## **Learning Outcomes**

After studying this article, you will be able to explain the purpose of the payables control account, reconcile its balance to individual supplier accounts, identify and resolve errors or discrepancies, and ensure supplier balances are correctly reported. You will apply these techniques to support accurate financial records in ACCA FA1 exam situations.

## **ACCA Recording Financial Transactions (FA1) Syllabus**

For ACCA Recording Financial Transactions (FA1), you are required to understand the procedures for controlling and reconciling payables. This article focuses on the following key syllabus points:

- The function of the payables control account and its relationship with individual supplier accounts
- Preparation and interpretation of supplier statement reconciliations
- Identification and correction of discrepancies between control accounts and supplier balances
- The purpose and process of regular reconciliations in financial control
- Recording and correcting errors found when reconciling with supplier records

## **Test Your Knowledge**

_Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision._

1. What is the main purpose of reconciling the payables control account to supplier balances?
2. If the supplier's statement shows a higher balance than your payables ledger, list two possible reasons for the difference.
3. True or false? A missing credit note will make the payables control account balance higher than the supplier statement.
4. Briefly outline the steps you should take if you find a discrepancy while reconciling a payables control account to individual supplier accounts.

## **Introduction**

Businesses purchase goods and services from suppliers, often on credit terms. These transactions are recorded both in the payables control account (summary balance) and in individual supplier accounts. Mistakes or timing differences can arise, so it is essential to regularly reconcile the control account with supplier statements to ensure the records are accurate.

This article explains how to reconcile the payables control account to supplier balances, how to check balances against supplier statements, and how to deal with any discrepancies. You will learn how these reconciliation procedures help detect errors and support sound financial management.

> **Key Term: payables control account**
> A general ledger account summarising all amounts owed to suppliers, used to control and check total trade payables.
>
> **Key Term: supplier statement**
> A periodic summary sent by a supplier, listing all invoices, credit notes, payments, and the closing balance owed at a particular date.
>
> **Key Term: reconciliation**
> The process of comparing two sets of records and explaining any differences to ensure both reflect the true position.

## **Control Accounts and Supplier Balances**

The payables control account records all purchase-related entries for suppliers as a whole. Each supplier also has an individual account (in the payables subsidiary ledger) recording detailed transactions with that supplier. At the end of each period, the balance of the control account should match the sum of all outstanding supplier accounts.

### Benefits of Control Accounts

Control accounts offer an independent way to check detailed subsidiary records. They help highlight errors, fraud, or missing entries. Regular reconciliation of control account totals to individual balances is a key part of internal control systems.

> **Key Term: subsidiary ledger**
> A ledger containing individual accounts, such as for suppliers or customers, which supports the control account.

## **The Supplier Statement Reconciliation Process**

To verify accuracy, reconcile your payables records with supplier statements as follows:

1. Obtain the monthly supplier statement.
2. Compare each item (invoices, credit notes, payments) on the statement with the entries in your supplier account.
3. Tick off (match) all agreed items.
4. Identify and investigate any items present only on the supplier statement or only in your records.
5. Adjust your accounts for errors or omissions once confirmed.

### **Worked Example 1.1**

The supplier statement from “Metro Paper Ltd” at 30 April shows:

- 2 April: Invoice 5121, \$500
- 10 April: Credit Note 102, \$50
- 17 April: Payment received, \$300
- 28 April: Invoice 5182, \$200
- Closing balance: \$350

Your payables account balance in the subsidiary ledger is \$300.

**Question:** Reconcile the two balances and explain the \$50 discrepancy.

> **Answer:** The \$50 credit note on 10 April is present in the supplier statement but missing in your payables ledger. After recording the missing credit note in your ledger, both the supplier statement and your payables ledger will show the correct \$350 balance.

### Common Types of Discrepancies

Discrepancies can arise due to:

- Invoices omitted or entered with wrong amounts
- Credit notes not recorded or posted to wrong accounts
- Outstanding (uncleared) payments not yet received by supplier
- Timing differences between recording dates
- Errors by the business or supplier

> **Key Term: discrepancy**
> A difference found when comparing two sets of records, indicating a potential error or timing issue.

## **Reconciling the Payables Control Account**

After reconciling individual supplier accounts, check that the total of the supplier accounts matches the payables control account in the general ledger.

### Steps

1. Add up the balances of all individual supplier accounts.
2. Compare this total to the payables control account balance.
3. If there is a difference, review recent entries for errors such as duplicated or missing transactions.

### **Worked Example 1.2**

At month-end, your payables control account balance is \$5,200. The combined total of individual supplier accounts is \$5,000.

**Question:** What kind of errors could explain this \$200 discrepancy, and how should you resolve it?

> **Answer:** Possible causes include an invoice entered in the control account but not in any supplier account, or a payment posted twice in the supplier accounts. To resolve, trace individual supplier postings and make correcting entries so both records agree.

### **Exam Warning**

> Supplier statements may show transactions that have not yet been recorded in your accounts, particularly if the statement was dated before documents were received. Always check document dates and match with goods received and invoices entered.

## **Correcting Errors and Making Adjustments**

When errors are found, correct them promptly in the appropriate accounts:

- If an invoice or credit note is missing from your records, enter it after verifying supporting documents.
- If a payment has been omitted, process the payment in your ledger.
- If a supplier has made an error (e.g. incorrect invoice amount), contact the supplier for clarification and adjust after receiving confirmation or a corrected statement.

### **Worked Example 1.3**

You discover a payment to a supplier has cleared your bank, but the supplier statement does not reflect receipt.

**Question:** Should you adjust your accounts?

> **Answer:** No adjustment is needed in your ledger if your records show the correct payment. The supplier's statement may not yet reflect the payment due to timing. Retain proof of payment and follow up with the supplier to confirm receipt.

## **Summary**

Reconciling payables control accounts and supplier balances is essential to maintain accurate records. This process detects errors and unrecorded items, supports good supplier relations, and ensures liabilities are properly recorded. Regular reconciliations reduce the risk of misstated balances or fraud.

## **Key Point Checklist**

_This article has covered the following key knowledge points:_

- Explain the purpose of the payables control account and its link with subsidiary ledgers
- Describe the reconciliation process between supplier statements and your accounts
- Identify common discrepancies and their causes
- Perform reconciliation of the payables control account to aggregate supplier balances
- Take steps to correct errors and address unmatched items found during reconciliation

## **Key Terms and Concepts**

- payables control account
- supplier statement
- reconciliation
- subsidiary ledger
- discrepancy

Payables control account - Reconciling control to supplier balances