What is a 3 way match what documents are included in a 3 way match what is the purpose?

What is Three-Way Matching?

Three-way matching is the concept through which unauthorized purchase transactions can be tracked through cross-checking in three ways, namely receipt of confirmation of the order (purchase order), receipt of the order, and the validity of the invoice generated by way of information from different departments to eliminate the unauthorized transactions and enhance the internal control.

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• What is Three-Way Matching?
• Explanation
• Three-Way Matching Process
• Example of Three-Way Matching
• Uses of Three-Way Matching
• Disadvantages
• Recommended Articles
• What are the 3 documents included in a 3 way match?
• What is the purpose of 3 way match?
• What document is used to perform a three
• What document is the most critical in the 3 way match?

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Explanation

Large Organizations purchase the inventory by the standard operating procedure per the organization’s policies. Hence double control is necessary for restricting unauthorized transactions. It is the control measure to authorize valid transactions. In a three-way procedure, major purchases are controlled using cross verification. If there is a fault at any step, then the amount cannot be taken against the invoice until the error is resolved by receipt of a confirmation or the revised invoice from the supplier. It is also one of the risk management methods as the risk of payment to unauthorized persons or against fake bills is to be controlled. Sometimes it becomes a lengthy procedure, but it is the most effective way of managing the risk.

Three-Way Matching Process

• The Standard operating procedure for purchase includes order when the stock reaches reorder level, receipt of the quotation, processing of quotations to the purchasing department and after which purchase department will decide from which supplier purchase is to be made based on price, quality, and reputation of the supplier and then lastly issuance of the purchase order.
• Based on the purchase order, the purchases are to be made. After receipt of the purchase order, the receipt order is to be issued by the inventory managementInventory management in business refers to managing order processing, manufacturing, storage, and selling raw materials and finished goods. It ensures the right type of goods reach the right place in the right quantity at the right time and at the right price. Thus, it maintains the product availability at warehouses, retailers, and distributors.read more department. Then the invoice is to be forwarded by the purchasing department to the accounts department for an accounting of the same.
• After this, finally, the invoice is given for authorization and then to the cashier or cash department for payment to the supplier.

Before authorizing payment, the person involved in payment will use the three-way matching process.

The three-way matching process includes:

#1 – Verification of Purchase Order

A purchase order is to be verified by the purchasing department to verify the supplier’s name, date, quantity, address, payment information, and the amount.

#2 – Verification of Order Receipt

After verifying the purchase order, the cash department will verify the receipt of the order from the inventory department to match the quantity of the goods as per the invoice and as received by the inventory department.

#3 – Verification from the Accounts Department

After verifying from the inventory department, the entry is checked in the accounts to verify the amount and quantity recorded in the books.

If an invoice matches all the three steps of verification, then only the payment is to be authorized, and the bill is encashed.

Example of Three-Way Matching

The Purchase Department of A Ltd. issues an order for purchasing stock from ABC & Co., Mexico, of 3000 pieces, and the price per piece is $ 100. The order is placed. The order was received, but due to a large quantity, the storekeeper did not cross-check at the time of receipt of the order. However, only 2850 pieces were received after checking. The invoice was given to the accounting department, and the accounting department further gave it for encashment to the cash department. Determine the procedure for three-way verification?

Solution:

Before authorizing the bill for payment, the person should use the following procedure:

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1 – Verification from the Purchasing Department:

The Purchase order is to verify whether the order is placed as per the purchase order. In the present case, the first step of three-way matching is matched, i.e., the order is placed perA Purchase Order (PO) serves as a legal document between buyer and seller, wherein, the buyer sends this contract that details the goods and services, date of delivery, payment terms as per the contract etc.read more purchase orderA Purchase Order (PO) serves as a legal document between buyer and seller, wherein, the buyer sends this contract that details the goods and services, date of delivery, payment terms as per the contract etc.read more.

2 – Verification from the Inventory Department:

The authorized person will collect the figures from the inventory department. In this case, only 2850 pieces of inventory are received, so the bill cannot be authorized for payment. The authorized person will instruct the inventory department to rectify the bill from the supplier.

The inventory department then will contact the authorized person of ABC & Co. for issuance of the revised bill. After receipt of the revised bill, the same is to be given to the accounts department for making corrections.

3 – Verification from the Accounts Department or Accounting Records:

After confirming the revised bill from the supplier, the authorized person has to verify it with accounting records. Finally, the authorized person will authorize the bill for payment after all steps and conformations.

In this way, the short receipt is identified and rectified.

Uses of Three-Way Matching

1. Three-ways, the matching process is used in large organizations.
2. It is also used where different departments are handling different functions.
3. It is used where an organization is engaged in producing multiple products.
4. It is used where the responsibilities are given to newly appointed staff.
5. It is used where most of the payments are made in cash.
6. It is also used where staff unskilled staff are involved.

Advantages

Different advantages are as follows:

• It ensures the payment is made to the right person against the valid bill and value of the stock received.
• It ensures the proper controls in the organization.
• It minimizes or limits unauthorized payments.
• Through three-ways matching cash, embezzlement is to be controlled.
• Errors can be easily identified in the three-way matching process.
• It ensures the same bill is not paid multiple times.
• The process promotes accountability for the staff.
• Through the three-way process, the information is verified; hence it becomes accurate information and can be used for future decisions.

Disadvantages

Different disadvantages are as follows:

• Three-way matching involves multiple time verification and collection of various documents; hence the process is lengthy and time-consuming.
• There might be chances of late payment and bearing penalties due to the long process and delayed payments.
• Supplier relations can be spoiled due to late payments.
• Discounts for early payments cannot be availed due to the lengthy procedures involved.

Conclusion

Three-way matching is the procedure to control the accounts payableAccounts payable is the amount due by a business to its suppliers or vendors for the purchase of products or services. It is categorized as current liabilities on the balance sheet and must be satisfied within an accounting period.read more through which the accounts payable get verified using the three steps. Here, the order is to be verified at the first step of the purchase. The figures from the inventory department are to be collected and verified, and lastly, it is to be verified fromAccounting Entry is a summary of all the business transactions in the accounting books, including the debit & credit entry. It has 3 major types, i.e., Transaction Entry, Adjusting Entry, & Closing Entry. read more accounting entriesAccounting Entry is a summary of all the business transactions in the accounting books, including the debit & credit entry. It has 3 major types, i.e., Transaction Entry, Adjusting Entry, & Closing Entry. read more. After verification at all three levels, the authorizer authorizes the bill for payment. However, this procedure is lengthy. Hence it is time-consuming, and at the same time, discounts for early payments cannot be availed due to lengthy procedures.

Recommended Articles

This has been a guide to Three-Way Matching and its definition. Here we discuss three ways of matching processes along with its example, uses, advantages, and disadvantages. You can learn more about it from the following articles –

• Accounts Payable Cycle
• Job Order Costing
• Backorder
• Purchase Credit Journal Entry