Confirming balances – accounts payable and receivable

During the normal course of business you buy and sell goods or services and as a byproduct, before the cash really moves, you have payables and receivables with their due dates on the balance sheet. When the balances are settled, they are as a result gone from the balance sheet. Balances come and go during the course of business; however, there should be a way to make sure they are all fairly presented.

Essentially the accounting system should have a ledger to keep record of all balances by supplier and costumer. However, most businesses have numerous suppliers and / or customers meaning a human or systematic error may happen very easily – either double entry, entries to wrong supplier or customer, mistyped balances etc.

So to eventually make sure the balances are correct on the ledgers and as a result on the balance sheet under assets and liabilities, you have something called a ‘confirmation letter’. With this letter you can essentially confirm balances due according to your ledger with the counterparty.

Those confirmations may be short and simple, but may also if needed have attached to them the listing of all outstanding invoices. Do note however, that this confirmation procedure may be a long one especially with bigger suppliers and customers. Finding the answers to all differences, missing invoices, goods etc may take a while. In practice in bigger companies there is usually one dedicated accountant dealing with confirmations when they are first sent out.

So in summary, do confirm the balances with counterparties every now and then but be also prepared for a long and stressful procedure some only tend to go through once a year.