Understanding Supplier’s Statement and the Steps to Reconciliation

Understanding Supplier's Statement and the Steps to Reconciliation

Businesses in the world today thrive due to the mutual understanding between the suppliers and the business owner in terms of the mode and methods by which transactions between them take place. In as as payment for transactions among business owners and suppliers is taking place, credit transactions are also part of the sales methods which have grown increasingly today and also allow the volume of transactions to take place.

In order to allow smooth operation and transactions between suppliers and business owners, there should be mutual trust, respect and understanding in the manner in which transactions are carried out. So far as there is a mutual understanding in the sale, purchase and payment pattern in the course of business between the suppliers and the business owners, minor issues in terms of disagreement on the balances between the sales by the suppliers and the purchases by the credit customer, which is as a result of information or record time lag at the suppliers and its customer’s disposal, but with understanding and proper harmonization, this disagreement and differences can be taken care of while both businesses continue maintaining a common balance between them.

In the light of this minor issue, disagreement and differences in the amount or balances between businesses, we have taken it upon ourselves to bring to the limelight the solution to the issue, which subsequently will allow adequate flow of transactions between businesses. This solution is made clear and brought to your understanding through the explanation of what we term supplier’s statement, differences and the need for reconciliation in the course of doing business, which many suppliers and credit customers can leverage on to ensure smooth operation in their business.

Supplier’s Statement

A Suppliers’ statement is a statement that suppliers send regularly to the customer at periodic intervals , which could be monthly depending on their choices, which lists the transactions that have occurred between the supplier and the customer. Such transactions may include sales, payment, sales return and settlement discount given within the period. This statement must end with an amount showing the total owed by the customer at that period. This statement is always put through a reconciliation check in order to ascertain and compare the transactions and balances in the supplier’s statement with the transactions and balances in the supplier’s account in the payable ledger. If there is any difference, this should be investigated and dealt with.

Recouncilliation

Reconciliation is the process of comparing two sets of figures or records, in this case the balances in the supplier’s statement and the account payable ledger to ascertain if there is any imbalance in the figures.

Differences

Differences are a state of imbalance between the supplier’s statement and the supplier ‘s account payable ledger, which could be due to omission of transactions or error in computing the records.

There are reasons why the statement balance from the supplier and the account payable ledger of the supplier could vary;

The supplier might have omitted a transaction in the statement, thereby rendering the statement incorrect when compared with the supplier ‘s account payable ledger with the customer.

The customer might as well omit the transaction from their own accounting records, thereby causing differences in the accounting system.

Steps to take when carrying out reconciliation

  1. Demand weekly or monthly supplier’s statement from the supplier and also make the supplier’s account payable ledger available within the stated period.
  2. Compare the total in the both statement and ledger to discover if any difference have occurred.
  3. Investigate the reason for the difference, if there is any, by comparing the transaction as the supplier listed in the statement with the transaction as shown in the payable ledger of the supplier in terms of amount
  4. If there is an omission of transaction, the supplier could be notified. This will enable reconciliation between both to take place thereby eliminating the error.
  5. The error or omission in the customer accounting record, should be corrected, thereby ensuring equality in the balances in the statement and the balances in the account payable ledger.

Also, there are some softwares that can be used to ease the burden of manual reconciliation.

Reasons why there maybe imbalance in Supplier’s Statement

It is very important to also mention here some of the reasons why the errors occur. The following could be the reasons why an error or imbalance takes place;

In the process of recording accounting transactions, one transaction might be omitted from the point of view of the supplier or from the viewpoint of the supplier’s customer. This will surely create an imbalance between the figures stated by the supplier and the figures shown on the supplier’s customer ledger.

In some cases, the total of the transaction as put forth by the supplier or the customer could be incorrectly totaled, as such, causing a difference between the supplier’s statement and the balances in the supplier’s account payable ledger.

In as much as business is an ongoing concern, it might not be assumed that differences cannot be found in the course of business. A sure remedy to this is to make it a habit by choosing an agreed period by both parties to harmonize the transactions in terms of sales, purchase, payment, and sales return, as well as discounts given if there are any within the period. A thorough adherence to this agreed principle will at all times ensure that balance exists in the accounting system. Even when differences occur, these can be easily identified and corrected without any distortion in the flow of business processes, which subsequently results in proper account and document checks and balances.

Also Read; Types of Records that Small Businesses Owners Needs to take and its importance

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