CAT / FIA FBT Syllabus C. Accounting And Reporting Systems, Controls - Main Financial Systems - Notes 2 / 7
THE MAIN FINANCIAL SYSTEMS USED WITHIN AN ORGANISATION
Purchases and sales invoicing and Credit control
Purchasing is an important area to control particularly if items are of a high value.
The organisation is likely to insist on a specific authorisation procedure especially for the purchase of non-current assets.
Inputs to a purchase ledger system include:
Details of purchases recorded on invoices
Details of returns to suppliers for which credit notes are received
Details of payments to suppliers
| features | aims |
| ordering | * all orders for, and, expenditure on, goods and services are properly authorised, and are for goods and services that are actually received and are for the company. * orders are only made to authorised suppliers * orders are made at competitive prices |
| receipts & invoices | * goods/services used only for the organisation's purposes * goods/services only accepted if ordered & authorised * goods/services are accurately recorded * liabilities recognised for all goods/service * credits for which the business is due are claimed * a receipt is needed to ensure a business establish a liability |
| accounting | * expenditure is authorised - goods actually received * expenditure is recorded in the nominal and purchase ledger * credit notes recorded * entries made to the correct ledger * cut-off is applied correctly to the ledger |
Sales
For sales, businesses want only to give credit to those customers who can settle their debts.
The sales ledger will help track what is owed by each customer.
Inputs to a sales ledger system include:
Amendments – customer details, new customers etc
Transaction data – Sales, customer payments, credit notes
| features | aims |
| ordering & granting of credit | * goods/service to only to customers with good credit rating * cutomers pay promptly * orders recorded correctly * orders are fulfilled |
| despatch & invoicing | * despatches of goods are recorded * goods/services sold are correctly invoiced * all invoices raise relate to goods/service supplied * credit notes only given for valid reasons |
| recording,accounting & credit control | * sales invoiced and recorded * credit notes issues and recorded * entries in sales ledger made to the correct ledger * cut-off applied * doubtful debtors identified |
Payroll
The key functions of payroll are:
Documents and authorisation of staff changes
Calculation of wages and salaries
Payment of wages and salaries
Authorisation of deductions
| features | aims |
| setting of wages & salaries | * employees are only paid for work they have done * gross pay calculated correctly and authorised |
| recording of wages & salaries | * gross/net pay and deductions are accurately recorded * wages & salaries paid are recorded correctly in the bank and cash records * wages & salaries are correctly recorded in the general ledger |
| payment of wages & salaries | * the correct employees are paid |
| deductions | * statuary and non-statuary deductions have been calculated correctly and authorised * the correct amounts are paid to the taxation authorities |
Cash & Working Capital
Cash and petty cash and therefore working capital must be regularly reconciled.
The forms of payment to a business could be through:
Company cheque
Bank transfer
Internet transfer
Standing order/direct debit
A control of receipt is fundamental if the company is to keep a healthy cash/working capital position.
Therefore:
Receipts must be banked promptly
The record of receipts must be complete
The loss of receipts through theft or accident must be prevented
Cash controls must be strict.
They should apply to the smallest and the largest of transactions.
The three main steps to applying control over cash/working capital payments are:
Documentary evidence to prove that the purchase is required
An authorisation of the payment
Restricting the authority to actually make the payment to a certain number of individuals