CHAPTER 10

Recording payments
Contents
 Controls over recording payments
 The cash book: recording payments
 Posting cash payments to the general
ledger
 Returned cheques
 Automated credit systems
Controls over recording
payments
To avoid fraud and to ensure
completeness
Fraud Completeness
 All payments are  Regular bank
authorised correctly reconciliations
 Proper checks against  Sequential numbering
supporting docs
 A sequence check
 Segregation of duties carried out on the
 At day end, a list of the cheques in cash book
payments for that day is
submitted to a senior  Regular examinations of
member of staff to check bank statements to
for unusual payments ensure that all payments
 A minimum number of by direct debit and
cheque books is in use at standing order have
any time been recorded in the
cash book (along with
Question
At Ferdi's Furniture, among the procedures in operation
over the recording of payments are the following
(a) Only 1 company cheque book is used at any time
(b) Numbers of all cheques are to be entered in cash book
even where the cheque is cancelled
(c) All cancelled cheques are to be retained
(d) The tasks of writing cheques and writing up the cash
book are to be carried out by different people
(e) Authorised details of all standing orders and direct
debits are to be filed and the details of any such
payments are to be agreed to the file before being
transferred from bank statements in to the cashbook
Comment on the reasons for each of the above
procedures
Answer
(a) Minimises the risk that a cheque book will fall into the wrong hands
Makes it simpler to keep a check on the sequence of cheques
being issued
(b) Entering the number of all cheques in the cash book even if
cancelled makes it easier to check that all payments by cheque
have been entered
(c) Anyone carrying out checks can be sure what has happened to
those cheques
Provides conclusive evidence that the cheque has not fallen
into the wrong hands.
(d) This is an example of segregation of duties
(e) Payments by standing order or direct debit will probably appear on
the bank statement before they are entered into the cash book. But
it is not acceptable simply to transfer the details of payments made
from the bank statement to the cash book, since the wrong
payments may have been made by the bank as the result of some
error. The bank may have made a payment even though the
standing order or direct debit mandate has been cancelled, or the
company may have failed to cancel a mandate which should have
The cash book: recording
payments
Question
State whether each of the two statements
below is TRUE or FALSE.
(a) Cheque payments are recorded in the
cash book only when they have been
presented at our bank because it is only
then that payment is made from our bank
account.
(b) Standing order payments made by the
bank should normally be entered in the
cash book, but not where they represent
payments in advance for goods or
services not yet received.
Answer
Both (a) and (b) are FALSE.
We record cheque payments in the cash book
as soon as possible after we issue the
cheques: (a) is therefore false
A standing order is a payment like any other,
and needs to be recorded in the cash book
regardless of whether we have yet received
the benefit of what the payment is for, (b) is
therefore also false.
Explanations
You are involved in training some new
members of staff at your firm on the
recording of payments.
Task
Explain briefly each of the following terms.
(a) Cancelled cheque
(b) Stopped cheque
(c) Paid cheque
(d) Bank reconciliation statement
Answer
(a) Cancelled cheque:
 Error when written by hand or printing error
 Totally correct but for example we decide before the
cheque is sent that a different amount should be
paid to the supplier.
(b) Stopped cheque
: after cheque has been sent out, it may be
stopped by issuing an instruction to our bank
(c) Paid cheque: one which has been debited to
the drawer's bank account
(d) The bank balance per the cash book and shown
on the bank's statement at any particular time
may be different. A bank reconciliation
statement lists the items which account for this
Posting cash payments
Answer
Answer
Automated credit systems
(ACS)
 Useful methods of making and recording
payments. They can save business time
 When a business uses automated transfer, it
sends information (which will be input into the
books of the business) to the bank for processing
 Used for processing any of the following:
 Standing orders
 Direct debits
 Salaries (monthly)
 Wages (weekly)
 Some one-off payment

Exam focus points = remember the 5 above

Procedures for using ACS
 To pay the salaries of its staff using ACS
2. Produces a file with staff details to send AC
processing computer centre
3. Bank updates its database
4. On the day specified by the company
1. The salary due credited to staff account
2. Company's account is debited with the total
amount
5. Related data and info a recorded and saved
6. The business's records will be updated with
the same information
Practice question
Quiz
1 What procedure would identify an
unauthorised payment not entered in the
cashbook?
2 What other controls will help to prevent
fraud involving payments?
3 Discounts received are shown in a
memorandum column in the cash book.
True or false?
4 What useful function is possible using a
computerised payables ledger?
5 What are the advantages of receiving
Answer
1 The bank reconciliation.
2 Other controls include: authorisation of
payments, supporting documentation,
segregation of duties, checks for unusual
payments, one cheque book in use.
3 True. The column is there so that the total
amount owed to suppliers can be posted to
the payables ledger, not just the amount
paid.
4 A computerised payables ledger can issue
computer-printed cheques.
5 Returned cheques are both a check against
fraud and a check against mistakes by the
QB 18
18 Which of the following are the most
effective controls in helping to prevent fraud
involving payments (i) a bank reconciliation
independently prepared and authorised (ii)
using BACS to effect payments (iii)
authorisation of payments (iv) segregation of
duties
A (ii)
B (i) and (ii)
C (i), (iii) and (iv)
D (ii) and (iv)

Answer: C