## **Learning Outcomes**

After studying this article, you will be able to explain the role and content of supplier statements, describe the procedure for supplier statement reconciliation, identify common differences and errors, and outline steps to correct discrepancies. You will understand how this process strengthens controls over payables and why regular reconciliations are essential for accurate records and maintaining good relationships with suppliers.

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

For ACCA Recording Financial Transactions (FA1), you are required to understand the use of external documents as part of the control process over purchases and payables. In particular, your revision should focus on:

- The purchasing cycle and main documents arising at each stage
- The definition and content of supplier statements
- The procedure for reconciling supplier statements to individual supplier accounts in the payables ledger
- The identification and correction of discrepancies during reconciliation
- The importance of ongoing controls and regular reconciliations for accurate financial 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 information is typically included in a supplier statement?
2. When reconciling your payables ledger, a supplier statement lists an invoice not found in your records. What action should you take?
3. Which of the following is most likely to be revealed by a supplier statement reconciliation?
   a) Arithmetic error in a bank payment
   b) Omission of a credit note
   c) Overstatement of payroll wages
   d) Discount on settlement payment not allocated
4. If a payment you made near the end of the month does not appear on the supplier’s latest statement, how should you treat this during the reconciliation?

## **Introduction**

The purchasing cycle for a business includes authorising purchases, placing orders, receiving goods or services, checking invoices, and making payments. Each step in this process is documented to provide a clear record and means of control. One key external document in this cycle is the supplier statement, which acts as an external check on a business’s records of amounts owed to suppliers. Regularly reconciling supplier statements with your payables ledger helps ensure all transactions are complete and accurate, reduces risk of errors, and prevents supplier disputes.

> **Key Term: purchasing cycle**
> The recurring process a business follows to authorise, order, receive, document, and pay for goods or services from suppliers.

## SUPPLIER STATEMENTS: CONTENT AND PURPOSE

A supplier statement is sent by the supplier, summarising all transactions affecting a customer’s account over a specific period, usually one month. It lists invoices issued, credit notes applied, payments received, and the outstanding balance due at the statement date.

> **Key Term: supplier statement**
> An external document from a supplier listing all invoices, credit notes, and payments relating to a customer’s account and showing the current balance outstanding.

Supplier statements provide three key functions:

- They are an external check against the business’s own payables ledger.
- They highlight missing or incorrectly recorded transactions.
- They serve as reminders of amounts owed and support prompt, accurate payments.

## WHY RECONCILE SUPPLIER STATEMENTS?

Matching supplier statements to your payables ledger account for each supplier is an essential internal control. This process helps you:

- Detect any differences, such as missing invoices or payments, before they become disputes.
- Ensure the most up-to-date and accurate liability is recorded.
- Identify any errors, omissions, or timing differences quickly, so they can be resolved.

> **Key Term: supplier statement reconciliation**
> The process of comparing the balance and transactions shown on a supplier’s statement to those in your payables ledger, investigating differences, and making any corrections needed.

## HOW TO PERFORM A SUPPLIER STATEMENT RECONCILIATION

The reconciliation process follows a systematic approach:

1. Obtain the most recent supplier statement and your payables ledger account for the relevant supplier.
2. Match each invoice, credit note, and payment item by item, ticking off those that appear in both records.
3. Identify any unmatched items:
   - Present on the statement but missing in your ledger (e.g., a new invoice not yet entered).
   - Present in the ledger but not on the statement (e.g., a payment not yet processed by the supplier).
4. Investigate unmatched items:
   - For unrecorded invoices or credit notes, request copies from the supplier.
   - For missing payments, confirm payment has cleared your bank and query with the supplier if necessary.
5. Record valid, missing transactions and correct any errors in your records so that your payables ledger agrees with the supplier statement.

### **Worked Example 1.1**

A supplier, Robinson Ltd, sends a statement as at 30 April showing three invoices (\$800, \$1,100, \$350), one credit note (\$100), and receipts for two payments (\$900 and \$600). Your payables ledger shows the same items except for the \$350 invoice, which is not listed.

**What should you do to reconcile the account?**

> **Answer:**
> Contact Robinson Ltd to request a copy of the \$350 invoice. If genuine, enter it into your payables ledger so your account matches the supplier’s statement.

## COMMON RECONCILIATION DIFFERENCES

Several differences may be identified when reconciling supplier statements:

- **Unrecorded invoice:** A new invoice on the supplier statement has not been received or processed yet.
- **Unposted credit note:** A credit note (e.g., for returned goods) has been issued by the supplier but is not in your ledger.
- **Late payment entry:** You have made a payment recently, which is recorded in your ledger but not yet shown as received on the supplier’s statement.
- **Duplicate entry:** A transaction is listed more than once.
- **Errors in amounts:** Either record may show an incorrect invoice or payment value.

Most differences are due to the timing of document receipt or processing. However, errors or omissions must be corrected once identified.

### **Worked Example 1.2**

Your ledger shows a payment of \$1,500 made to Kane Supplies, but their statement as of month-end does not show this payment. After reviewing, you see the payment was made two days before the statement date.

**How should you handle this?**

> **Answer:**
> Recognise this as a timing difference—your payment will appear on the supplier’s next statement. No correction is needed, but note the payment date in your reconciliation.

## TREATING ERRORS AND MAKING CORRECTIONS

If the reconciliation reveals missing transactions or errors:

- For invoices or credit notes on the supplier’s statement but not your records, request copies, verify their validity, and enter them.
- For duplicate or misposted entries, identify and reverse them in your records.
- For payments recorded in your ledger but not yet cleared by the supplier, check bank records to confirm the payment was sent and allow for processing time.
- Communicate with the supplier to resolve disputes or request missing documentation.

Regular reconciliations and prompt corrections ensure your financial position is accurate and help maintain healthy supplier relationships.

### **Worked Example 1.3**

A supplier’s statement shows a credit note for \$120 for returned goods, but you cannot find that credit in your payables ledger. Upon investigation, you confirm the goods were returned last month.

**What is the correct action?**

> **Answer:**
> Enter the \$120 credit note in your payables ledger, reducing the amount owed to the supplier. Your ledger balance should then agree to the supplier statement.

### **Exam Warning**

> Errors found by reconciliation should be investigated for supporting evidence before adjusting your records. Do not record a transaction you have not received documentation for.

## THE IMPORTANCE OF ONGOING RECONCILIATION

Reconciliations should be performed regularly (typically monthly), not only at year-end. This:

- Identifies errors before they affect payments or cause disputes
- Ensures all liabilities are complete for financial reporting
- Reduces risk of duplicate payments
- Supports auditing and strong internal controls

## **Summary**

Supplier statement reconciliation is a key control process in the purchasing cycle. By regularly comparing supplier statements with the payables ledger, you can identify and correct errors, omissions, or timing differences before they lead to problems. This process safeguards the reliability of your accounting records and confidence in the reported amounts owed to suppliers.

## **Key Point Checklist**

_This article has covered the following key knowledge points:_

- Explain the purpose of the purchasing cycle and the role of documentation at each stage
- Define a supplier statement and its key features
- Describe the step-by-step process for supplier statement reconciliation
- Recognise typical differences such as missing invoices, credit notes, or payments
- Summarise actions required to correct and record errors found during reconciliation
- State why regular reconciliations are an essential internal control

## **Key Terms and Concepts**

- purchasing cycle
- supplier statement
- supplier statement reconciliation

Purchasing cycle and documentation - Supplier statements and reconciliations