Golden Stars College
Hawassa Campus
ACCOUNTS AND BUDGET SUPPORT
Unit of Competence ;Process Payment Documentation
Module Title: Processing Payment Documentation
LG Code:
BUF ACB3 07 0812
TTLM Code: BUF ACB3M 07 0812
BY:
DEREJE MATHEWOS
MARCH,2021
HAWASSA
OBJECTIVES
After completing this learning guide, you should
be able to:
Lo1:- Enter data to system
Lo2:- Create payment facility
Lo3:- Verify payments against documentation
Lo4:- File documentation
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Lo1:- Enter data to system
• An expense or expenditure is an outflow of
money to another person or group to pay for an
item or service, or for a category of costs.
• An expense is a cost that is "paid" or "remitted",
usually in exchange for something of value.
• EXPENSE has various formations (inexpensive,
expensive,---)
• For a tenant, rent is an expense. For students or parents, tuition
is an expense. Buying food, clothing, furniture or an automobile
is often referred to as an expense
• In accounting, expense has a very specific
meaning.
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Cont….
• It is an outflow of cash or other valuable assets from a
person or company to another person or company.
• This outflow of cash is generally one side of a trade for
products or services that have equal or better current or
future value to the buyer than to the seller.
• Technically, an expense is an event in which an asset is
used up or a liability is incurred.
• In terms of the accounting equation, expenses reduce
owners' equity. The International Accounting Standards
Board defines expenses as
...decreases in economic benefits during the accounting
period in the form of outflows or depletions of assets or
incurrence of liabilities that result in decreases in equity,
other than those relating to distributions to equity
participants.
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Bookkeeping for expenses
• In double-entry bookkeeping, expenses are
recorded as a debit to an expense account (an
income statement account) and a credit to
either an asset account or a liability account,
which are balance sheet accounts.
• An expense decreases assets or increases
liabilities.
• Typical business expenses include salaries,
utilities, depreciation of capital assets, and
interest expense for loans.
• The purchase of a capital asset such as a building
or equipment is not an expense.
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Cash flow
• In a cash flow statement, expenditures are divided
into operating, investing, and financing
expenditures.
• Operational expense – salary for employees
• Capital expenditure – buying equipment
• Financing expense – interest expense for loans and
bonds
• An important issue in accounting is whether a
particular expenditure is classified as an expense,
which is reported immediately on the business's
income statement; or whether it is classified as a
capital expenditure or an expenditure subject to
depreciation, which is not an expense
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Accounting Basics:
Types of Expense Accounts
• Many basic accounting rules and conventions apply
to categorizing accounts identically for all
businesses.
• Most of the balance sheet categories, assets,
liabilities, and owners' (or stockholders') equity, are
common to almost all businesses, except nonprofits, educational institutions, and governments.
• Income and expense categories, while primarily
using common account titles, may contain
company-specific differences.
• There are, however, four primary expense
categories common to most businesses.
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Types of expenses
• Cost of Goods Sold
• A manufacturing business or any business that sells products has a cost of goods
sold category. These expense accounts typically include beginning and ending
inventory valuations, freight and shipping of product, bad debts created by sales
and non-payment, and other costs that directly relate to the items sold by the
company.
• Some organizations also include compensation expenses that are directly
related to the products made and/or sold, e.g., sales compensation or direct
labor.
• Operating Expenses
• Usually the largest expense category (by the number of accounts, at least) are
operating expenses, which identify all normal costs that relate to the day-to-day
necessities of the organization.
• In this category, basic accounting rules specify the inclusion of compensation,
benefits, local, state, and federal payroll taxes, office expenses, supplies,
postage, travel and entertainment, advertising (amounts not included in the cost
of goods sold category), repairs and maintenance, depreciation (the non-cash
expense of writing "down" the cost of some assets over time), mortgage or rent
of facilities, utilities (telephone, electricity, heat, and air conditioning), and
professional fees (accountants and attorneys).
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Non-Operating Expenses (or Other Expenses)
• This category typically includes all other
expenses that the organization deems outside of
operations. For example, corporate income taxes
are often placed in this category.
• Companies identify federal and state corporate
income taxes after they determine their net
income (or net profit) for the fiscal or calendar
year.
• Unlike compensation, travel, or repairs, income
taxes are not calculated (or paid) until after all
operations for the accounting period have closed
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Employee and Officer Expense Accounts
• Accounting expense account classifications should not be
confused with employee and officer expense accounts,
which are usually operating expenses.
• Employee and officer expense accounts are not typically
specified in the income statement (profit and loss
statement) for a good reason.
• These accounts are designed to categorize amounts spent
by employees, management, and/or board of director
members for the efficient performance of their duties.
• For example, travel and lodging is often a major
component of expense accounts. However, on the income
statement, the total for all forms of travel and lodging will
correctly appear in the travel or travel and entertainment
account on the income statement.
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Here are the common kinds of startup expenses that most small
businesses face:
• Research and development costs.
• Whether you hire a market research firm or do research
by yourself, you need to budget for costs involved in
knowing more about your market.
• Interviewing potential customers or suppliers, checking
the Yellow Pages, or photocopying trade publications and
articles about your business all involve costs.
• Business Plan Preparation.
• If you are preparing your business plan yourself, the only
cost to you is your time. However, there are
entrepreneurs who need help in developing their business
plans. If you are one of those business owners, you need
to input the costs of hiring consultants or business plan
writers into your initial budget.
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Cont….
• Product Development and Beginning Inventory.
This will be your most significant start-up cost.
• To get a better estimate, you can ask potential
suppliers for required inventory levels for your
type of business.
• Some entrepreneurs, particularly those who
create their own products, take years of product
development before a prototype can be
launched.
• You need to factor in the length of time that will
take you to develop your first products.
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• Advertising and Marketing Promotion Expenses.
Cont…
• You can chose to have some 'buzz' for your business, even before you
officially open. Some entrepreneurs do a pre-launch campaign to
generate interest for their products or services.
• You can also plan for a "grand opening" promotion as well. The cost, of
course, will depend on how simple or elaborate your pre-launch
activities will be.
• Cash. This refers to the amount of cash that you need to run your cash
register. One thing that your business should never be caught without is
cash.
• Cost of Financing. You also need to allocate some funds to help you
cover your cost of financing, whether you got your funds from the bank
or from your credit card. Be prepared to pay the interests of your loans,
particularly if you used your credit cards to finance your business.
• Remodeling and Decorating. This will include physical and cosmetic
improvements to the new business facility. Solicit bids from contractors
or interior designers, even if you decide to do everything later on, to
give you an idea of how much these jobs cost.
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Cont…..
• Fixtures and Equipment. The fixtures and equipment
needed for your new business are normally substantial,
depending on your kind of business.
• A restaurant business, for example, will need modern
kitchen equipment, chairs and tables, tableware and
utensils. On the other hand, a home business will require
significantly less in terms of fixtures and equipment.
• Computers, fax machines, modems are some of the most
important equipment that you would need. In addition,
you should provide some budget for the costs of installing
all the fixtures and equipment and making sure that these
are ready for use.
• Hiring employees. Allocate a few months' salary for the
payroll of your new employees. While employee costs will
not actually start until you are open for business, some
entrepreneurs hire a few employees even before the
business is launched
to help inSetthe
initial groundwork. 14
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• Insurance Costs. You will need liability and property
insurance to protect yourself and any business
assets.
• Some other businesses also require workers'
compensation, health, life, fire, product liability and
professional malpractice insurance. Check what you
need for the kind of your business.
• Lease Payments. These include amounts that must
be paid for equipment and facility leases before
opening.
• Expect to pay several months' worth of lease
payments even before you open your doors for
business.
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Cont…
• Licenses and Permits. This amount will include all fees charged
by the local, state and federal agencies.
• The more regulated your industry, the higher the fees and
charges. Various states also have a different licensing
requirements and fee structure.
• If your business is based in California, for example, expect to
spend for putting a legal announcement in the newspaper to
announce your new business. In Virginia, there are no such
requirements.
• Professional Fees. You will probably need the assistance of a
lawyer in drawing up the proper documents and filing them
with the state if you are forming a partnership, Limited Liability
Company or corporation.
• You can opt to incorporate your own business yourself, as long
as you understand each form and requirements.
• Part of the professional fees you need to budget include the
accountant's fees, should you decide to outsource your record
keeping or accounting
tasks
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Cont….
• Signage costs. The signs for your business establishment can
leave a significant dent on your budget. Obtain bids from sign
companies, depending on how elaborate you plan your signs to
be.
• Supplies. This is the part of your budget for all the office,
cleaning and employee supplies that your business needs in its
first few months. To help you save, try buying wholesale if you
can meet the minimum order requirements.
• Cost of Web Site creation. If you are planning to supplement
your brick-and-mortar business with online operations, you
need to budget for the costs of creating a web site.
• These include web-hosting fees, web designer, e-commerce
components (shopping cart, merchant account, etc). You also
need to allocate some amount to cover the marketing and
promotion expenses of your online business.
• Unanticipated expenses. The rule of thumb is to allocate about
10 percent of your total start-up budget for contingencies and
other unexpected expenses
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Process documents relating to goods and
services received
Procurement
• Procurement is the acquisition of goods or services.
• It is favorable that the goods/services are
appropriate and that they are procured at the best
possible cost to meet the needs of the purchaser in
terms of quality and quantity, time, and location(
Weele 2010) .
• Corporations and public bodies often define
processes intended to promote fair and open
competition for their business while minimizing
exposure to fraud and collusion.
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Cont..
• Procurement generally involves making buying
decisions under conditions of scarcity.
• If good data is available, it is good practice to
make use of economic analysis methods such as
cost-benefit analysis or cost-utility analysis
• An important distinction is made between
analyses without risk and those with risk. Where
risk is involved, either in the costs or the
benefits, the concept of expected value may be
employed.
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Types of Procurement
Direct procurement and indirect procurement
TYPES
Direct procurement
Capital
Maintenance, repair, and
goods and
operating supplies
services
Raw material and
production goods
Quantity
Large
Frequency High
FEATURES
Indirect procurement
Low
Low
Relatively high
Low
Value
Industry specific
Low
High
Nature
Operational
Tactical
Strategic
Examples
Crude oil in petroleum
industry
Lubricants, spare parts
Crude oil
storage
facilities
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• Based on the consumption purposes of the acquired goods and
services, procurement activities are often split into two distinct
categories.
• The first category being direct, production-related procurement
and the second being indirect, non-production-related
procurement.
• Direct procurement occurs in manufacturing settings only. It
encompasses all items that are part of finished products, such
as raw material, components and parts.
• Direct procurement, which is the focus in supply chain
management, directly affects the production process of
manufacturing firms.
• In contrast, Indirect procurement activities concern “operating
resources” that a company purchases to enable its operations.
It comprises a wide variety of goods and services, from
standardized low value items like office supplies and machine
lubricants to complex and costly products and services like
heavy equipment and
consultingSetservices.
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Procurement vs Acquisition
• The US Defense Acquisition University (DAU) defines
procurement as the act of buying goods and services for the
government.
• DAU defines acquisition as the conceptualization, initiation,
design, development, test, contracting, production,
deployment, Logistics Support (LS), modification, and disposal
of weapons and other systems, supplies, or services (including
construction) to satisfy Department of Defense needs,
intended for use in or in support of military missions.
• Acquisition is therefore a much wider concept than
procurement, covering the whole life cycle of acquired
systems.
• Multiple acquisition models exist, one of which is provided in
the following section.
• Procurement is the process of sourcing and acquiring the
goods and services a company needs to fulfill its business
objectives.
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Steps in the procurement process
• An effective procurement strategy can do many things.
For instance, it can save a company money by negotiating
favourable terms and pricing. It can also ensure supplier
quality, efficiency, and timeliness.
• Procurement involves much more than just handing over
the company credit card and paying for a purchase.
Identify which goods and services the company needs.
• Submit a purchase request.
• Assess and select vendors.
• Negotiate price and terms.
• Create a purchase order.
• Receive and inspect the delivered goods.
• Conduct three-way matching.
• Approve the invoice and arrange payment.
• Conduct record keeping.
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Lo2:- Create payment facility
Payments
• Payments are essentially transportation tasks as
funds are transferred from payer to payee
following established payments flows that are
characteristic of a given payment instrument.
• Generally the payee has provided some kind of
service or goods to the payer, who will in return
pay an agreed amount of money against a
request for payment, usually an invoice
document, as part of the invoicing process.
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Types of payments
• There are several types of payments available:
• Cash (bills and change): Cash is one of the most
common ways to pay for purchases.
• Both paper money and coins are included under
the larger category of "cash."
• While cash has the advantage of being
immediate, it is not the most secure form of
payment since, if it is lost or destroyed, it is
essentially gone.
• There is no recourse to recoup those losses.
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• Personal Cheque (US check): These are ordered
through the buyer's account.
• They are essentially paper forms the buyer fills
out and gives to the seller.
• The seller gives the cheque to their bank, the
bank processes the transaction, and a few days
later the money is deducted from the buyer's
account.
• With the increasing trend toward fast payment,
cheques are seen as slow and somewhat
outdated.
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• Debit Card: Paying with a debit card takes the
money directly out of the buyer's account. It is
almost like writing a personal cheque, but without
the hassle of filling it out.
• Credit Card: Credit cards look like debit cards. But
paying with a credit card temporarily defers the
buyer's bill. At the end of each month, the buyer
receives a credit card statement with an itemized
list of all purchases.
• Therefore, rather than paying the seller directly,
the buyer pays off its bill to the credit card
company. If the entire balance of the bill is not
paid, the company is authorized to charge interest
on the buyer's remaining balance.
• Credit cards can be used for both online purchases
and at physical retailers.
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• In bank account-based systems the funds move
from the payer's account to the payee's
account within the books of financial
institutions providing payment services.
• The need for physical transportation of cash
has changed to transporting payment
instructions for making the required bookings.
The diagram illustrates a typical sequence of
payment operations.
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Sequence of payment operations.
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Lo3-Verify payments against documentation
• What is PAYMENT AGAINST DOCUMENTS?
• A setup in which the buyer can receive delivery
documents, only after the full payment of the
bill of invoice has been made
• Common Types of Supporting Documentation
• The most common types of supporting
documents are receipts, invoices, and proofs
of payment.
• Here's the information that should be included
on each:
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Itemized Receipt
• An original document from the merchant
showing:
• Merchant's name
• Transaction date
• Amount paid
• Description of purchased item(s)
• Description of additional charges (taxes,
service, delivery, etc.)
• Form of payment used
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Invoice
• An original document from the merchant
showing:
• Merchant's name
• Invoice date
• Amount billed
• Description of billed item(s)
• Description of additional charges (taxes,
service, delivery, etc.)
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Proof of Payment
• Often needed in tandem with an invoice. The following are common
proofs of payment:
• Photocopy of a cancelled check (front and back)
• Credit card sales slip
• Monthly credit card statement (when you don't have a receipt and the
purchase was made with a personal credit card)
• Airline receipt or invoice/itinerary showing ticket number
• Lodging itemized receipt showing daily expenses
• Rental car receipt given upon car rental return (mileage in/out)
• Anything over $75 requires a receipt
• Protect your traveler's personal information. Before sending
documents to scanning, please remove/redact the following data:
– Social Security number (SSN)
– Drivers’ license number or State-issued identification card
– Passport number
– Credit card number or debit card number in combination with any
required security code, access code, or password
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Lo 4-File documentation
• WHY IS DOCUMENTATION A KEY FINANCIAL
MANAGEMENT AREA?
For a Recipient, keeping clear and relevant documentation
is vital. Without proper documentation, it is impossible to
show that the costs claimed from the Contracting
Authority meet the conditions of the Contract.
Lack of proper documentation; a key risk If a Recipient
cannot provide documentation showing that the funds
have been used in accordance with the Contractual
Conditions, the Contracting Authority may decide to
recover the unsubstantiated expenditure.
Goldeneligible!
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• The Payment file contains details of each
payment that has been generated by a Payment
Run (PYR) or a Payment Collection Run (PYC).
• This file is used as the basis for producing the
payment listings and payment documents, for
example cheques and remittance advices for a
payment run, or statements for a collection run.
• The payment file is only produced if the Post
Transactions option is set to Yes in Payment Run
(PYR) or Payment Collection Run (PYC).
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• Payment File Names
• The payment file name contains a code that
identifies the file within the business unit.
• This single character code can be A to Z or 0 to 9.
It allows you to maintain a number of different
payment files for a single business unit.
• Each payment file is overwritten only when
Payment Run (PYR) or Payment Collection Run
(PYC) is subsequently run for the same payment
profile, using the same file identifier.
• Note: The payment files are written to the
Payment Drive identified in Business Unit Setup.
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Required Documents
Bill of Lading: A bill of lading (B/L) is a document issued by
a transportation carrier (such as a motor, rail, or air carrier)
to a shipper acknowledging that the carrier has received
the goods for shipment
Certificate of Origin: A certificate of origin is required by
many countries; it certifies the country in which the
imported goods were mined, manufactured, or assembled.
The certificate of origin is used to reduce duty and taxes
when there is a trade agreement in place between the
importing and exporting countries
Commercial Invoice: The commercial invoice is the bill of
sale and an exporter’s request for payment from a buyer. It
is also important to any third party who needs to determine
the value of a shipment,
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Consular Invoice: A consular invoice is a commercial invoice
that has been reviewed by the consulate of the buyer's
country for the purpose of determining the value and
quantity of the shipment and to ensure that no indigenous
laws or regulations governing imports are being broken.
Import License: If required, an import license is usually
required by an importer from the country of destination
Packing/Weight List: This document is issued by the
seller/exporter to verify quantity, box count and/or weights
and measures of the commodity being shipped.
Proforma Invoice: this document is the first one issued by
the exporter. A proforma invoice is used as an order
confirmation/quote as well as for an application for a letter
of credit.
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Ways of Filing
• There Are Two Business Filing Systems
• Paper Systems :Control your filing system
with physical folders you keep on shelves
or in filing cabinets.
• Paperless Systems: Control your business
filing system with a computer filing
system either on your computer’s hard
drive or in the cloud.
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