The Importance of Supplier Reconciliations
Maintaining accurate supplier reconciliations reduces the risk of errors in the accounting system. This means that there will be less risk of paying overdue payments or incorrect amounts. By performing reconciliations between the accounting system and the supplier statements received, errors or discrepancies can be detected early and can be investigated and discussed with the supplier. Addressing discrepancies quickly and professionally is key to maintaining good relationships with suppliers. It is important for an entity to maintain good relationships with its suppliers. If not, those suppliers may not be willing to provide favorable credit terms or may choose not to render any goods or services to the customer going forward.
There are various reasons why an entity’s accounting system may show a different amount owed to a supplier than might be shown on the supplier statement. These include:
• A payment made by the customer that has not been received by the supplier (i.e., a timing difference)
• Allocating a purchase invoice to the wrong supplier
• Credit notes not processed
• Discounts not accounted for correctly
• Transposition errors when entering information from the purchase invoice into the accounting system
How to Reconcile Supplier Statement Reconciliations:
Step 1: Agree on the opening balance:
The starting point is to match the opening balance of the supplier statement with the opening balance of the supplier account in your accounting system.
Step 2: Agree to these period entries:
You need to cross-reference all the transactions that appear on the supplier statement with the supplier account in your accounting system, i.e., check if all invoices and credit notes have been processed, as well as payments and discounts allocated. These items can now be removed from the supplier statement reconciliation process.
Step 3: Record any differences:
Invoices, credit notes, payments, or discounts may appear in one company’s accounting records but not in the other company’s accounting records. These are your red flags and should be dealt with promptly. You will need to liaise with the supplier to get this resolved, i.e., if invoices have not been received, request these invoices from the supplier; if your payment was not allocated, send proof of payment; if a discount was not allowed on a purchase and should have been, ask for the reasoning behind this.
In conclusion, it is very important to reconcile supplier statements monthly. This is to ensure the completeness and accuracy of the accounting system as well as to ensure the correct VAT is claimed if SARS audits any VAT returns. It is also important to ensure that the company’s expenses and suppliers are not in any way overstated or understated and that the suppliers and expenses show a true reflection of the business expenses.
By Ramona Williams
NBFIN Accountant
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