Before closing the books at the end of each reporting period, the accounting staff must verify that the detailed total of all accounts payable outstanding matches the payables account balance stated in the general ledger. Doing so ensures that the amount of accounts payable reported in the balance sheet is correct. This is called an accounts payable reconciliation. The accounts payable reconciliation process encompasses the following steps:
- Compare the ending accounts payable account balance in the general ledger for the immediately preceding period to the aged accounts payable detail report as of the end of the same period. If these numbers do not match, you will have to reconcile earlier periods before attempting to reconcile the current period. If the variance is immaterial, it may be acceptable to proceed with the reconciliation for the current period.
- Review the accounts payable general ledger account to see if any journal entries were made to the account during the current reporting period. If so, document these items in a reconciliation spreadsheet.
- Print the ending aged accounts payable report for the current reporting period. Enter the total amount outstanding from this report on the reconciliation spreadsheet. At this point, the reconciliation should be complete. If there is still a variance, and it is not a variance that occurred in a prior period, consider the following additional reconciliation steps:
- Verify that the accounts payable journal was properly posted to the general ledger.
- Verify that the aged accounts payable report was printed after all posting was completed.
- Verify that the general ledger is set to the correct reporting period.
This reconciliation process can be a difficult one when it is being performed for the first time. However, once all errors have been spotted and corrections made, it is usually relatively easy to update the reconciliation document in subsequent reporting periods.