Main Financial Systems

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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:

  1. Details of purchases recorded on invoices

  2. Details of returns to suppliers for which credit notes are received

  3. 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:

  1. Amendments – customer details, new customers etc

  2. 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:

  1. Documents and authorisation of staff changes

  2. Calculation of wages and salaries

  3. Payment of wages and salaries

  4. 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:

  1. Company cheque

  2. Bank transfer

  3. Internet transfer

  4. Standing order/direct debit

A control of receipt is fundamental if the company is to keep a healthy cash/working capital position.

Therefore:

  1. Receipts must be banked promptly

  2. The record of receipts must be complete

  3. 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:

  1. Documentary evidence to prove that the purchase is required

  2. An authorisation of the payment

  3. Restricting the authority to actually make the payment to a certain number of individuals

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