Reconcile debits & credits using Solver [Advanced Excel]

Posted on August 18th, 2015 in Analytics , Excel Howtos - 8 comments

Here is a tricky problem often faced by accountants and finance professionals: Let’s say you have 5 customers. Each of them need to pay you some money. Instead of paying the total amount in one go, they paid you in 30 small transactions. The total amount of these transactions matches how much they need to pay you. But you don’t know which customer paid which amounts. How would you reconcile the books?

If you match the transactions manually, it can take an eternity – after all there are more than 931 zillion combinations (5^30).

This is where solver can be handy. Solver can find optimal solution for problems like this before you finish your first cup of coffee.

Reconcile debits & credits using solver model – Tutorial

Step 1. Set up your solver model

In a blank sheet, list credits along a column and debits on the top in few columns, as shown below:

In the blank grid, Solver will fill 0 or 1 indicating whether credit in that row is matched with debit in that column or not.

This area is (C6:G35 in my workbook) is known as variable cell range in Solver model.

There are 2 rules to be followed when matching debits to credits:

  • A credit can be matched with only one debit – ie sum of any row in C6:G35 range can be 1, at most.
  • Total reconciled amount should be less than or equal to total credits – ie sum of any column in C6:G35 should be less than values in C5:G5 (debits).

To facilitate these rules, also known as constraints in solver parlance, let’s use column H & row 36.

  • Write =SUM(C6:G6) in H6 and fill down the formula.
  • Write =SUMPRODUCT($B$6:$B$35,C$6:C$35) in C36 and drag sideways to fill the formula in rest of the columns.

Our solver model should look like this:

reconcile-debits-credits-solver-model-workbook-screenshot

Step 2: Set up optimization cell

To do its work, solver needs an optimization cell. Our goal is to maximize the amount of reconciled amount. So, in a blank cell write =SUM(C6:G36). This will be our optimization cell.

Step 3: Launch solver

Select the optimization cell (in my workbook, this is J6) and go to Data > Solver. (If you do not have solver, enable it using these instructions.)

Set up solver model as:

  1. Objective is to to maximize J6.
  2. Variable cells are C6:G35
  3. Constraints
    • C6:G35 should be binary (o or 1)
    • C36:G36 should be <= C5:G5
    • H6:H35 should be <= 1
  4. Solver method is Simplex LP (our problem is linear)

match-debits-credits-solver-parameters

When you are ready, Click Solve. Solver should take few minutes to find the solution.

Step 4: Examine the result

solver-solution-reconcile-debits-credits

Once solver finds an answer, it will show Solver Results dialog. Click ok (you may also look at the sensitivity report). This loads the solver solution in to variable cell range.

solver-solution-reconcile-debits-and-credits

Analyze the numbers and enjoy.

What if Solver solution is not optimum?

Occasionally, Solver fails to find optimum solution for linear problems with integer constraints. In such cases, try again by adjusting constraints & precision.

Download example workbook

Please click here to download the example workbook. Play with the solver model to learn more.

Other ways to reconcile data

If you deal with reconciliation problems, check out below examples to learn more:

 

How do you reconcile data?

Solver is a powerful way to reconcile data. It does take some time to set up the model and configure solver, but once your model is ready, Solver does all the heavy lifting.

What about you? What methods do you use to reconcile data? Please share your thoughts and tips in the comment section.

Written by Chandoo
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8 Responses to “Reconcile debits & credits using Solver [Advanced Excel]”

  1. jhbf says:

    Great example of how solver can be useful and easy to use in practical life !
    Thanks
    jhbf

  2. Frank says:

    Hi,

    When we use the =SUM(C6:G36) in the optimisation cell, the formula gives an error message - circular reference

    Will please look into this

    Regards,

    Frank

  3. Julie says:

    How long should it take for solver to solve the problem this example? I have input everything exactly as listed in the example, but my objective cell is optimized at 3009 instead of 3000. When I attempt to make the objective = 3000 or to update the precision, solver runs for hours. Thank you in advance for your help!

    • Chandoo says:

      Hi Julie,

      On my computer, Solver took less than 5 minutes to find the solution. I made one change to the constraints though. I used H6:H35=1 as constraint.
      With H6:H35<=1 as constraint, solver took more than 10 minutes. I usually press Escape after few minutes to see if Solver has a good enough solution.

      • Julie says:

        Thanks Chandoo! I see the issue now. My optimization cell was using the formula =SUM(C6:G36). It should be =SUM(C36:G36). Made the change and it works perfectly. Thanks for the great post

  4. Manick says:

    Solver is very useful. In my previous organization, I have used it to do production scheduling that could give optimal returns. Its interesting to see your article on Solver Chandoo. Great!

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