Flowcharts

Authorization/management

approves and signs

Accounting/recordkeeping

records transactions

Operations/custody

handles assets, goods, cash, and documents

Why separate the 3 roles?

So one person cannot authorize, handle the asset, and record the same transaction

SALES PROCESS

Authorization approves credit → Shipping/Billing fills order, prepares bill of lading and sales invoice, ships goods → Accounting records the sale

Sales - Authorization role

Approves credit sales before the customer order is filled

Sales - Shipping/Billing role

Receive customer PO → pick inventory/fill order → prepare prenumbered bill of lading → prepare prenumbered sales invoice → ship goods and send invoice

Sales - Accounting role

Determine cash or credit sale → for credit sale record in Sales Journal and A/R subsidiary ledger → file supporting documents

What documents support a sale?

Customer purchase order + bill of lading + sales invoice

What proves goods were shipped?

Bill of lading

What bills the customer?

Sales invoice

Credit sale accounting records

Sales Journal + Accounts Receivable subsidiary ledger

Cash sale vs. credit sale in sales process

Cash sale follows cash-receipts process; credit sale is recorded in Sales Journal and A/R subsidiary ledger

BAD DEBT WRITE-OFF PROCESS

Management identifies/authorizes uncollectible A/R → Accounting records write-off in General Journal and A/R subsidiary ledger

Bad debt write-off - Authorization role

Identify/approve an account as uncollectible

Bad debt write-off - Accounting role

Make entry in General Journal and Accounts Receivable subsidiary ledger

SALES RETURNS PROCESS

Authorization approves return → Accounting prepares credit memo → Authorization reviews/approves credit memo → Accounting records credit or prepares refund

Sales return - Authorization role

Receive return request → approve and sign it → later review supporting documents and approve/initial credit memo

Sales return - Accounting role

Receive return documentation → complete return request → prepare credit memo → determine cash refund or credit to account → record transaction

What document is created for a sales return?

Credit memo

Sales return credited to customer account

Record in Sales Journal and Accounts Receivable subsidiary ledger

Sales return requiring cash refund

Prepare check → record in Cash Disbursements Journal → authorized person reviews and signs check

Main control in sales returns

Return and credit memo must be approved before the customer's account is reduced or cash is refunded

CASH RECEIPTS PROCESS

Receive cash/check → restrictively endorse → prepare cash receipts prelist → record receipt → prepare daily bank deposit → independently validate deposit records

Cash receipts - Receipt/recordkeeping role

Receive check or ACH notice → restrictively endorse check → enter receipt on cash receipts prelist → record in Cash Receipts Journal and A/R subsidiary ledger when collected on account

Cash receipts - Deposit role

Receive checks from cash-receipt process → prepare bank deposit slip → deposit checks each day received

Cash receipts - Deposit validation role

Receive validated deposit receipt → compare it with ACH notices, cash receipts prelist, and Cash Receipts Journal → file for bank reconciliation

Cash receipt on account affects which records?

Cash Receipts Journal + Accounts Receivable subsidiary ledger

Do all cash receipts affect the A/R subsidiary ledger?

No - only collections on accounts receivable

Cash receipts prelist purpose

Creates an independent record of cash/checks received before deposit

Restrictive endorsement purpose

Makes a check payable only for deposit and reduces theft risk

How often are checks deposited in the SUA flowchart?

Each day they are received

Cash receipt validation control

Validated bank deposit should agree with cash receipts prelist, ACH notices, and Cash Receipts Journal

What is saved for monthly bank reconciliation?

Validated deposit documentation and ACH/deposit records

PURCHASES ON ACCOUNT PROCESS

Requisition → prepare PO → approve PO → receive goods and prepare receiving report → Accounting matches PO + receiving report + vendor invoice → record purchase/AP

Purchases - Purchase Order role

Receive requisition → prepare prenumbered purchase order → obtain approval → send approved PO to vendor

Purchases - Authorization role

Review and approve/sign purchase order before it is sent to vendor

Purchases - Receiving role

Receive goods → prepare prenumbered receiving report → identify purchase vs. returned sale → route documentation appropriately

Purchases - Accounting role

Receive approved PO + receiving report + vendor invoice → compare and resolve differences → initial vendor invoice → record in Purchases Journal and A/P subsidiary ledger

Three-way match

Approved purchase order + receiving report + vendor invoice

Purpose of three-way match

Verify goods were ordered, received, and billed correctly before recording/paying

Purchase on account accounting records

Purchases Journal + Accounts Payable subsidiary ledger

What happens if the purchase is a fixed asset?

Accounting also prepares a Fixed Asset subsidiary ledger record

What proves goods were ordered?

Purchase order

What proves goods were received?

Receiving report

What proves the vendor billed the company?

Vendor invoice

Purchase order control

Purchase orders are prenumbered and require approval

Receiving report control

Receiving reports are prenumbered

CASH DISBURSEMENTS PROCESS

Gather supporting documents → prepare check/ACH authorization → authorized person reviews and approves payment → Accounting records payment

Cash disbursements - Payment preparation role

Pull supporting documents when due → prepare check or ACH payment authorization

Cash disbursements - Authorization role

Review supporting documents → sign check or authorize ACH → mark invoice paid/date/initial it

Cash disbursements - Accounting role

Record payment in Cash Disbursements Journal and update A/P subsidiary ledger for payments on account

What supporting documents are normally used before paying a vendor?

Approved purchase order + receiving report + vendor invoice

Payment on account affects which records?

Cash Disbursements Journal + Accounts Payable subsidiary ledger

Does every cash disbursement affect A/P subsidiary ledger?

No - only payments on account

Important cash disbursement control

Payment is supported by documents and approved before check/ACH is released

Why mark a vendor invoice "paid"?

Prevents the same invoice from being paid twice

What happens to a signed check?

Sent to the vendor

What happens to ACH payment authorization documentation?

Filed and later used in the monthly bank reconciliation process

PAYROLL PROCESS

Approved time record → calculate payroll → record payroll and employee earnings → prepare payroll check → authorized person reviews/signs → employee receives check

Payroll - Timekeeping/recordkeeping role

Print time record report → obtain manager approval → calculate payroll → enter payroll in Payroll Journal and Employee Earnings subsidiary ledger

Payroll - Authorization role

Approve/initial time record report → later review Payroll Journal and sign payroll check

Payroll - Payment preparation role

Prepare prenumbered payroll check from Payroll Journal → enter check number in Payroll Journal and Cash Disbursements Journal → record date paid in Employee Earnings subsidiary ledger

What records contain payroll information?

Payroll Journal + Employee Earnings subsidiary ledger

What does the Employee Earnings subsidiary ledger contain?

Individual payroll information for each employee

What document supports payroll calculations?

Approved time record report

Payroll control over hours worked

Manager reviews, approves, and initials employee time record report

Payroll check control

Checks are prenumbered and require review/signature by an authorized person

Employee payroll control

Employee signs time record report acknowledging hours worked and receipt of check

How often is payroll prepared in the SUA?

Semimonthly

Important SUA payroll posting rule

Payroll disbursements are posted to the General Ledger from the Payroll Journal, NOT from the Cash Disbursements Journal

Why is payroll check number also entered in the Cash Disbursements Journal?

To maintain the cash-disbursement record even though payroll is posted to the GL from the Payroll Journal

WHO DOES WHAT - AUTHORIZATION/MANAGEMENT

Approves credit sales, purchase orders, return/credit memos, time records, journal entries, and payments; signs checks; performs bank reconciliation

WHO DOES WHAT - ACCOUNTING/RECORDKEEPING

Records journals and subsidiary ledgers, prepares credit memos/checks/ACH authorizations, maintains payroll records, records sales/purchases/cash/payroll

WHO DOES WHAT - OPERATIONS/CUSTODY

Prepares sales invoices and purchase orders, ships/receives goods, prepares shipping/receiving documents, handles/deposits cash, validates receipts

Authorization role memory trick

APPROVE - REVIEW - SIGN

Accounting role memory trick

RECORD - JOURNAL - LEDGER

Operations/custody role memory trick

HANDLE - PREPARE - SHIP/RECEIVE/DEPOSIT