Vendor statements and the payables tie-out
The drill vendor's statement against Northwind's books, matched by invoice number: one unrecorded $1,850 freight bill explains the whole difference.
A vendor statement is the vendor's list of what it thinks Northwind owes. The AP aging is Northwind's. They should agree, and when they do not, the difference is where lost invoices, payments the vendor has not posted, disputed amounts and duplicates all live. Reconciling the two for the vendors that matter is the cheapest control in accounts payable: it uses the vendor as an independent check on Northwind's books.
At September 30 the drill vendor's statement lists two open invoices. Northwind's books list one. The match is by the vendor's own invoice number, never by amount: matching on amount lets a missing invoice and an extra one cancel out.
One line explains the whole $1,850: invoice DV-3340, dated September 29 for freight on a delivery that day, which nobody had entered. Whether it is booked as a bill or accrued depends on whether September is still open, which is the subject of the search for unrecorded liabilities that follows. The point here is the method: every dollar of the difference is a named line.
Step 1: Choose the vendors
Start with the vendors with the largest balances and the ones in dispute. A statement from every vendor every month is not worth the effort for a vendor owed a few hundred dollars.
Step 2: Get the statement at the same date
Ask for a statement as of the same date as the aging, month end. A statement from a different day creates differences that are only timing.
Step 3: Match by invoice number
Tick each invoice on the statement against the aging by the vendor's invoice number. Credits are negative amounts.
Step 4: Classify what is left
Whatever is left over is one of four things, below. Name each one.
Step 5: Fix your side, tell theirs
Record what is Northwind's to record, send the vendor what is the vendor's to post, and file the reconciliation with the month's close.
Correcting an amount is a real entry. If the packaging supplier's invoice PK-2207 was recorded at $1,205 and the invoice says $1,250, the bill was under-recorded by $45. Digits swapped: a difference divisible by nine is the signature of a transposition.
PK-2207: bill recorded below the invoice
| Account | Debit | Credit |
|---|---|---|
| 6700Equipment and supplies expense | 45.00 | |
| 2000Accounts payable | 45.00 | |
| Balanced | 45.00 | 45.00 |
Correcting the under-recorded bill. The original entry stays; the difference is posted beside it.
From one vendor to the whole ledger
A statement reconciliation proves one vendor. The tie-out proves all of them at once: the AP aging, which is the subledger, must equal account 2000, the control account. At September 30 Northwind's aging is $6,000 and account 2000 is $6,000. They tie. The tie-out, and what to do when it fails, is part of the month-end close checklist.
The vendor keeps its own books on what Northwind owes. Comparing the two by invoice number is the only check on payables that does not come from inside the company.
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Pages in this lesson
1 page goes deeper, about 8 minutes in all. Read them in order, or open the one you need.
Where this lesson's rules come from
The sources behind this lesson's requirements, by kind. Background reading explains; it is never the authority for a rule. Anything marked as a convention is ours, not the rule-maker's.
- US GAAP
- ASC 405 (opens in a new tab)LiabilitiesFree after registration
- SEC
- SEC Release 33-8238 (June 2003) — Sarbanes-Oxley §404 (opens in a new tab)Management's report on internal control over financial reportingFree to read
- Background reading — not an authority
- Wikipedia, “Accounts payable” (opens in a new tab)Accounts payableFree to read
The full map is in US GAAP, and where these rules come from.
The words this lesson teaches
Each links to its glossary definition, which also names the authority behind it and the components that render it.
- Tie-outProving a GL balance against supporting evidence
- SubledgerThe detail, by customer, vendor or asset, whose total must equal its control account in the GLConvention
- Control accountA GL account whose balance is the total of a subledger — AR, AP, fixed assets — and is posted only from itConvention
- ReconciliationComparing our record to an external party's
- AgingGrouping open receivables or payables into buckets by days past due date — current, 1–30, 31–60, 61–90, 90+
- EvidenceDocumentation supporting a recorded amount
- Vendor statement reconciliationComparing a vendor's statement of account to what our AP subledger shows for that vendor, and clearing the differences — an unrecorded bill, a payment in transit, a disputed charge. It is how unrecorded liabilities and duplicates surface
- AP reconciliationProving that the accounts payable subledger — the open bills by vendor — totals to the AP control account in the GL at period end, with every difference explained. It checks our books against each other
In the founder glossary
This lesson’s ideas, explained for the founder running the company. Each has an entry in the founder glossary.
See also
- Procure to pay (AP)The payables stack from requisition to reconciliation: requisition → PO → receipt → bill → approval → payment → reconciliation.
- Periods & the closeThe month-end close in accounting software: fiscal calendars, period states, cutoff, reconciliation vs tie-out, adjusting entries and restatement.
- Accounts payable process for startups: intake to paymentHow a bill moves from inbox to paid: intake, coding, approval, scheduling and recording, plus AP aging and who approves what at a 10-person startup.
- Bank reconciliation step by stepMatch the bank statement to the books, clear deposits in transit and outstanding checks, book the fees, and reach a $0.00 difference every month.
- AgingTableAR/AP buckets, 0-30-60-90+.
- AccountTieOutEvery BS account, proven against its evidence.
- BillRegisterAging and approval state.
- VendorMasterBank details versioned, never overwritten.