CHAPTER 2 - BOOKKEEPING

9

Authorisation form for payments (to be attached to the front of the invoice to be paid)

Please write a cheque for payment as follows:

Checked and approved for payment by:-………………………….

Payee Amount Analysis Heading

Cheque Signatories initials Cheque number Date of cheque

CHAPTER 2 - BOOKKEEPING

This bookkeeping section is divided into three parts Part 1 Writing up the book that records all the money paid into and spent from the bank (called rather misleadingly the Cash Analysis Book) Part 2 Reconciling (or agreeing) this book with the bank statements (called a Bank Reconciliation) Part 3 Writing up the book that records all the petty cash payments (called the Petty Cash Book) This recording can be done on a spreadsheet; we recommend a template which WYCAS have set up and can be downloaded free of charge from our website.

Bookkeeping Part 1 Writing up the Cash Analysis Books Before you write up the books you will have paid out and/or received some money. Here are some things to check at this stage. Paying out money When paying out money there are a number of things that you should check:-

• Do you have an invoice?

• Is the invoice added up correctly? Is the invoice in the group’s name?

• Were the goods on the invoice ordered? Who by? Is the price correct?

• Were the goods delivered? Is there a delivery note? It is usually a good idea to attach the delivery note to the invoice.

If you are happy that the invoice can be paid then you need to get the invoice authorised for payment. You can either sign the invoice itself, or staple on an authorisation slip (see example below) and sign that. It is also a good idea to write on the invoice which heading the payment should come from. (eg salaries, stationery)

Produced by WYCAS Tel 0113 270 6269

10

Setting up the cash analysis book

You will need a large accounts book for recording all transactions going into or out of the bank (e.g. cheques and cash paid into the organisation, payments by cheque out of the organisation). Decide before you go and buy it how many columns you need (see analysis columns later)

Normally the left hand page of the book is used for income and the right hand page for expenditure.

Income (on the left-hand side of the book)

Column headings for the income side of the book are normally set out as follows:

Receiving money

What should you consider when you receive money?

• Need to determine what the money is for: eg is it a grant or payment for fees or some other income?

• Do you have backup documents? If so keep them!

• It is always best to give a duplicate receipt for cash. There is no proof otherwise that you have received the money.

• It is sensible to bank as often as possible – the money is better in your account then someone else’s. Also there is the problem of security with regard to cash or cheques left on the premises. NB Cash income should always be banked and not put in the petty cash tin

• All money received, in the form of cash or cheques, needs to be entered into the Cash Analysis Book. (ie the book recording all bank transactions)

• Remember to enter full details on the bank paying-in book

• File the document for each income item in order of date banked, and give it a unique reference number

• If you receive funding from grants it is a good idea to keep a file with the original application form and the terms and conditions of each grant you receive

Date Description Reference Total Analysis columns (any

number)

Bank

Date of Banking

Name of source of income

Reference number relating to backup document

Total value of individual transaction

Value of total column analysed into categories

Total of money banked on that date


11

Expenditure (Payments)

Column headings for the expenditure side of the book are as follows:

Entering Income Transactions in the Cash analysis Book

� For each cheque or cash item to be banked enter date of banking in the date column

� Enter name of organisation from whom money was received in the details column.

� Enter sequential reference number (e.g. start with 1 at the beginning of the financial year) in the reference column

� Enter income amount individually in total column and appropriate analysis column

� Enter total of banking on that day in the bank column

� Record date and sequential reference number used in the cash book on the supporting paperwork

� File document in reference number order

Date Description Cheque Number Total Analysis columns (any number)

Date of Banking Name of source of income

Cheque number Total value of individual transaction

Value of total column analysed into categories

Entering Expenditure Transactions in Cash Book

• Complete the cheque for payment. Always fill in cheque stub

• Enter date of cheque in date column in cash book

• Enter name of organisation/individual to whom cheque is payable in description column in cash book

• Enter cheque number in reference column in cash

book. (They should be entered in cheque number

order)

• Enter total amount of cheque in total column and in

appropriate analysis column (split between

categories if necessary

• Record date and cheque number on supporting invoice

• File invoices in cheque number order


12

Here is an example of how to write up some transactions

Income side of book (left-hand side)

On 8th April you receive a grant from your local Council of £250, and a donation of £50 from a

local shop called Peters. You bank them on the same day, This is how they should be written

up on the left-hand side of your book. (You add the two amounts together to insert £300 in the

bank column because they were banked on the same day).

Date

Description Ref Total Grant Donation Bank

8th April Local Council 1 250 250

8th April Peters 2 50 50 300

Expenditure side of book (right-hand side)

On 10th April you write a cheque number 101 for £80 to Hansons for some publicity and on 11th

April cheque number 102 for £30 to W H Smith for stationery. This is how they should be written

up on the right-hand side of the book:

Date Description Cheque No Total Stationery Publicity Telephone

10th April Hansons 101 80 80

11th April W H Smith 102 30 30


When should the books be done?

Regularly! It is always difficult if you get behind, and usually leads to more work in the long run. A general guide for a small voluntary organisation might be:- Weekly – update your cash analysis book ,bank money, pay bills.

Monthly – add up your cash analysis book and agree (reconcile) with the statement from the bank (see section 2).

13

Analysis columns

The analysis of money received and spent into different analysis columns for different categories enables you to see clearly how much money has been received from a particular source, and how it has been spent. The number and names of the analysis columns will vary from organisation to organisation. You will normally find that you need fewer analysis columns for the income side of the book than you will for the expenditure side. It is strongly recommended to use the same headings on your analysis columns as you do for your budget. Some analysis headings will be common to most organisations and these will typically include:

Income: Grants; Donations; Subscriptions; Sundry.

Expenditure: Salaries, Heat & Light, Rent, Postage, Stationery; Travel, Telephone.

However it is up to you to decide what headings are best for your organisation

Month end Tasks At the end of each month you should do a bank reconciliation. (See next section). If you are in month 1 of your financial year you can then drop down a couple of lines or start a new page and start the new month. If you are closing off any month after month 1 however there is one further task. In month 2 copy the total figures from month 1 to the line below the month 2 total figures. Draw another line across the cash book and add these two sets of figures together. These totals are called year to date figures (ytd for short), and give you the total of all the money received and spent during the financial year to this point. ( see example of cashbook sheet at the end of part 1).. In month 3 you should take these year to date figures and add them to the month 3 figures and so on.

Balancing the books!


Restricted Funds

What are they?

A restricted fund is funding that has been given to your organisation for a particular purpose; ie the funder has stated that there are restrictions on how the money is to be used. If your organisation has received restricted funds you will need to account for this in your books separately. We suggest you ask for advice if you have not done this before. See further resources at end of pack If your organisation has more than one or two restricted funds it may be a good idea to computerise the accounts. WYCAS have a free spreadsheet which can help with this, see www.wycas.org.uk/help-advice/tools or contact a community accountant for further assistance.

14 Produced by WYCAS Tel 0113 270 6269

MARCH

Inco

me

Exp

endi

ture

Dat

eDes

crip

tion

Ref

Tot

alG

rant

sFe

esDon

atio

ns

Ban

kDat

eDes

crip

tion

Chq

Tot

alW

ages

Sta

tione

ryM

ater

ials

Tra

vel

Cat

erin

g

5th

Mar

chNor

ther

n Roc

k65

500

500

500

10th

Mar

chM

Kha

n12

011

5011

50

12th

Mar

chG

Arc

her

6650

5050

17th

Mar

chB J

ones

121

2020

26th

Mar

chR

Lon

g67

200

200

300

25th

Mar

chTes

cos

122

3030

26th

Mar

chS F

ishe

r68

100

100

26th

Mar

chW

H S

mith

s12

350

2030

26th

Mar

chM

Kha

n12

430

30

26th

Mar

chIn

land

Rev

enue

125

9090

Mar

chTot

al in

com

e85

050

015

020

085

0M

arch

Tot

al e

xpen

d13

7012

4020

3050

30

Yea

r to

dat

eB/F

1612

050

0011

000

120

1612

0Yea

r to

date

B/F

1055

010

000

100

200

150

100

Tot

al y

td16

970

5500

1115

032

016

970

Tot

al y

td11

920

1124

012

023

020

013

0

Cash

bo

ok

Sh

eet

15

Bookkeeping Part 2 Bank Reconciliations

What is a bank reconciliation? A bank reconciliation is the process of checking items on your bank statement against items written in your cashbook to ensure that the bank statement and the cash book agree. It is important to do this in order that the organisation’s records are both complete and accurate, and in order to find any errors that the bank may have made.

Reasons for differences between bank statements and cash books The final balance at the end of your bank statement is rarely the same as your cash book balance, and there are a number of reasons for this, as follows:- � Direct debits – varying amounts paid directly to another organisation (with your

authority) by the bank � Standing orders- regular payments of fixed amounts at stated dates to certain persons

or firms paid directly by your bank � Bank charges – amounts that the bank has charged your organisation � Bank interest – Interest that the bank pays on any balance in your account � Errors – these could be errors on the part of the bank or the person keeping your

organisation’s books � Covering different periods – The cash book will be totalled at the end of a month; the

bank statement may cross over the end of a month � Unpresented Cheques – cheques that your organisation has written, and which are

included in the cash book, but which the person receiving the cheque has not yet paid into the bank, or which the bank has not yet cleared

� Receipts not credited –money you have paid into your bank but which does not yet appear on your bank statement, because it has not been cleared through the banking system

When do you do a bank reconciliation?

The bank reconciliation should be done before totalling up the cash book at the end of the month so that any additions or adjustments can be made to the cash book before the columns are totalled up. See previous section on bookkeeping. It is a good idea to do a bank reconciliation every month.


16

To do a bank reconciliation

1. Draw a line under the last day of the month on the bank statement (n.b. this will not necessarily be the last day on the bank statement). The bank balance just above this line is the one that you are working to.

2. Work through items on the bank statement and match to items in the cash book. If they

match tick both items. 3. Check thoroughly the validity of unticked items on the bank statement. If it is valid e.g. a

Standing Order, Direct Debit or bank interest, enter into the cash book and tick it on both the bank statement and the cash book

4. Any errors in the books must be corrected. Any errors by the bank should be chased up

immediately.

5. Draw a line across cash book and total up each column. Check for errors by ‘cross-casting’ (ie adding up each column, then adding each of these totals together and checking it agrees with the total column)

6. All the items on your bank statement should now be ticked; but cheques issued but not

presented, and money banked but not cleared will not be ticked in the cash book. 7. Take the bank reconciliation form (see next page) and fill in as shown on the following

page:-

Bank Statements It is really important to keep all your bank statements in a safe place. They are vital because they provide an external record of what money has been received and paid into your bank, which is particularly significant at the end of the year when your independent examiner or auditor checks your books. Keep a separate file for them and file them in number order; if you lose one you should ask the bank for a copy, however the bank will charge a fee for this (anything between £5 and £15 per page)


‘Please let it balance’


Bank Reconciliation Form

Name of organisation…………………………………….

Bank Reconciliation for the month of…………………… £

Balance as per Bank Statement

A

Less: Cheques not yet presented

Date

Cheque No

Payee

Amount

Total of cheques not yet presented

( )

B

Add: Receipts not yet credited:

Date Payer Amount

Total of receipts not yet credited

C

Adjusted Bank Balance

D

£

Cash Book Balance brought forward

E

Add: Money received in the month

F

Less: Payments during the month

( )

G

Cash Book balance carried forward H

18

To complete the bank reconciliation form, fill in the figures as follows:

The balance as per the bank statement (A) This will be the final balance from the bank statement on the last working day of the month you are reconciling (nb it will not necessarily be the last balance on the bank statement). Write into box A. Cheques issued not yet presented (B) These will be all the cheques not ticked in your cash book, including any cheques still not presented from previous months (always list oldest items first). These should be listed, totalled up, and the resulting figure put in box B, with a minus on it or in brackets (meaning it is a minus figure). Money received not credited (C) These will be income items you have paid into your bank account, but which have not yet appeared on your bank statement, and which you have not ticked in your cash book. These should be listed and totalled up and the resulting figure put into box C. The adjusted bank balance (D) This will be the balance as per the statement (box A), minus cheques issued not yet presented (box B), plus money received not yet credited (box C). This now needs to be agreed to your cash book Cash book balance brought forward (E) This will be the carried forward figure from the previous month ie the figure at (H) on the previous month’s bank reconciliation statement. This should be written into box E. Receipts during month (F) This will be the total amount of money received in the month (taken from the total income column in your cash book). Write into box F. Payments during month (G) This will be the total amount of money paid out in the month (taken from the total payments column in your cash book) and should have a minus on it or be in brackets. Write into box G. Cash book balance to carry forward (H) Add (box E) to (box F) and subtract (box G). The resulting figure should be written into box H. (cash book balance figure carried forward) and should be the same as the adjusted bank balance in box D.

Not reconciled? If these two figures are not the same, first of all calculate the difference between the two. Check your cash book quickly to see if you can spot the figure you have left out straight away. If not you need to check your workings thoroughly to find the difference. You should always end up with the adjusted bank balance (box D) and the carried forward cash book balance (box H) being the same. NB When you do the reconciliation next month the carried forward figure (H) from this month will be the new brought forward figure (E) for the new month


19

What do you do with……..? Out of date cheques If the organisation or person receiving your cheque does not pay it into the bank within 6 months, it will become out of date, and they will not be able to cash it; so if a cheque appears on your Bank Reconciliation as unpresented for 6 consecutive months, in the seventh month it should be “written back” into the cash book. This is done by entering the item on the payments side of the cash book, and analysing it in an identical way to the original entry; but the figures will be entered in brackets and deducted when totalling your book for the month. When reconciling your statement at the end of the seventh month you will mark off both the original entry and the written back entry in your cash book with a small C instead of a tick to indicate it is a contra. Cancelled cheques A cheque may have to be cancelled for a number of reasons such as for example an error on the cheque or you think it has got lost in the post. If a cheque has to be cancelled, you should record it in one of the following ways as appropriate:

1 If the cheque is being cancelled in the same month that it was issued and you still have the cheque, write CANCELLED across the cheque and keep it in a safe place. Draw a line right through the entry in the cash book (do not use correction fluid) and write CANCELLED across the description column. Do not include the figure when totalling your month’s transactions and ignore the entry when you are doing the bank reconciliation.

2 If the cheque is being cancelled after the month it has been issued and you still have

the cheque, write CANCELLED across the cheque and keep it. You should then write back the entry in the cash book in the same way as for out of date cheques (see above).

3 If the cheque to be cancelled has already been sent, telephone your bank immediately

and ask them to stop the cheque. They will need the account name and number, the cheque number, the payee’s name, and the value of the cheque. Follow this up the same day with a letter to confirm the instruction. (nb the bank may make a charge for this service unless the cheque has been lost in the post). Deal with the entry as either 1 or 2 above.

Dishonoured Cheques (or bounced cheques) When a cheque is received by your organisation and paid into the bank, it is recorded on the income (or receipts side) of your cash book, and it will appear on your bank statement. However at a later date it may be found that the cheque has not been cleared through the bank account of the organisation that sent you the cheque. This is known as a dishonoured cheque, or colloquially as a bounced cheque, and usually occurs because there are not enough funds in the bank account of the person sending you the cheque. Your bank will automatically show the original banking as being cancelled by showing the cheque as being paid back out of your bank account on the bank statement. In the cash book it should be dealt with in the following way:

Enter the item on the income side of the cash book using an identical analysis to the original entry, but put a minus or brackets on the figure, and deduct it when totalling the cash book for the month. When you do the bank reconciliation you can tick this entry and the paid back entry on the bank statement.

Produced by WYLCAS Tel 0113 270 6269

20

Bookkeeping Part 3 Petty Cash Here are some key points to remember when you are dealing with cash:

1. Cash income such as donations must be kept separate from the cash you use to buy things.

2. Try to keep the use of cash to a minimum. Where possible make payments by cheque

or bank transfer (if dual authority is in place on the bank account). 3. Keep your cash in a lockable tin in a safe place. You should keep one tin for cash

income and one for cash purchases. 4. Name two people as being responsible for the cash in the organisation, these will be

the only people who have keys for the tins. 5. To keep track of cash purchases operate a ‘Petty Cash System’.

Cash Income

What to do with cash income

� This will most likely be individual donations or money from a collection. � The general rule is that all cash income should be paid into the bank where it can be earning interest, as soon as possible. See Bookkeeping part 1 ‘receiving money’.

� Resist the temptation to use this money to make cash purchases. Money for petty cash purchases should come from the bank separately.

Cash Donations from a Collection / Fundrais-ing Event Money from a collection:- ◊ should be counted and signed off by two

people and paid into the bank as soon as possible.

◊ It will also be useful to record whether the

money was collected for general purposes or for a specific project as this affects the way it can be spent in the future.


21

Petty Cash Payments

Cash should only be used for buying small day to day items, tea, coffee, stamps etc, hence it being called “petty cash”, larger purchases should ideally be made by cheque. By setting a limit on the amount of cash that can be used to make a purchase, your organisation will have control over the use of cash. Typically this would mean that any item costing more than about £50 should be purchased through the bank. In other words purchases over this limit must be authorized. This limit is reasonable since an item costing more than this would cease to be petty. The most common and by far the clearest and safest way to control cash expenditure is to operate a Petty Cash imprest system.

Here’s how the imprest system works:

1. Decide how often you will top up the petty cash tin- e.g. weekly, fortnightly, or monthly. This will depend on the availability of the signatories and how much petty cash you plan to spend.

2. Decide how much petty cash you will need to cover this period- this is called the

‘float’. The value of the float doesn’t have to stay the same. You could agree to keep it at £50 but if you will need more in one particular period you can adjust it.

3. Draw this amount from the bank in cash and keep it in a lockable tin (marked “Petty

Cash”) in a safe place. 4. Money is spent from the tin and replaced with petty cash vouchers and receipts (see

Sample Transactions below). The value of the receipts added to the cash always equals the float. This makes it easy to check.

5. When the tin needs topping back up the receipts and cash are checked and written

into the petty cash book. 6. A cheque for cash is then written to the value of the receipts, this will bring the float

back to its original amount. Operating this system makes it easy to see where the cash is at any one time, and only keeping as much cash as you need in the tin ensures that most of your money will be safe in the bank earning interest.

What you will need to operate a petty cash system:

• Petty cash analysis book with as many analysis columns as you will need, it is likely to have less columns than the main cash book.

• Lockable cash tin, ideally with a tray for different coins making it easy to check.

• Petty cash vouchers. (available at most stationery shops)

• It might be useful to have the list of analysis column headings for different types of purchases (e.g. volunteer expenses, postage, sundries etc with examples) in the tin or stuck to the lid to make it easy for people to fill in the vouchers accurately. This will help the person writing up the petty cash book.


22

Paying out money from the petty cash tin Cash transactions can happen in 2 ways:

1. Someone buys things with their own money and then claims money from petty cash, replacing it with a petty cash voucher and receipts.

OR 2. Someone receives the money from petty

cash, then makes purchases and returns the change, petty cash voucher and receipts.

The result is the same; only in the second case when the cash is received it should be replaced with an IOU: a note containing the person’s name, signature, date and the amount taken. This should also be signed by the person responsible for cash. IOUs can be written on scraps of paper as they don’t have to be kept for your records once they have been replaced by a voucher; they just show you where the cash is.

Here are two sample transactions to illustrate what happens: Example 1 ◊ Jo buys a book of stamps, a jar of coffee and a box of paper clips with her own money.

She is also a volunteer and gets her travel expenses paid. ◊ She fills in a voucher. Then she numbers the receipts and staples them to the voucher,

then numbers and signs the voucher. Rizwana who is responsible for the cash tin, then signs the voucher and gives Jo the money, & puts the voucher with receipts in the tin.

◊ At this point the cash in the tin and the voucher

would add up to the original float. Example 2 ◊ Greg needs some cash to buy a new printer

cartridge costing about £10. Rizwana gives him £15 from the tin and Greg writes an IOU for £15, which he signs, is then signed by Rizwana and is placed in the tin.

◊ Again at this point adding up voucher no. 1, the

IOU and the cash in the tin would add up to the original float.

◊ When he returns from the shop he fills in a

voucher:He staples the receipt to it, numbers and signs it. Rizwana checks the receipt and the change and then signs the voucher and puts it all into the tin and removes the IOU.

To see how these transactions are written up there is a sample petty cash book on the next page.


23

Writing up the Petty Cash Book

Here’s how these two transactions would look written up into the petty cash book: For this example the float has been set at £50 and will be topped up monthly. Cash into the tin is recorded on the left-hand side of the book and payments from the tin are recorded on the right-hand side. On the 2nd of June the petty cash tin was set up by cashing a cheque (number 2603) for £50.

Receipts Payments

Date Details Chq No

Total Date Details No Total Printing Stationery

Sundries Vol. Exps.

2nd June Cash from bank

2603 50.00 7th June Jo King 1 9.03 4.25 3.98 .80

30th June Cash from bank

2619 21.52 15th June Greg Hayes 2 12.49 12.49

Total Re-ceipts

71.52 Total Payments 21.52 16.74 3.98 .80

Opening Bal-ance

0.00

Add total re-ceipts

71.52

Less total payments

21.52

Closing Bal-ance

50

Tin checked by:

How to write up the petty cash book � Enter the date that the voucher was put into the tin, not the dates from the receipts (if

they are different) � The transactions from a voucher are analysed under the different headings

� On Jo’s voucher there are two purchases for printing, postage & stationary, these have been added together to write them into the book

� Adding up the vouchers shows that £21.52 has been spent. A cheque for cash is then

written to this value and the cash placed in the tin to bring the petty cash float back to £50

� The book should then be signed to show that it has been checked

� When the vouchers have been written up and the float restored, the vouchers can be

filed away in number order for that month � That month has then been completed and you head up the next page for the next month


24

EXPENSES FORM

TRAVEL EXPENSES Month…………………

Date Destination/Reason No of miles

Cost @ 45p per mile

Cost @ 20p (Bike)

Parking Other Total

SUB-TOTAL

OTHER EXPENSES

Date

Stationery Postage

P.Copies Other Total

:

SUB-TOTAL

TOTAL CLAIM

SIGNATURE ….......................................DATE.........................................

SIGNATURE OF LINE MANAGER…………………….DATE…………...


25

Action Checklist Writing up the Cash Analysis Books ◊ Check and authorise payments before paying ◊ Check and bank all income ◊ Decide what analysis headings you will use and set up cash analysis book ◊ Enter all income transactions ◊ Enter all expenditure transactions ◊ Write up the books regularly ◊ Total up columns at the end of each month

Action Checklist Bank Reconciliations ◊ Do a bank reconciliation each month before totalling up the cashbook columns ◊ Match and check items in cashbook and bank statement ◊ Complete bank reconciliation form ◊ Make absolutely sure that adjusted bank balance and cash book balance agree ◊ Deal with cancelled and dishonoured cheques appropriately

Action Checklist Petty Cash ◊ Pay all cash income into the bank not the petty cash tin ◊ Count all cash income from fundraising events with two people present ◊ Cash payments should only be made for smaller items ◊ Set up an imprest system for petty cash ◊ Record all petty cash items in a petty cash book


CHAPTER 2 - BOOKKEEPING

Documents

Transcript of CHAPTER 2 - BOOKKEEPING