-end balances. This balance has to be reconciled with accounts payable ledger balances.

4) Reconciling Accounts Payable to General Ledger

The case generally is that the accounting software that accountants use has the key feature to post to accounts without impacting ledger accounts. This means that the accountant can enter all the accounts payable balances.

The accountant shall Compare the total for accounts payable on the general ledger to your adjusted total from your aging report. If numbers agree to which it should, there are no issues. Otherwise, the accountant has to dig deep into data and find which vendor balances he is missing.

Related article  Tips to paperless your accounts payable using sage

5) Transaction summary by account to compare to the aging.

The easy way to reconcile the aging to control account is by creating a transaction report for the accounts payable balances and group it by account balances.

This will help to compare the total transaction report to the aging report for each customer or vendor. The differences if any are easily taken out by the creation of transaction reports by account grouping.

Post navigation
← Previous Post
Next Post →

Related Posts

Accounts Payable: Definition | Recognition, and Measurement | Recording | Example

Account Payable

4 Best Account Payable Books of All Time – Recommended

Account Payable, Books, Managerial Accounting

What Are the Three Ways of Matching? (Explained with Example)

Account Payable

Accounting for Interest Payable: Definition, Journal Entries, Example, and More

Account Payable

Trending

  • Ultimate Guide to Get Boyd Gaming Pay Stubs and W2s For a Current and Former Employee
  • Ultimate Guide to Getting Boeing Pay Stubs and W2s For a Current and Former Employee
  • 10 Differences Between Internal Audit and External Audit You Should Know
  • Big Four Audit Firms: What Are They? And Why We Call Them Big 4
  • What is Auditing? (Definition, Purpose, Example, And More)
  • HOME
  • ABOUT US
  • POLICIES AND DISCLAIMER
  • CONTACT US
  • ADVERTISE

Copyright © 2023 Wikiaccounting