In accounting and accounts payable, what is meant by the term three way match in the invoice verification process, and which documents are compared before an invoice is approved for payment?

Introduction / Context:
Three way match is a very important internal control used in accounts payable and procurement. The question is testing whether you understand which documents are compared and why this control is used before paying a supplier invoice. In modern organizations, three way matching helps prevent overpayment, duplicate payment, and payment for goods or services that were never received. Understanding this concept is essential for interview questions in accounting, finance, and enterprise resource planning implementations.

Given Data / Assumptions:

• The context is basic accounting and accounts payable.
• Three way match is performed before an invoice is approved for payment.
• Typical purchasing documentation such as purchase orders, receiving reports, and supplier invoices are available.
• The organization wants to pay only for goods and services that were properly ordered and received.

Concept / Approach:
Three way matching means comparing three specific documents that arise in the procure to pay cycle. These are the purchase order, which shows what the company agreed to buy and at what price, the goods receipt note or receiving report, which shows what was actually delivered, and the supplier invoice, which shows what the vendor is billing. The core idea is that quantity, price, and basic terms on all three documents must match within defined tolerances. If the three documents agree, the invoice is considered valid and can move forward for payment approval. If they do not agree, the invoice is put on hold until the discrepancy is resolved.

Step-by-Step Solution:
Step 1: Identify which process the term three way match normally belongs to. It is part of the accounts payable and procurement control framework, not banking or external audit.Step 2: Recall the typical flow in the procure to pay cycle: purchase order is created, goods are received and recorded on a receiving report, and the supplier sends an invoice.Step 3: In three way matching, the accounts payable team compares the line items on the purchase order, the receiving report, and the supplier invoice for item description, quantity, unit price, and basic terms.Step 4: If all three documents match within tolerance, the invoice is approved and can be posted as a liability and scheduled for payment.Step 5: If there is a mismatch, the invoice is placed on hold and the buyer or procurement team investigates with the supplier before any payment is released.

Verification / Alternative check:
A good way to verify your choice is to ask whether the option clearly names three purchasing related documents and places the control in accounts payable. Option A explicitly mentions purchase order, goods receipt note or receiving report, and supplier invoice, and describes that the comparison is done before releasing payment. That matches standard accounting definitions from textbooks and practice. The other options either mention only two documents or describe processes related to banking, month end closing, or sales rather than procure to pay controls, so they do not fit the standard interpretation of three way match.

Why Other Options Are Wrong:
Option B is about reconciling cash book, bank statement, and general ledger, which describes a bank reconciliation process, not three way matching in accounts payable. Option C refers to matching trial balance, profit and loss account, and balance sheet, which is more like an audit or financial statement review and not an invoice matching control. Option D focuses on sales documents and dispatch rather than purchase and invoice verification, so it belongs to the order to cash cycle, not the procure to pay cycle. None of these reflect the classic three document comparison used before approving supplier invoices.

Common Pitfalls:
Many learners confuse three way match with two way match, where only the purchase order and supplier invoice are compared. Others think that any process that involves three documents can be called a three way match, which is not correct in professional terminology. Another common mistake is to mix three way matching with bank reconciliation, because both involve comparing different records. In exams, carefully read which documents are mentioned and whether the context is accounts payable and procurement, rather than banking or external audit.

Final Answer:
Three way match in accounting is a control in accounts payable that matches the purchase order, goods receipt note or receiving report, and supplier invoice before payment is released.