Supplier Statement Reconciliation

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1 Introduction

Just as it is important that we reconcile our cash account with the statement received from the bank, it is important that we check that the balance we are showing as owing to our suppliers reconciles with the statement received from suppliers. (It is common for suppliers to send statements to us periodically that show the amount they think it owing from us to them, together with a breakdown of the balance.)

2 Reasons for differences

There are three types of reasons why our records might show a different balance owing from that shown on the statement from the supplier:

• errors in our records

For example, we might have recorded the amount of a suppliers invoice wrongly, or may have not recorded an invoice at all.

If this is the case it is obviously important that we correct the error.

• errors on the suppliers statement

The supplier might have made an error in their recording.

If this is the case then it is important that we inform the supplier and get them to correct their records.

• timing differences

These will occur if, for example, the supplier had sent us an invoice shortly before the date of the statement (and the invoice therefore appears on the statement) but we did not receive the invoice until after the statement date and had not therefore entered it in our records.

Here, neither us nor the supplier have made an error (we will enter the invoice as soon as we receive it) and so there are no corrections to be made. It is important however that we are able to reconcile (i.e. explain) the difference between the two balances.

3 Returns, discounts, and contra entries

There are three ‘special’ types of entry that you need to be aware of that can affect both payables accounts and receivable accounts.

These entries may be necessary in any type of examination question.

3.1 Returns:

Suppose we buy goods for $500 on credit from Mr X.

A week later, we return half the goods to Mr X (and he accepts the return).

Clearly, the return must be recorded in the payables account for Mr X.

The procedure will be similar if a customer returns goods to us.

3.2 Discounts:

• Trade discounts

A trade discount is a discount received from a supplier (or given to a customer) either because we are a big customer or because we are making a large purchase.

For this type of discount we simply record the final balance on the invoice, after deduction of the discount.

• Settlement discount

These are discounts that we receive from suppliers (or give to customers) if, and only if, payment is made within a specified time period.

Suppose we buy goods for $1,000 on credit from Mr Y, and he offers us a 5% discount if we pay the invoice within 1 month.

We do pay the invoice within 1 month and therefore we pay only $950

Clearly, the discount must be recorded in the supplier’s payables account.

Note: If we offer a settlement discount to customers, the treatment is different and is explained in a later chapter