How to Record and Maintain Financial Information

The following is a description of the steps involved in recording and maintaining accounting information for expenditures and revenues. A best practice would be to implement a financial system involving these steps.

 

Accounting for Expenditures

  1. Purchase requisition is prepared by area requiring the good or service based on an identified need.
  2. Purchase order is prepared by purchasing unit and then forwarded to vendor.
  3. Good or service is received.
  4. Proof of performance (i.e. good received or service provided) is documented and retained by receiving agent. Evidence may be in the form of receiving report, packing list or other documentation.
  5. Invoice for good or service is received from vendor.
  6. A voucher package is prepared containing the requisition, purchase order, proof of performance and matched against invoice is received.
  7. Expenditure and accounts payable is entered in general ledger. The revenue source for expenditure accounts must be specifically identified in the chart of accounts (ie. separate expenditure accounts must be maintained identifying the payer name).
  8. Payment voucher is prepared.
  9. Payment voucher is approved by authorized individual.
  10. Payment remitted to vendor and the invoice is stamped "paid".
  11. Bookkeeper records the payment of the invoice in the general ledger.
  12. All supporting documentation (i.e. copy of purchase requisition, purchase order, contract, proof of performance/receipt of goods, payment voucher including payment information such as cheque number and date paid) must be stored in a safe, secure location.
  13. Filing system should be kept in an organized manner such that documentation is easy to find for audit purposes. Access to filing/storage area should be restricted to only those individuals who require access. Electronic records, including accounting system, should be backed up on a regular basis and a disaster recovery plan should be implemented so that this important information may be recovered if lost.

Key Controls

  • The person who approves payment should not process the payment (segregation of duties).
  • Vendor invoices should be stamped with date received and date paid.
  • Use pre-numbered cheques and account for them in sequence. Ensure each cheque has an approved invoice.

Flowchart: General Flow of Disbursements and Control Activities

General Flow of Disbursements and Control Activities Flowchart


Accounting for Revenues

  1. Cash or cheque received. Cheques should be stamped endorsed upon receipt.
  2. Monies received are entered into a manual or electronic log. The log should contain the following information :
    1. the amount received;
    2. the name of the payer;
    3. the purpose of the payment; and,
    4. the form of payment (cash or cheques).
  3. A pre-numbered receipt is issued to the payer with a copy of the receipt kept on file.
  4. A deposit slip is prepared to deposit monies received into the bank account.
  5. Monies deposited in the bank account.
  6. Receipts and bank deposit are sent to the bookkeeper.
  7. Bookkeeper processes transactions and records them in the general ledger. A separate general ledger account should be set up for each source of revenue (i.e. government department payer and program to which payment relates, such as housing, etc.)
  8. Bank deposits should be reconciled to the general ledger on a monthly basis.

Key Controls

  • Two persons should be present when the mail is opened if cash or cheques are received regularly by mail.
  • An individual separate from cash receipt function should summarize the cash/cheque receipts.
  • Cash and cheques should be kept in a locked and secure area with restricted access until they can be deposited.
  • Cash and cheques should be deposited in a timely manner (typically on a daily basis for transactions greater than $100).
  • The individual recording the receipt of monies should not be the same individual depositing the monies into the bank account (segregation of duties).
  • An individual independent of the recording and depositing functions should perform the bank reconciliation.

Flowchart: General Flow of Receipts and Control Activities

General Flow of Receipts and Control Activities Flowchart