Checking Documents for Accuracy

Check and verify documents

Contents Introduction 3 Summary 7

Check and verify documents 1 © NSW DET 2006 2006/053/12/2006 LRR 4668/4664/4661

2 Check and verify documents © NSW DET 2006 2006/053/12/2006 LRR 4668/4664/4661

Introduction Source documents are used as the source of the accounting entry. They are the first document in the accounting process cycle. For the accounting records to be accurate, it is essential that the source documents are accurate. Accuracy involves both accuracy of the information included in the document and the validity of the document itself.

When checking the accuracy of any source document, you should consider the following:  Is the date correct?  Are the details of the supplier or customer correct?  Is the document mathematically correct? Are the calculations correct?  Are there any other obvious errors? (This may include price or quantities or description of the goods or services.)

The validity of the document should also be verified:  Does it represent a valid transaction? For example, does the invoice represent goods or services that the organisation has received? This includes instances where goods or services may not have been completely supplied.  Has this document been received and/or processed previously?

Checking processes for source documents

Different source documents may require specific checking processes.

Invoices

The details on the invoice should be checked to the original order for quantities, price and description. They should also be checked against delivery dockets to ensure that the goods were received in good order and condition.

Receipts

For receipts, it is important to record information such as method of receipt —is it cash, cheque or credit card?

Cheques

Actually it is the cheque butt that is the source document. However, the details on the cheque are also important. We will discuss elsewhere the importance of authorisation in relation to cheques.

However, the information recorded on the cheque must be identical to that recorded on the cheque butt. It should also agree with the details on the authorisation document from which the cheque has been prepared. One of the key checking processes for cheques is carried out by the person signing the cheque. They should ensure that the cheque, cheque butt and authorisation all agree before they sign the cheque.

Reporting errors

Errors may be identified from the checking process. While all errors should be resolved as soon as practicable, the processes for reporting errors may differ depending on the policies and procedures of the organisation.

When the action required goes beyond the normal job description and duties of the person who located the error, they should refer the matter to their supervisor in accordance with the organisation’s policies and procedures.

Authorising source documents

To complete the process of recording a transaction on a source document, the document will require authorisation in accordance with the organisation’s policies and procedures.

Authorisation of a cheque may involve a cheque requisition signed by the person requesting the cheque. If that person is not authorised to make such a request, they may get the request signed by a person with the appropriate level of authority. The cheque requisition may also be accompanied by additional supporting documentation such as the authorisation to order the goods or services (authorised order form) or an invoice from the supplier that has been checked.

The authorisation of a receipt document may be the signature of the person who has issued the receipt.

The authorisation of an internal memorandum would be the signature of the person requesting the transaction.

It is important that the accounting section check that the person who authorised the document does have the authority to make such a request. The record of each person’s level of authority is usually contained either within the policies and procedures manual or, in larger organisations, in a special authorisation manual.

Sorting and batching documents

When large numbers of documents such as receipts, invoices and orders are prepared or received regularly, it is often more efficient to process the items together at one time rather than to deal with each individual document as it arrives. In other words the documents are accumulated and processed at one time, in a batch.

Sorting

If you are working as an accounts payable clerk, you will receive many invoices and statements for payment.

The payment terms will differ depending on whether you have an account with your supplier. In addition, different suppliers have different terms. Therefore it becomes necessary to sort invoices and statements by their payment due date so they can be easily identified for processing and payment.

Paying bills too early reduces the available cash for other expenses and purchases, especially in small companies where cash flow is critical.

Paying bills too late on the other hand may incur a late fee. This in turn reduces your profit margin. Constant late payments may also result in refusal to extend further credit to your company.

If you are working as an accounts receivable clerk, you will be sending invoices and statements to customers for the money they owe your company. You will also be receiving the receipt source document once the customer has made a payment. As part of your monthly routine, you will update the debtor’s accounts in the organisation’s records and print statements.

Following the printing of the statements, they are usually checked for obvious anomalies (in accordance with the organisation’s policies and procedures) before being sent to the customer. Anomalies are not necessarily errors but may include instances where the customer’s account is overdue.

Coding source documents

Before batched source documents can be entered into the accounting system (ie recorded in the journal), the details of the general ledger account and customer or supplier record number will need to be recorded on the document. These details will be needed to record the journal entry for the transaction. Having this information recorded on the source document (or on an attachment to the document) will improve the batch processing.

Batch processing

Batch processing is a method of processing business documents in batches or groups. A batch record (usually called a batch log) is kept and each batch is assigned a batch number.

The entry in the batch log would show the:  batch number  date the batch is processed  batch total  name of the person who processed the batch.

The main idea is that the information is collected over a period of time (daily, weekly, monthly) and the processing is done at one time. This may be one or more times during the day, week or month.

If an accounting discrepancy arises or a customer has a query about a past invoice, the batch number is used to locate the document in question.

You need to comply with government legislation and follow your organisation’s policies and procedures in relation to the filing and storage of these financial records.

Filing source documents

For audit purposes and to comply with legislation in relation to the storage of financial records, source documents need to be stored in a safe, secure place where only authorised staff can easily locate them. This is called filing.

When documents are filed, it is not enough that they are stored securely. They must also be available for retrieval in the event that they need to be checked. So the filing order must be one that makes it easy to locate the individual document. You may need to consider the document type, the document number or even the document date when choosing the appropriate filing order. Each organisation’s policies and procedures manual should specify the filing order for documents.

Policies and procedures

Each organisation will maintain a policies and procedures manual. In many organisations, especially large ones, the manual will be a formal document or manual that outlines that organisation’s policies. In smaller organisations, the policies and procedure may be a series of instructions issued to the employees to assist them to do their jobs in the way that the organisation’s management has instructed.

The policies and procedures manual may include a variety of topics including:  a summary of issued policies  the purpose of each policy  specific instructions in relation to each policy that should be followed  a list of authorisation levels for staff (what they can approve)  filing procedures, including how long a document should be kept  information on occupational health and safety issues relating to the employee’s duties, including the accounting activities.

Summary This learning guide highlights the importance of checking the accuracy of information on source documents as well as the validity of the document. The instructions issued to employees to assist them do their documentation tasks are usually provided in the organisation’s manual of policies and procedures.