How Do You Prepare Customer and Supplier Balance Confirmations?

Start with the cut-off and scope. Confirm whether the exercise covers year-end balances, another reporting point, selected parties or particular transactions. Ask for the required format, contact details and supporting schedules before collecting signatures.

Keep routine statement reconciliation separate from formal audit confirmation. Your team can investigate ledger differences and prepare records. Where the auditor controls the confirmation, use the agreed dispatch and reply route throughout.

• ✓Agree the reporting cut-off, currency and whether balances cover separate branches or a combined account.
• ✓Confirm how to present customer advances, supplier advances, disputed amounts and parties that are both customers and suppliers.
• ✓Ask what contact information the auditor needs and how it should be verified.
• ✓Agree how corrected balances, returned requests and unresolved differences will be reported.

Save a version of the ledger and open-item schedule used for the exercise. Record the preparation cut-off and preparer's name. Reconcile the total customer schedule and total supplier schedule to the corresponding balances in the trial balance, explaining any separate control accounts.

1. Check the party's legal name, ledger code and branch. Investigate duplicate ledgers before combining anything.
2. Trace opening balances to the previous closing records and identify unresolved items carried forward.
3. Match receipts and payments to invoices using references and remittance details. Leave uncertain allocations visible.
4. Review invoices, returns, debit notes and credit notes around the cut-off against delivery, receipt or service records.
5. Show advances, on-account amounts and disputed items separately. Do not offset customer and supplier balances merely because the party name matches.
6. Check entries posted after the ledger extract. Record whether they correct the reporting balance or belong to a later period.

Use the receivables collection routine and supplier payment run guides to organise open items. Complete the monthly bank reconciliation routine before relying on bank entries to explain receipts or payments.

Compare statements at the same cut-off and from the same viewpoint. Write 'receivable from the customer' or 'payable to the supplier' beside the amount; debit and credit labels alone can cause confusion. Match individual documents before comparing totals.

Keep one row per difference, with an owner, evidence reference and next action. Mark each item as a timing difference, a correction in your books, a correction requested from the party, or an unresolved dispute.

Illustrative example only: your books show Rs 1,25,000 payable to a supplier, while its statement shows Rs 1,40,000 receivable from you at the same cut-off. The difference is Rs 15,000. Your payment record contains a Rs 10,000 transfer that the supplier has not allocated, and your ledger includes a Rs 5,000 credit note missing from its statement.

The arithmetic reconciles: Rs 1,40,000 less Rs 10,000 less Rs 5,000 equals Rs 1,25,000. Check the transfer reference and the issued credit note, then request the supplier's explanation. If the Rs 5,000 is only your own unaccepted claim, keep it disputed and ask your accountant whether your entry is supported. A matching calculation alone does not settle the matter.

Ask for an item-wise explanation of the disagreement. Separate a disputed invoice from a missing payment, a return awaiting acceptance or a different cut-off. Preserve the original response and share it with the auditor through the agreed process.

Build a short evidence trail: transaction, delivery or service record, invoice, settlement and correspondence. For goods, inspect dispatch records and the relevant godown receipt. For services, inspect agreed milestones and acceptance records. Note exactly what remains unsupported.

Keep the status as unanswered. Check for a returned message, incorrect address or changed contact, and pass verified corrections to the auditor. Follow the agreed reminder process without steering the party towards a particular answer.

Prepare records the auditor may request for further work: later customer receipts, later supplier payments, invoices, delivery records, purchase records and correspondence. Link each settlement to the relevant open item; a later lump-sum payment may cover several invoices or periods.

The auditor decides what further procedures are needed for a non-response. Do not describe an unanswered balance as confirmed.

• ✓Party ledger, open-item schedule and reconciliation to the trial balance.
• ✓Statement comparison with an explanation and evidence reference for every difference.
• ✓Invoices, delivery or service records, returns, credit notes and settlement references.
• ✓Original correspondence, disputed-item notes and approvals for adjustments.
• ✓Confirmation status and follow-up log maintained according to the auditor's instructions.
• ✓Final reconciliation showing changes made and matters still open.

Use the finance operations guides to make this part of the close routine. Send records through the agreed secure channel and restrict access to people handling the reconciliation or audit.

• Comparing statements with different cut-offs or branch coverage.
• Treating silence as agreement or a signed balance as proof that every underlying entry is correct.
• Clearing differences through a general adjustment with no transaction-level explanation.
• Treating a later receipt as settlement without checking its invoice allocation.
• Replacing an original response with an edited summary or routing replies outside the auditor's agreed process.

Balance agreement does not resolve every accounting question. Keep recoverability, unrecorded purchases and disputed transaction treatment on the close review list, even where the party agrees with the total.