What is a three-way match?

Definition

A three-way match compares three documents — the purchase order, the goods receipt, and the vendor bill — and asks whether quantity, price, and vendor line up. In the books, it is a control on accounts payable, not a line of its own.

The point of the check is simple. The business should pay only for what it ordered and what actually arrived, at the price it already agreed to.

Until those three documents agree, the payable should not move into a check run. A mismatch holds the bill, it does not invent a new account.

Where it shows up

Balance Sheet: Related to the payable that is approved only after the three documents agree.

P&L: Related to nothing extra; the expense or inventory was already recorded.

Cash flow: Related to cash that leaves only after the match clears.

See also: Purchase Order · Goods Receipt · Vendor Bill

When you look at the Balance Sheet, you will not find a dedicated match account. You will find the payable that was allowed through after the documents agreed.

That payable sits with other current liabilities. A high balance can mean unmatched bills are stuck, or it can mean matched bills are waiting for the next payment date.

The Income Statement does not gain a new expense from the match. Inventory or expense was already recorded when the receipt or the bill hit the books.

Cash on the Statement of Cash Flows leaves only after the match clears. A failed match holds cash in the business until someone fixes the difference.

How it works

The first document is the purchase order. It states the vendor, the quantity, and the price the business agreed to buy at.

The second document is the goods receipt. It records what actually arrived, in what quantity, and on what date.

The third document is the vendor bill. That bill is the supplier's invoice, and it is what will become the payable if the match passes.

The match compares those three. Quantity on the receipt should not exceed quantity on the order, and the price on the bill should match the order.

The vendor name should be the same on all three. A bill from a different supplier, even at the right amount, still fails the check.

If they agree, the bill is approved. The payable is then eligible for payment on the next check run.

If they do not agree, the bill stays on hold. A quantity shortfall, a price change, or a bill for the wrong vendor has to be explained before cash leaves.

Some teams allow a small tolerance, such as a few dollars or a few units. Anything outside that band still needs a person to review it.

The match does not replace the journal for the bill. It decides whether that journal, and the later payment, should go forward.

People who record receipts should not be the same people who approve the bill. Splitting those jobs is what keeps the check honest.

Example

A cafe issues a purchase order to its bakery for $1,200 of bread. The order lists 400 loaves at $3.00 each.

The loaves arrive. The receiving count is 400, so the goods receipt agrees with the order.

The bakery then sends a bill for $1,200. The three-way match compares the $1,200 order, the 400-loaf receipt, and the $1,200 bill.

They agree, so the bill is approved and the cafe owes $1,200. If the bill had said $1,350, or if only 360 loaves had arrived, the match would fail and the cafe would not pay until the difference was fixed.

No extra journal is posted for the match itself. The bill and the receipt already sit on their own pages.

Common mix-ups

A two-way match compares only the purchase order and the vendor bill. A three-way match also requires the goods receipt, so the business does not pay for goods that never arrived.

The match is not the same as recording the bill. Recording creates the payable; matching decides whether that payable is ready to pay.

A quantity difference and a price difference are not the same problem. Short receipts need a receiving explanation, and price changes need a revised order or a credit from the vendor.

Related terms

• Purchase Order: The document authorizing a purchase from a vendor at agreed terms.
• Goods Receipt: The record confirming that ordered goods actually arrived.
• Vendor Bill: The invoice a supplier sends that becomes a payable.
• Accounts Payable: Amounts the business owes vendors for goods or services already received.
• Internal Controls: The procedures that keep the books accurate and assets protected.
• Duplicate Payment: Paying the same vendor bill twice.
• Approval Workflow: The routing of a request or bill through the people who must sign off.
• Segregation Of Duties: Splitting recording, approving, and payment tasks so no one person controls a transaction end to end.