OFFICE ADMINISTRATION II

DPK3023

CHAPTER 2
FINANCIAL INFORMATION PROCESS
2.1 Procedures for Processing Cash
Transactions and Safeguarding Cash

 A business must keep track of cash receipts carefully to avoid

losing money or recoding customer payments incorrectly. A
business must also make payments on time. Late payments
may result in paying late charges, losing discounts, or a poor
credit rating. Most businesses use procedures to help ensure
that receipts and payments are handled properly.
SAFEGUARDING CASH

 Cash is a valuable asset of the business. It must be

safeguarded in all its forms. Currency is generally
considered to be owned by the person who has it. Currency
stolen from a business can be easily spent. Checks can be
stolen and cashed with some ease using forged signatures.
The overall method a business uses to safeguard assets is
known as internal control.
2.1.1 Value of Internal Control for Cash

 Internal control methods fall into three categories

i. preventive
ii. detective
iii. corrective.

PREVENTIVE INTERNAL CONTROL

Goal of preventive internal control:
 To reduce loss of cash due to employee error, fraud, or theft.
 Dividing the duties for handling cash among two or more
employees is usually a part of this control.
DETECTIVE INTERNAL CONTROL

 Another type of internal controls tries to find losses that have

taken place. Losses may be found by reviewing reports and
customer accounts. Bank reconciliation is an example
of this type of detective control. It can be used to find
missing deposits or other error. Some companies have
employees who do audits. Audits are done to see whether
internal controls are being applied correctly.
CORRECTIVE INTERNAL CONTROL
 Corrective internal control is used to restore assets after a
loss has occurred. Types of corrective internal control are:
i. Changing poor procedures that lead to a loss
ii. Money received from insurance policies may be used
to replace losses caused by employee theft.

 One method used to protect cash is bonding employees.

Bonding is insurance for financial loss due to
employee theft or fraud. Bonding is effective because the
company that insures bonded employees makes a search of
the employee’s work history and criminal record.
 2.1.2 Billing Procedures and Preparing Invoices

BILLING PROCEDURES
 Sales Invoice
Sales invoices are usually created at the time a company ships
product or perform services for a customer. An invoice can be
sent with the products. It can be left with the customer after a
service is performed or mailed separately to the customer.

 Statement of Account
A statement of account is a listing of unpaid invoices as of a certain
date, usually the end of a month. Many businesses mail statements
of accounts a courtesy to their customers. The statement provides
a gentle reminder of the amounts owed.
RECEIVING PAYMENTS
 Handling the Cash Drawer
 A cash register drawer is assigned to an employee who deals with
customers in person, receiving payments and making change. When the
employee is assigned the cash drawer, it contains currency and coins to
use in making change. As transactions are completed, currency, coins,
checks, and credit card and debit card receipt from customer payments
will be added to drawer.

 Preparing Deposits
 In some organizations where many payments are received, deposits
may be made several times a day. In other companies, deposits may
be made only a few times a month because payments are not
received often.
Endorsements vary. Some provide more protection or
instructions than others. The most commonly used forms of
endorsement are blank, restrictive, and special.
Blank endorsement
 The signature of the payee is written on the back of the check. Must be in ink.
 Provide little protection – anyone can easily transfer it to another person or
cash the check.
 Generally use this endorsement only when you are at the bank ready to cash or
deposit the check immediately.
Restrictive endorsement
 Check may be marked For Deposit Only.
 Often made with a rubber stamp or a stamping machine.

Special endorsement
 The signature of the payee is placed before the name of the person or company
to whom the check is being transferred.
 Referred to as an endorsement in full.
 Making Deposits
 Deposits can be made electronically at an automated teller machine
(ATM) at a bank or at other convenient locations. If you make this type of
deposit, follow instructions and get a receipt. Verify that the receipt
shows the amount of your deposit.
 The bank may transfer data electronically to the company for lockbox
payments. Advantages to using lockbox to collect payment include:

 Company employees do not have to spend as much time processing checks and
preparing deposits.
 The checks received in a lockbox are processed each day by bank employees.
Payments are deposited in the company’s bank account right away. Funds are
usually available for use at least one day sooner than when checks are
deposited by company employees.
 Having the checks sent directly to the bank improves internal control by
reducing the possibility of employee theft or errors.
 2.1.3 Check Voucher and Post Check

MAKING PAYMENTS
 Review Documents
 Several related documents may be generated with each purchase. The
documents and their usefulness in making payments are as follows:
 A purchase requisition shows the items requested and an
approval to make the purchase.
 A purchase order shows exactly what was ordered and to what
address it was to be shipped.
 A receiving report shows that goods were actually received by the
company.
 An invoice from a vendor shows what is owed for the purchases.
 A credit memorandum shows any reduction in the amount owed
due to return of goods or to allowance for goods not received or of
poor quality.
 Prepare Vouchers
 If you have the responsibility for preparing vouchers, you should
follow these general steps:
 Check that all the documents related to the purchase are present.
 Prepare the voucher, checking every detail required on the form.
 Obtain the authorized signature.
 File the vouchers appropriately. Vouchers typically are filed by the
dates on which they must be processed in order to meet the payment
due dates. Filing vouchers in this way creates a tickler file. This file is
reviewed daily for the purpose of taking action to clear the items from
the file.
 Preparing Checks
 Some companies use voucher checks. Voucher checks are
ordinary checks with an additional portion that gives a
description of the payment.
 If you are responsible for writing checks using a chec kbook,
these suggestions will be helpful:
 Read carefully the name of the company or individual to whom
payment is to be made as well as the amount of the check. If you
are writing a check in time to take advantage of a discount,
compute the discount using a calculator.
 Fill in the check book stub or the check register.
 Prepare the check. Note that the amount is written in numbers as
well as in words.
SPECIAL CHECKS
 From time to time, special checks that provide guarantee of payment
are use by businesses.
 A certified check is an ordinary check that the bank marks
“certified” after establishing that the funds are in the amount of the
party drawing the check. The funds are immediately subtracted from
the depositor’s account.
 A cashier’s check is a check written by a bank on its own funds.
Such a check can be purchased with cash or with an ordinary check.
 A bank draft is an order drawn by one bank on its deposits in
another bank to pay a third party. Such a draft can be purchased with
cash or with an ordinary check.
COMPUTER-GENERATED CHECKS
 Many companies use computers to prepare checks. If you prepare
checks, you likely will be issued a password to access the
company’s accounts payable system. Security measures are taken
to safeguard both the information use to prepare the checks and
the printed checks.
 Electronic Funds Transfer (EFT)
 Payments, as well as deposits, can be made electronically. With electronic
payments or deposits, there is no physical exchange of currency or checks.
EFT is the use of a computer network to transfer funds form one party to
another.
 Maybank is one example of EFT we have in Malaysia.
 2.2 Reconciling a Bank Account

Companies need to be sure that receipts and payments shown in their

records are reflected also in the bank’s records. You may have the
task of comparing these records to prepare bank reconciliation.
 Bank Statement and Company Records
 A bank statement provided by the bank shows the activity in each
account on a regular basis, usually monthly. Bank statement gives the
following information:
 The balance as of the opening date of the statement
 Checks listed by number and amount that the bank has received
and honoured
 Automated teller machine transactions and miscellaneous charges
 Deposits
 The balance on the closing date of the statement
 Purpose for Reconciliation

 Determine that all deposits made have been recorded by the

bank, as indicated on the bank statement.
 Verify that all the checks that cleared the bank were written by
authorized persons in the company.
 Determine which checks have not yet cleared the bank
 Identify additional bank charges, as indicated on the bank
statement that need to be recorded in the books of the
company.
 Determine the cash balance as of the date of the bank
statement.
 2.2.1 Steps in Preparing a Reconciliation

1. Compare the ending balance on last month’s bank

reconciliation with the beginning balance on this month’s
bank statement.
2. Record on your reconciliation worksheet the balance in your
check register as of the last day of the month.
3. Record the ending balance as shown on the bank statement.
4. Compare each deposit shown on the bank statement with the
deposits recorded on the check register.
5. Arrange in numeric order the checks returned with the bank
statement.
6. Compare the amount of each check with that shown on the
bank statement
7. Compare each cancelled check with related information in
the check register.
8. Record on your worksheet the number, date, and amount for
each check that was written but had not cleared as of the bank
statement date.
9. Review last month’s outstanding checks as listed on the bank
reconciliation to determine which ones are still outstanding.
10. Record on your worksheet any charges shown on the
statement that are not recorded in your company’s records.
11. Complete the calculations required on your worksheet.
12. Prepare a clean, correct copy of the bank reconciliation.
Print it on plain paper or use the form provided on the back
of the bank statement.
2.3 Maintaining a Petty Cash Fund

In many offices cash is needed occasionally to pay for

small expenses, such as delivery services, postage
due, and taxi fares. To handle such payments,
departments are given a small sum of money, which is
called a petty cash fund. Amounts in such funds can
range from RM20 to as much as RM1000.
 2.3.1 Establishing the Fund and Making Payments
 Establishing the Fund
 Company managers decide how much money will be kept in the
petty cash fund. Once this amount is approved by the officer
responsible for payments, a check is written payable to petty
cashier, the person in charge of the petty cash fund.

 Making Payments
 Petty cash receipt forms are filled out each time cash is given out.
The following procedure is commonly followed in offices:
 Ask each person who seeks payment from the petty cash fund to submit a sales
receipt that shows the item purchased and the price paid.
 Prepare a petty cash receipt for each payment
 Attach the sales receipt or other document to the petty cash receipt and place
these papers in the cash box.
 2.3.2 Keeping a Record and Replenishing the Fund
 Keeping a Record
 In offices where many transactions require petty cash, an organized record is justified.
In some departments, a petty cash record is kept for receipts and payments. By
recording payments as they are made, the task of preparing a report at the end of the
month or when you need to add money to the fund will be simplified.

 Replenishing the Fund

 Count the money in the cash box and total the receipts in the petty cash box.
 Compare the petty cash box total to the petty cash receipt total.
 Add the amount of the petty cash receipts to the amount of petty cash remaining in
the cash box.
 Investigate any differences.
 Prepare a voucher for a check for the amount needed to replenish the fund
 Once approved, follow up by sending a copy of the report to the Accounting
Department and by sending the voucher to the proper office.
 Cash the check and immediately place the cash in the cash box.
2.4 Financial Reports and Payroll

Financial reports give information about a

company’s financial status. They can also show
the results of operations. Some reports, such as
budgets, are typically for internal use only.
Others are provided to those outside the
company.
 2.4.1 Preparing a budget and income statement

 Budgets
 A budget is a detailed plan for using business resources for a period
of time. Budgets are created to help ensure that the company is
moving in the direction outlined in the company’s strategic plan.

PREPARING A BUDGET
1. Learn all you can about the company’s budget process
2. Prepare a first draft of the budget as soon as the budget information and
instructions are received.
3. Consider needs in relation to the company priorities for the coming year.
4. Collect data to support your requests
5. Be prepared to answer questions related to the data you helped prepare.
 Income Statements
 An income statement is a report that shows the results of
operations for a period of time. Revenues, expenses, and
the income or loss for the reporting period is shown.

 Balance Sheets
 A balance sheet is a report that shows the condition of a
company as of a specific date. A projected balance sheet is
often created as part of a company’s plans.
 Formatting Financial Documents
 Follow the format guidelines below if no company standards are
given.
 Leave at least a one-inch margin at the top and bottom and on
both sides.
 Center the lines in the statement heading-company name,
statement name, and the date(s) covered by the statement.
 Use a single line (extending the width of the longest item in the
column) keyed underneath the last figure to indicate addition or
subtraction.
 Use double lines underneath a final column total.
 Use the Ringgit Malaysia or dollar sign with the fist figure of each
new column of figures to be added or subtracted or with every
sum or difference if the figure is keyed directly underneath a
single line.
 2.4.2 Payments for Wages and Salaries (Payroll)

 A payroll is a list of the amount of salary, wages, or other

payments for work due to employees. Payroll information must
be accurate and should be kept confidential.
 Common tasks to handling a payroll include:
 Keeping employee payroll record up to date
 Calculating deductions and changes in salary, commissions, or
overtime
 Updating attendance, vacation, and sick leave data
 Processing, printing, and distributing paychecks
 Creating tax reports related to payroll that must be submitted to
local, state, and federal agencies.
 Compensation Plans
 In some companies, all employees are compensated in the same way. In
other companies, different plans may be used for different groups of
workers. The typical ones include salary, hourly, commission, and
combination plans.

 Deductions from Earnings

 Deduction Required by Law
 Federal Insurance Contribution Act tax (U.S), Social Security Organization
(SOCSO, PERKESO - Malaysia)
 Voluntary Deductions
 Voluntary deductions are amounts taken from pay at an employee’s request
 Records for Payroll
 Companies maintain careful records of all payments made to
employees. Employee earnings records are prepared for each
pay period and for the year to date. The earnings records show
earnings, deductions, and net pay.

 Payroll Check Distribution

 A company may distribute check in person or mail them to
employees. Other companies use direct deposit. That is, they
electronically deposit wage and salary payments to employee’s
bank accounts.