What is a reconciliation report in accounts payable?

Accuracy is the name of the game in accounts payable.

And though we aim to ensure accuracy through various AP policies, procedures, and approvals processes, it’s always a good practice to include a few quality control checks to make sure our financial records are correct.

That’s what the AP reconciliation report is all about, confirming that the detailed total of your current accounts payable (as provided by your vendors) matches the AP account balance in the general ledger.

In this article, we’re going to discuss the importance of reconciliation reporting in accounts payable, and cover the steps to creating your own report.

What is a reconciliation report in accounts payable? 

Accounts payable reconciliation is a record-matching process. You confirm that the AP account balance in your general ledger matches the total of accounts payable according to your vendors.

The reconciliation report, then, is a short report that demonstrates that those accounts match (or that they don’t, which is used as a signal for further analysis).

Here’s what an AP reconciliation report might look like:

Let’s illustrate this with a simple example.

Say you’ve got three outstanding accounts with suppliers:

1. Supplier A: $12,500
2. Supplier B: $8,000
3. Supplier C: $9,500

The accounts payable balance in your general ledger shows $30,000, which is the exact total of those three accounts. This means your records are clean, and the reconciliation report will demonstrate this.

But what if your GL shows $31,500? Then your reconciliation report has an identified an error, giving you the opportunity to dig it up and rectify it before a larger problem arises.

What do you need to create a reconciliation report? 

To run an accounts payable reconciliation report, you’ll need two financial reports:

1. Balance sheet
2. Accounts payable aging report

From the balance sheet, you’ll take the total accounts payable balance (a reflection of the AP accounts in your general ledger). Check out this article to learn how to find accounts payable on your balance sheet.

The accounts payable aging report, on the other hand, details the current outstanding balances to vendors.

Why are reconciliation reports important for AP teams? 

The reconciliation report isn’t a critical financial statement in the way that, say, an income statement is.

While you can get by without conducting reconciliation reporting, doing so provides three core benefits to accounts payable teams who are committed to accuracy.

Catch human-made errors early 

Accounts payable teams are made up of humans, and humans make mistakes.

While you might have processes and controls in place to mitigate against these errors, the truth is that some still slip through the cracks.

The reconciliation report provides AP departments with an opportunity to catch those errors early, before they get locked into financial reports and create bigger issues later.

Prevent invoice fraud 

A good AP reconciliation process helps protect against invoice fraud by ensuring that the accounts payable balance for each vendor matches up against the general ledger. 

By requiring these identical balances in order to proceed, AP teams can review what might be inflated accounts or fraudulent suppliers and take appropriate action.

Improve relationships with vendors 

Finally, running reconciliation reports gives you a chance to catch discrepancies in invoices from vendors (they’re humans, too!) early and give them the benefit of the doubt by asking to check in on the error.

This can help you keep suppliers accountable to your vendor agreements and improves supplier relationships.

How to create an accounts payable reconciliation report 

Creating an accounts payable reconciliation report is simple and can be done in just three steps. 

1. Prepare and gather your financial records

Get started by pulling together all of the necessary financial records.

You’ll recall from the discussion above that you need three financial statements to create an AP reconciliation report:

1. Balance sheet 
2. General ledger
3. Accounts payable aging report

If you’ve not completed these financial reports, you’ll need to complete that step first.

2. Match unpaid invoices against the general ledger 

Next, you’ll look at the total owing on your accounts payable aging report and match that up against the AP account in the general ledger.

If the two match, you’re good to go.

If not, move on to step three.

3. Locate and resolve errors

If your reconciliation report brings up a discrepancy between your balance sheet and your AP aging report, then you’ve either got a human error or a fraudulent or incorrect invoice on your hands.

It’s a good practice to act under the assumption that the prior is the case (accidents happen) but to be vigilant for the possibility of fraud.

Go back to the beginning balance for AP aging and the AP account in your general ledger, making sure these match.

Then, match up each payment made during the period against entries in the general ledger. You’ll likely spot your mistake there.

Ready to create reconciliation reports faster?

The broad process of reconciling accounts payable is pretty simple: you’re just matching two numbers against each other.

What’s more time-consuming is when discrepancies pop up, and you have to wade through the general ledger and bank statements to find the error.

Some accounts payable software solutions offer automation to solve this and generate AP reconciliation reports.

In BILL, you can pull the necessary data—accounts payable aging report and balance sheet—to produce a reconciliation report and dig into your transactions if there’s a discrepancy

‍Get started using BILL today.