Meet promise makelana and has a degree in Accounting and Auditing.he has worked in public
practice for 25 years and was also responsible for training staff and clients.
In this lesson, we'll explain how to reconcile the subledger and general ledger for accounts payable
and accrued liabilities and how to investigate differences to determine whether an adjustment is
necessary.
Ledger Reconciliations
The general ledger for accounts payable is the ledger account in which the totals of all
transactions with suppliers are recorded, including purchase invoices and returns,
payments to suppliers, and trade and settlement discounts. The balance of the general
ledger account at any point in time should reflect the total amount due to suppliers.
The accounts payable subledger is the extension of the general ledger where supplier
transactions are processed on a supplier level. You can produce a list of outstanding
balances per supplier from the subledger and, in theory, the total of this list should
agree with the balance of the accounts payable general ledger account. This proves
that the accounts payable liability in the general ledger is valid, accurate, and complete.
However, in practice, these balances often don't agree, and therefore, account payable
reconciliations must be performed. An accounts payable reconciliation is the
comparison of the general ledger account balance and the total of the subledger, the
identification of differences, and the processing of adjustments. It results in a
reconciliation statement that shows agreement between the subledger and the general
ledger.
The Reconciliation Process
Accounts payable reconciliation should be performed at least monthly, and it's important
to be systematic and meticulous when doing it. The reconciliation process involves the
following steps:
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Compare the entries in the general ledger to those in the subledger.
Identify the differences between the subledger and general ledger, decide if a correction is
necessary, and in which of the two the correction should be recorded. We'll look at the type
and reasons for differences and the appropriate response to them in the next section.
Prepare the reconciliation statement and process adjusting entries. We'll show an example
of a reconciliation statement later.
Compare the balance of the general ledger and the subledger total. If there's still a
difference, you'll have to start again.
Remember to check for mathematical errors in any manual schedule or formula errors
in Excel schedules.
Differences: Types & Reasons
During the reconciliation process, you can identify three types of differences:
1. Differences for which adjustments should be made to the subledger, including processing
errors in the subledger like processing a purchase invoice or supplier payments twice (or not
at all) or for the wrong amount.
2. Differences for which adjustments should be made to the general ledger, for example,
journal entries incorrectly recorded in the accounts payable account or payments to suppliers
incorrectly allocated to an expense account.
3. Valid reconciling items, which are items that resolve themselves in the next period and,
therefore, no adjustments are processed for them. For instance, when settlement discount is
recorded in the subledger when the purchase is recorded but in the general ledger when the
payment is made, or when a payment made near the end of say December is recorded in the
general ledger in December but in the subledger in January. Keep in mind that supplier
invoices correctly recorded in the subledger but not in the general ledger should be adjusted
for in the general ledger and not treated as reconciling items.