Basic Records
Any financial entity, be it a business, non-profit or other organization, that uses the double entry method of accounting needs to keep the following records:Chart of Accounts
Bank Checking Account
Cash Receipts Journal
Cash Spending Journal
Payroll Records
Adjusting Entry Documentation
Basic Document Files
Bank Checking Account
Use Bank Accounts to Record Cash Transactions. To the extent possible all cash transactions, both deposits and expenditures should be made through bank accounts, with documented support for each transaction.
This means that receipts should be deposited in a bank before expenditures are made by check. The organization should not pay expenses from cash receipts that have not been deposited.
If you pay vendors from undeposited receipts, you cloud the audit trial and leads to sloppy and deficient record keeping.
Similarly ATM (Automatic Teller Machine) withdrawals should be avoided unless unusual circumstances require such a withdrawal.
The essence of good accounting is that the movement of transactions is clear, documentation is available, and the detailed transaction can be reviewed and verified after the event.
Cash Receipts Journal
The cash receipts journal consists of a hand - written or computer prepared list of each deposit received, with references to the source of the money (such as the customer’s name), the date of the deposit, the invoice paid and the amount of the payment.
Cash Spending Journal
Checkbook and/or Cash Disbursements Journal:
The checkbook or a computer prepared listing of checks written can serve as the record of cash spent.
Each check listing should include the date, the check number, the person to whom the check is written, the general ledger category to which the payment is charged, and the amount of the payment.
In a computer maintained accounting system, the check book and the checks themselves may be computer prepared.
Payroll Records
You have to report you business income to Federal and State taxing authorities once a year. But you have to report your payroll activity once every three months!
Because of payroll withholding and employment taxes, payment of salaries and wages requires extensive computations to determine net pay and to provide the information that is reported to the payroll taxing authorities.
All payroll disbursements should be computed and summarized in a payroll register which will serve as the book of original entry for all transactions relating to payroll. The general ledger accounts may be posted directly from it.
Also, it is necessary for payroll tax reporting purposes to accumulate information for each individual employed. These earnings records could be in essentially the same form as the payroll register and could be produced at the same time, either on a computer or manually.
Many computer accounting systems also keep the required payroll records, including the information necessary to prepare quarterly payroll tax returns.
Adjusting Entry Documentation
General Journal Vouchers are the supporting documentation for adjusting entries. They should be used for the original recording of all transactions which do not result directly from regular forms of transactions. General journal entries would include for example:
(1) special transactions not covered by the other detailed journals;
(2) memo account entries non involving cash ;
(3) transfers of cash between bank accounts ;
(4) adjustments and corrections. The applicable accounts in the general ledger are affected directly from these vouchers. If a computer system is being used general journal documentation would be created by the computer program.
Basic Document Files
Any set of accounting records includes the original documents such as sales orders that support and are produced in the preparation of the accounting transactions. No set of accounting records is adequate without a set of permanent files for the accumulation and storage of those documents.
For a small organization two special purpose files should be considered a minimum:
An accordion style folder or case (one for each fiscal year) with alphabetized sections should be used to file paid invoices by payee.
Canceled checks and bank statements should also be stored in a systematic manner. After the bank reconciliation has been completed each month by the controller, the canceled checks should be filed in numerical sequence.
In addition, file folders should be maintained for all other accounting reports and documents and for financial reports.
Any computer printouts in a computerized accounting system constitute permanent files as well.
Back up data tapes or disks of computer accounting files should be kept in a safe place, preferably off-site.
Who Does What?
Deposit Manager
In a small organization the Deposit Manager might:
Make deposits of customer receipts and maintain the cash receipts book.
Deposit Manager Job Restrictions
The deposit manager would have no access to cash in any form other than check deposits; nor would this person be responsible for general accounting functions or preparation of bank reconciliations.
The general rule is that anyone who handles cash or makes deposits of customer checks should not be able to sign any disbursement checks, or keep the general accounting books.
Check Writer
The check writer in many organizations is called the Treasurer.
Typical check writer duties include:
Approve preparation of all checks by initialing supporting documents (invoice, etc.).
Sign all checks, after reviewing for propriety, consistency, and clerical accuracy, in relation to supporting documents.
Review the monthly bank reconciliations prepared by the accountant.
Check Writer Job Restrictions:
No access to cash, except by checks drawn against operating bank account.
Not responsible for general accounting functions or preparation of bank reconciliations.
Accountant
In an organization that has several accounting clerks, the chief accountant may be known as the Controller.
The controller's duties include:
Maintaining the general accounting records.
Preparing the monthly bank reconciliation.
Supervising and review the preparation of the periodic financial and other reports.
Restrictions on the Controller's Duties
The controller should not be responsible for depositing cash, writing checks, or doing ATM transactions.
Custody of Records
Custody of the Records:
The custody and maintenance of all records should be the primary responsibility of the controller. Consideration should be given to establishing protection of records from accidental damage or destruction. The checkbooks, general ledger and journals should be kept under lock to prevent unauthorized access to them.
Cash Receipt Process
The processing of cash receipts should be supervised by the Deposit Manager. Deposits may be in the form of customer checks or currency.
The Deposit Manager or delegate should maintain a list of currency received, indicating sources and amounts. Each cash customer should be given a receipt for any cash delivered in person.
Cash Spending Authority
Cash Spending (by check if possible) should be properly authorized. In general operational spending is under the authority of the treasurer.
The treasurer's responsibility to determine first whether or not, in his or her judgment, a specific expenditure fits within the broad approval granted by the budget of the organization. The treasurer also needs to be sure that there is enough cash to pay the checks.
In many organizations purchase orders are used. These individuals who approve purchase orders need to exercise the same degree of judgment within their budget area as the treasurer does regarding all spending. An approved purchase order requires the signature of the person authorized to make the expenditure, and the treasurer relies on the approved signature as the basis for his or her approval.
The bank should be formally notified by a letter from the organization's legal secretary if there is a new treasurer.
Vendor Payment Documentation
All checks should be supported by an invoice or check request. The treasurer should initial each invoice and/or check request to indicate his or her approval of the disbursement.
Checks should be pre numbered and prepared on the basis of the properly approved supporting documents. The number of the check used should be entered on all such documents as a reference and an indication that the item has been paid.
Any check which is spoiled should have "VOID" marked on its face, its signature corner torn off and destroyed, and be filed in numerical sequence with canceled checks.
The controller or accounting clerk should file the paid invoices, and other supporting materials.
In most cases it is convenient for an organization to adopt standard payment dates (perhaps twice a month) for most spending.
Bank Account Reconciliations
The controller or his assistant (not the Treasurer or Deposit Manager) should prepare a monthly reconciliation of the each bank account. This reconciliation needs to relate to the cash balance as shown in the general ledger bank accounts, not the cash book balance.
The bank reconciliations should be reviewed by the deposit manager and the treasurer for clerical accuracy, the propriety of all reconciliation items and to determine that all deposits and checks have been accounted for as either cleared at the bank or in transit, outstanding or void.
Supervising Investments
Deposits to and withdrawals from non operating investment accounts should be made only on the formal authorization of the Board of Directors. Withdrawals from investment accounts should require two signatures; the treasurer's and that of another appropriate officer.
Transfers between operating checking accounts and saving accounts should be treated in the books as transfers of cash from one depository to another. Transfers should never be shown as operating receipts or disbursements.
Auditing Process
An Auditor may be hired by the organization to examine the accounting records at least annually. The auditor will test a sample of complete transactions (from inception, to posting in the general records, to financial reports) to satisfy himself that the organization 's accounting policies and procedures have been operating effectively to insure the proper recording of all transactions and that the accounting records are a complete and accurate presentation of these transactions.
More specifically, the auditor should determine if:
Cash receipts have been deposited intact and have been properly reported, recorded and classified to the various funds and accounts.
Cash spent has been properly authorized, checks are adequately supported by invoices, check requests, etc., and have been properly recorded and distributed to the various general ledger accounts.
Other transactions and entries have been accomplished in accordance with the organization's established accounting procedures.
The records and procedures related to the various assets and accounting documentation are adequate to insure the proper control over assets and recognition of liabilities