How to Reconcile Accounts Payable
First, what does it mean to 'reconcile' accounts payable?
This just means you are double-checking that your bookkeeping system contains all the unpaid bills that you have received and that the combined total owing is accurate in the system. For example, if the unpaid bills add up to $5,000, your accounts payable account must show $5,000.
- Check every invoice/bill you received for accuracy - make sure the details on each document match what you actually ordered and received.
- Enter the bills/invoices into your bookkeeping system.
Write or stamp on them ‘entered’ or ‘processed’ to show they have been recorded in the bookkeeping system.
the entered bills away into an alphabetical concertina folder or a punch-hole folder with alphabet tabs. Label the folder ‘Unpaid
Invoices’. Make sure you only use this folder for unpaid bills so you don’t get mixed up with other paper work. Or scan/save them to an electronic filing system.
- You should receive a Statement from each of your
suppliers at least once a month listing all the purchases you made from them during the previous 4 weeks. If you don't receive a Statement and you have a lot of invoices from them, phone and ask for a Statement because you want to make sure that what you believe you owe them is that same as what their records show. If you don't expect to receive a Statement and you know there was only one or two invoices from the vendor, use those instead.
- Match your bills to the Statements or invoices. Take your unpaid bills out of the folder. Make a tick on each Statement next to the
ones you have invoices for, and attach them behind. If there are any
purchases on the Statement for which you do not have an invoice (or credit note for any refunds),
highlight it and phone the supplier for a copy. They will willingly
email or fax one through because, of course, they will want their money!
Never pay for an invoice that you do not have. Once the missing bill arrives, tick it off on the Statement.
- Highlight the overall total on each Statement or Invoice so that you can quickly see what the total is. You can also write 'R' on the Statement or stamp it with a 'reconciled' stamp which indicates that all invoices are accounted for.
- Match the Statement totals to the Payables List. Pull up a Payables Report from your bookkeeping system or your Excel spreadsheet; it's easiest to have it in alphabetical order. It may be easier to print it out. Sort all the Statements with their attached invoices into the same alphabetical order as the list. Match the total owing on each Statement with the total on the Payables list. The ones that match can be ticked off. If any don't match, highlight them on the list. It may be that you have not recorded all the invoices, or have missed off credits, or there may be invoices from the previous months that you haven't yet paid... Find the problem and fix it.
The next step is to pay the bills on the due date.
Double Entry Bookkeeping Journal when entering a bill:
Debit: Expense account (profit and loss)
Credit: Accounts Payable account (balance sheet)