CHAPTER 10

Recording payments

Contents

Controls over recording payments The cash book: recording payments Posting cash payments to the general

ledger Returned cheques Automated credit systems

Controls over recording payments

All payments are authorised correctly

Proper checks against supporting docs

Segregation of duties At day end, a list of the

payments for that day is submitted to a senior member of staff to check for unusual payments

A minimum number of cheque books is in use at any time

Regular bank reconciliations Sequential numbering A sequence check carried

out on the cheques in cash book

Regular examinations of bank statements to ensure that all payments by direct debit and standing order have been recorded in the cash book (along with bank interest and charges)

Fraud Completeness

To avoid fraud and to ensure completeness

Question

At Ferdi's Furniture, among the procedures in operation over the recording of payments are the following

(a) Only 1 company cheque book is used at any time(b) Numbers of all cheques are to be entered in cash book

even where the cheque is cancelled(c) All cancelled cheques are to be retained(d) The tasks of writing cheques and writing up the cash

book are to be carried out by different people(e) Authorised details of all standing orders and direct debits

are to be filed and the details of any such payments are to be agreed to the file before being transferred from bank statements in to the cashbook

Comment on the reasons for each of the above procedures

Answer

(a) Minimises the risk that a cheque book will fall into the wrong handsMakes it simpler to keep a check on the sequence of cheques being issued

(b) Entering the number of all cheques in the cash book even if cancelled makes it easier to check that all payments by cheque have been entered

(c) Anyone carrying out checks can be sure what has happened to those cheques Provides conclusive evidence that the cheque has not fallen into the wrong hands.

(d) This is an example of segregation of duties(e) Payments by standing order or direct debit will probably appear on the

bank statement before they are entered into the cash book. But it is not acceptable simply to transfer the details of payments made from the bank statement to the cash book, since the wrong payments may have been made by the bank as the result of some error. The bank may have made a payment even though the standing order or direct debit mandate has been cancelled, or the company may have failed to cancel a mandate which should have been cancelled

The cash book: recording payments

Question

State whether each of the two statements below is TRUE or FALSE.

(a) Cheque payments are recorded in the cash book only when they have been presented at our bank because it is only then that payment is made from our bank account.

(b) Standing order payments made by the bank should normally be entered in the cash book, but not where they represent payments in advance for goods or services not yet received.

Answer

Both (a) and (b) are FALSE.We record cheque payments in the cash book

as soon as possible after we issue the cheques: (a) is therefore false

A standing order is a payment like any other, and needs to be recorded in the cash book regardless of whether we have yet received the benefit of what the payment is for, (b) is therefore also false.

Explanations

You are involved in training some new members of staff at your firm on the recording of payments.

TaskExplain briefly each of the following terms.(a) Cancelled cheque(b) Stopped cheque(c) Paid cheque(d) Bank reconciliation statement

Answer

(a) Cancelled cheque: Error when written by hand or printing error Totally correct but for example we decide before the cheque

is sent that a different amount should be paid to the supplier.

(b) Stopped cheque: after cheque has been sent out, it may be stopped by

issuing an instruction to our bank(c) Paid cheque: one which has been debited to the

drawer's bank account(d) The bank balance per the cash book and shown on the

bank's statement at any particular time may be different. A bank reconciliation statement lists the items which account for this difference.

Posting cash payments

Answer

Answer

Automated credit systems (ACS) Useful methods of making and recording payments.

They can save business time When a business uses automated transfer, it sends

information (which will be input into the books of the business) to the bank for processing

Used for processing any of the following: Standing orders Direct debits Salaries (monthly) Wages (weekly) Some one-off payment

Exam focus points = remember the 5 above

Procedures for using ACS

To pay the salaries of its staff using ACS1. Produces a file with staff details to send AC

processing computer centre2. Bank updates its database3. On the day specified by the company

1. The salary due credited to staff account2. Company's account is debited with the total

amount

4. Related data and info a recorded and saved5. The business's records will be updated with

the same information

Practice question

Quiz

1 What procedure would identify an unauthorised payment not entered in the cashbook?

2 What other controls will help to prevent fraud involving payments?

3 Discounts received are shown in a memorandum column in the cash book. True or false?

4 What useful function is possible using a computerised payables ledger?

5 What are the advantages of receiving returned cheques?

Answer

1 The bank reconciliation.2 Other controls include: authorisation of payments,

supporting documentation, segregation of duties, checks for unusual payments, one cheque book in use.

3 True. The column is there so that the total amount owed to suppliers can be posted to the payables ledger, not just the amount paid.

4 A computerised payables ledger can issue computer-printed cheques.

5 Returned cheques are both a check against fraud and a check against mistakes by the bank.

QB 18

18 Which of the following are the most effective controls in helping to prevent fraud involving payments (i) a bank reconciliation independently prepared and authorised (ii) using BACS to effect payments (iii) authorisation of payments (iv) segregation of duties

A (ii)B (i) and (ii)C (i), (iii) and (iv)D (ii) and (iv)

Answer: C