Accounts Payable: Core Controls, Three-Way Match, and Payment Mechanics
What the AP domain tests
Accounts Payable questions center on the control environment around spending: how a liability is validated before cash leaves the organization, and how the resulting records stay accurate. A candidate should be fluent in the invoice-to-payment lifecycle: receipt of a supplier invoice, capture (including OCR and data validation), matching, approval routing, payment scheduling, and reconciliation. Know the three-way match (purchase order vs. goods receipt vs. invoice) and understand that a two-way match applies where no receipt is expected (services, utilities) and a four-way match adds inspection or receiving quality data.
Controls and traps
Expect questions on segregation of duties: the person who enters a vendor should not approve payments; the person who approves should not reconcile the bank account. Other recurring controls are duplicate-invoice detection, vendor master change approval, tolerance thresholds for price and quantity variance, and the use of accruals and reversals at period end so expenses land in the correct period.
Common traps: (1) confusing a statement of account from the supplier with the company's own AP ledger; (2) treating a debit memo as a payment rather than an offset to a payable; (3) assuming a discount is always beneficial - a 2/10 net 30 term implies an annualized cost of forgoing the discount of roughly 36.7%, so paying late is usually expensive; (4) overlooking that early-payment discounts require the invoice date, not the receipt date, unless terms state otherwise.
Worked rule of thumb
For discount decisions, annualized cost of forgoing = (discount % / (100% − discount %)) × (365 / (net days − discount days)). For 2/10 net 30: (2/98) × (365/20) ≈ 37.2%. If the company's borrowing cost is below that, take the discount.
Practical checklist
Validate vendor master, confirm PO and receipt, check tolerances, verify tax treatment, route approval by authority limit, schedule within terms, and reconcile the disbursement to the ledger.