Maintenance
Part of Accounts payable: a six-stage pipeline from arrival to reconciliation
Inside an accounts payable case study: one duplicate invoice, four fixes
An invented accounts payable case study: how one supplier statement reconciliation found a duplicate invoice, a missing bill, a lost credit and a stray payment.
Everything below is invented: the business, the supplier, the people and the amounts. It shows one mechanism: how a supplier statement reconciliation finds money that nothing else in the books would have found, and what the correcting entries look like.
The setting is a small food producer buying packaging from one supplier, Corran Packaging, on thirty day terms. The bookkeeper is part time and pays supplier invoices in a fortnightly run. Nobody had reconciled a supplier statement in over a year, because the bank always reconciled and that felt like enough.
What to take away
- The bank reconciling proves that every payment you made is recorded. It does not prove that any of them should have been made.
- A supplier statement is the supplier's version of your ledger. Disagreements between the two are the shortest route to duplicate invoices, missing invoices and misdirected payments.
- A small net difference can hide several large gross ones. Here a gap of 550 concealed four separate errors worth nearly 3,000 between them.
The trigger
Corran's credit controller emailed to say the account was over its limit and asked for 3,150 before the next delivery. The bookkeeper's ledger showed 2,600 owed. The owner's first instinct was that 550 was not worth arguing about with a supplier who was holding a delivery. The bookkeeper asked for a day to reconcile the statement first.
The two versions
Corran's statement listed every open item on their side:
Supplier statement vs ledger
Corran's statement
- Invoice 8801
- 1,400
- Invoice 8834
- 950
- Invoice 8871
- 1,800
- Invoice 8902
- 1,250
- Credit note C310
- (250)
- Payment 19th
- (600)
- Balance
- 3,150
Our ledger
- Invoice 8801
- 1,400
- Invoice 8834
- 950 twice
- Invoice 8871
- 1,800
- Invoice 8902
- missing
- Credit note C310
- missing
- Payment 19th
- (600) and (500)
- Balance
- 2,600
Corran's statement
| Item on Corran's statement | Their amount |
|---|---|
| Invoice 8801, dated 3rd of month 1 | 1,400 |
| Invoice 8834, dated 22nd of month 1 | 950 |
| Invoice 8871, dated 9th of month 2 | 1,800 |
| Invoice 8902, dated 27th of month 2 | 1,250 |
| Payment received 5th of month 2 | (1,400) |
| Credit note C310, dated 15th of month 2 | (250) |
| Payment received 19th of month 2 | (600) |
| Balance | 3,150 |
The bookkeeper's supplier account for Corran showed:
Our ledger
| Item in the ledger | Our amount |
|---|---|
| Invoice 8801 | 1,400 |
| Invoice 8834 | 950 |
| Invoice 8834, entered again from a reminder email | 950 |
| Invoice 8871 | 1,800 |
| Payment 5th of month 2 | (1,400) |
| Payment 19th of month 2 | (600) |
| Payment 19th of month 2, second line in the same run | (500) |
| Balance | 2,600 |
Two balances, four differences. Taking them one at a time is the entire method.
Difference one: an invoice in the ledger twice
Invoice 8834 was entered on receipt and again three weeks later when Corran sent a reminder with the invoice attached. Same number, same amount, two entries. The month 1 cost line carried 950 that was never incurred, and the next payment run would have paid it.
Correction: reverse the second entry. Packaging cost down 950, payable down 950.
Difference two: a credit note never recorded
Credit note C310 for 250 was issued by Corran for damaged stock. The producer's warehouse had agreed it by phone. The document went to the warehouse manager and never reached the bookkeeper.
Correction: record the credit note. Packaging cost down 250, payable down 250, applied against invoice 8871.
Difference three: an invoice never received
Invoice 8902 for 1,250, dated the 27th of month 2, was not in the ledger at all. Corran had emailed it to a former employee's address. The goods had arrived and been used.
Correction: enter the invoice, dated the 27th of month 2. Packaging cost up 1,250, payable up 1,250. Month 2's costs had been understated by that amount, which is the cut-off failure the expense recording guide describes: the cost belongs in the month the goods arrived, whether or not anyone has seen the paper.
Whether your books work that way at all depends on the method you keep them under, which the federal guide to accounting periods and methods sets out and which is worth confirming for your own business rather than assuming.
Difference four: a payment that paid nothing
The 500 on the 19th of month 2 was not on Corran's statement. The bookkeeper pulled the payment run.
It went to Corran's bank account, meant for a different supplier with a similar name, picked from the wrong line in the run. Corran received 500 they were not owed and parked it as unapplied cash because it matched nothing.
The other supplier was still unpaid, which explained a reminder the bookkeeper had assumed was their mistake.
Correction: The 500 is not a payment to Corran; it is money Corran holds that belongs to the producer. That is an amount due from a supplier, not a reduction of what is owed to them.
The entry moves 500 from the Corran payable to an amount due from Corran. The other supplier's invoice stays open and goes into the next run.
The reconciliation
| Line | Amount |
|---|---|
| Ledger balance before correction | 2,600 |
| Remove duplicate invoice 8834 | (950) |
| Record credit note C310 | (250) |
| Record missing invoice 8902 | 1,250 |
| Move the misdirected 500 out of this account | 500 |
| Corrected ledger balance | 3,150 |
| Corran's statement balance | 3,150 |
| Difference | 0 |
Corran was right about the balance. The bookkeeper was right that something was wrong. Both were true, because a duplicate of 950 and a missing 1,250 nearly canceled, and the credit note and the stray payment nearly canceled again. Had the owner simply paid the 550 difference, all four errors would have stayed in the books.
Reconciliation to zero
- Startledger balance 2,600
- Remove duplicate invoice 8834(950)
- Record credit note C310(250)
- Record missing invoice 89021,250
- Move misdirected 500 out500
- Corrected balance 3,150 equals statement
What the corrected books show
The packaging cost for the two months moved by a net 50: down 950 for the duplicate, down 250 for the credit, up 1,250 for the missing invoice. Small in total, but month 1 had been overstated and month 2 understated by amounts that mattered for a business watching its margin on packaging.
Packaging cost corrections
- Duplicate invoice 8834-950
- Credit note C310-250
- Missing invoice 8902+1,250
- Net movement+50
On the balance sheet the payable to Corran rose from 2,600 to 3,150, and a new asset of 500 appeared, due from Corran. The other supplier's 500 invoice had always been sitting in payables; it was simply now recognized as unpaid.
The bank had reconciled throughout. Every one of the payments was real and recorded. The bank reconciliation cannot see that an invoice was entered twice, that a credit note never arrived, or that a real payment went to the wrong real supplier.
Recovering the 500
Corran agreed to apply the 500 against invoice 8902 rather than refund it. Final entry: payable to Corran down 500, amount due from Corran down 500. The other supplier was paid in the following run, with an apology.
A supplier who has gone quiet or out of business applies nothing, so the 500 becomes a bad debt from a supplier. Nobody wants to explain that phrase to an accountant.
The control belongs before the payment run, not after it, as the accounts payable overview sets out.
What changed afterwards
- Statements from the six largest suppliers reconciled every month, differences logged by type.
- One shared inbox for supplier invoices, so a leaver's mailbox cannot swallow one.
- A duplicate check on supplier invoice number before an entry will save, which any package worth using can do and which the guide to accounting software lists among the things to test.
- Credit notes agreed by anyone go to the bookkeeper the same day, in writing.
- The payment run is reviewed by a second person before release, reading supplier names against invoice numbers.
None of it is sophisticated. All of it separates a set of books that describes what is owed from one that describes what somebody typed. The bookkeeping foundations guide is built around that distinction.
The public small business guidance on managing business finances puts the same controls in the same order: know what you owe before you decide what to pay.
