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Accounts payable reconciliation is the process of ensuring that the balances in a company’s accounts payable (AP) records match the stated amounts owed to vendors.
It may involve comparing the transactions recorded in the company’s general ledger and matching them against external documents, such as invoices and statements from suppliers.
When AP teams fail to reconcile their records regularly, they run the risk of not catching fraudulent transactions and errors early enough, which can negatively impact financial reporting and visibility.
You can reconcile accounts payable in two ways — manually or using AP automation software. Going the manual route requires doing the heavy lifting with spreadsheets and paper documentation. Alternatively, accounts payable automation simplifies the reconciliation process, reducing errors along with saving time and money.
Here’s how the reconciliation process typically works:
For the same accounting period, gather information like invoices, purchase orders, bank statements, payment records, journal entries from the general ledger, total accounts payable from the balance sheet, and the accounts payable aging report, which shows amounts you owe each vendor according to the length of time outstanding. You may have to generate the aging report through software or manually. Any journal entries from the general ledger should be documented in a reconciliation spreadsheet if performing manual reconciliation.
Check that the final AP balance of the previous period matches the beginning balance for the current period in the accounts payable aging report. If not, you will need to reconcile the prior period.
Ensure that AP Aging Report accurately reflects all outstanding invoices, vendor statements, and credit notes up to the current date. Compare transactions with the journal entries from your general ledger. The final AP aging report should match the total outstanding accounts payable amount on your balance sheet for the current period.
If you find discrepancies between any of the reports, identify the errors and look for the source. This may involve manually checking your balances line by line. Some common reasons for discrepancies include:
Correct all the identified errors. For audit purposes, keep a detailed record of the reconciliation process, including any adjustments made. This record is called a reconciliation report.
Automating accounts payable reconciliation offers a range of benefits:
Manual reconciliation poses several challenges for businesses, including:
Speeding up reconciliation boils down to reconciling accounts regularly — or even continuously with the right software — to address issues as they arise and prevent a backlog of incorrect journal entries. Access AP aging reports easily to monitor balances, and integrate AP records seamlessly with your ERP or accounting systems.
Say goodbye to manual reconciliation headaches with a faster, more efficient way to automate reconciliation and payments. Get started with SoftCoAP automation today.