A company's cash balance at bank and its cash balance according to its accounting records usually do

not match. This is due to the fact that, at any particular date, checks may be outstanding, deposits
may be in transit to the bank, errors may have occurred etc. Therefore companies have to carry out
bank reconciliation process which prepares a statement accounting for the difference between the
cash balance in company's cash account and the cash balance according to its bank statement.
Following are the transactions which usually appear in company's records but not in the bank
statement:
Deposits in Transit: Deposits which have been sent by the company to the bank but have

not been received by the bank at proper time before the issuance of bank statement.
Checks Outstanding: Checks which have been issued by the company but were not

presented or cleared before the issuance of bank statement.

Following are the transactions which usually appear in bank statement but not in company's cash
account:
Service Charges: Service charges may have been deducted by the bank. Such charges are

usually not known to the company before the issuance of bank statement.
Interest Income: If any interest income has been earned by the company on its bank

account, it is not usually entered in company's cash account before the issuance of bank statement.
NSF Checks: NSF stands for "not sufficient funds". These are the checks deposited by the

company in bank account but the bank is unable to receive payment on those checks due to
insufficient funds in the payer's account.

Example
Company A's bank statement dated Dec 31, 2011 shows a balance of $24,594.72. The company's
cash records on the same date show a balance of $23,196.79. Following additional information is
available:
1.

Following checks issued by the company to its customers are still outstanding:

No. 846 issued on Nov 29

No. 875 issued on Dec 26
No. 878 issued on Dec 29
No. 881 issued on Dec 31
2.

A deposit of $400.00 made on Dec 31 does not appear on bank statement.

3.

An NSF check of $850 was returned by the bank with the bank statement.

4.

The bank charged $50 as service fee.

5.

Interest income earned on the company's average cash balance at bank was $1,237.22.

6.

The bank collected a note receivable on behalf of the company. Amount received by the bank

$320.00
49.21
275.00
186.50

on the note was $550. This includes $50 interest income. The bank charged a collection fee of $10.
7.

A deposit of $430 was incorrectly entered as $340 in the company's cash records.

Prepare a bank reconciliation statement using the above information.

Solution:

Company A
Bank Reconciliation
December 31, 2011
Balance as per Bank, Dec 31

$24,594.72

Add: Deposit in Transit

400.00
$24,994.72

Less: Outstanding Checks:

No. 846 issued on Nov 29

$320.00

No. 875 issued on Dec 26

49.21

No. 878 issued on Dec 29

275.00

No. 881 issued on Dec 31

186.50
830.71

Adjusted Bank Balance

$24,164.01

Balance as per Books, Dec 31

$23,196.79

Add:
Interest Income from Bank
Note Receivable Collected by Bank

$1,237.22
500.00

Interest Income from Note Receivable

50.00

Deposit Understated

90.00
1,877.22
$25,074.01

Less:
NSF Check

850.00

Bank Service Fee

50.00

Bank Collection Fee

10.00
910.00

Adjusted Book Balance

$24,164.01

Bank Reconciliation Procedure

The following bank reconciliation procedure assumes that you are creating the bank
reconciliation in an accounting software package, which makes the reconciliation
process easier:

Enter the bank reconciliation software module. A listing of uncleared checks and
uncleared deposits will appear.
Check off in the bank reconciliation module all checks that are listed on the bank
statement as having cleared the bank.

Check off in the bank reconciliation module all deposits that are listed on the bank
statement as having cleared the bank.
Enter as expenses all bank charges appearing on the bank statement, and which
have not already been recorded in the company's records.
Enter the ending balance on the bank statement. If the book and bank balances
match, then post all changes recorded in the bank reconciliation, and close the
module. If the balances do not match, then continue reviewing the bank
reconciliation for additional reconciling items. Look for the following items:
Checks recorded in the bank records at a different amount from what is recorded in
the company's records.
Deposits recorded in the bank records at a different amount from what is recorded
in the company's records.
Checks recorded in the bank records that are not recorded at all in the company's
records.
Deposits recorded in the bank records that are not recorded at all in the company's
records.
Inbound wire transfers from which a lifting fee has been extracted.

A purchase order (PO) is a commercial document and first official offer

issued by a buyer to a seller, indicating types, quantities, and agreed prices for
products or services.

Sales Order
A sales order is a document that confirms a sale. It is generated when a buyer communicates that
he wants to purchase a product. This can be in the form of a purchase order, which is, in essence,
a notification of intent to purchase sent by the buyer to the seller. It can also be initiated by a fax,
letter, or even a phone call from the buyer. If a purchase order isnt used, the seller takes down the
buyer information, such as name, address, product desired, quantity, and method of payment.

Accounts receivable is a legally enforceable claim for payment held by a business against its
customer/clients for goods supplied and/or services rendered in execution of the customer's
order. These are generally in the form of invoices raised by a business and delivered to the
customer for payment within an agreed time frame.

Accounts payable is money owed by a business to its suppliers shown as a liability on a

company's balance sheet.
Money which a company owes to vendors for products and services purchased on credit. This item
appears on the company's balance sheet as a current liability, since the expectation is that the liability will

be fulfilled in less than a year. When accounts payable are paid off, it represents a negative cash flow for
the company.

Read more: http://www.investorwords.com/51/accounts_payable.html#ixzz3RY1PjCfv

Overview of Accounting Process

for Purchase Orders
The following is a brief overview of the Purchase Order process from an accounting perspective:

Purchase Requisition (PR)

What is it?
A request for approval to proceed with an order for goods and services

What happens in FIS?

A reservation (commitment) is made against the departmental budget recorded in the

Funds Management (FM) accounts (CFC or CFC/Fund combination)

No "actuals" are recorded against these accounts at this time

Purchase Order (PO)

What is it?
A contract between a customer and a vendor regarding the purchase of goods and/or services
stipulating some terms and conditions concerning the purchase

What happens in FIS?

If a purchase requisition has already been created in FIS, there is no financial impact on
the amount of budget reserved for this transaction; the reservation (commitment)
against the departmental FM accounts already exists. The actual commitment is moved
from the purchase requisition to the purchase order.

If a purchase requisition is not already created, the purchase order transaction is created
and a reservation is made against the budget in the departmental FM accounts.

No "actuals" are recorded against these accounts at this time

Goods Receipt (GR)

What is it?
An acknowledgement of the "receipt" (e.g. acceptance) of goods and/or services. This implies
that the payment can proceed because the conditions of the Purchase Contract (e.g. P.O.) have
been met.

What happens in FIS?

In the departmental FM accounts:

o

The commitment (reservation) against the budget in the departmental FM

accounts remains unchanged.

No "actuals" are recorded against these accounts at this time.

In the departmental Controlling (CO) accounts (Cost Center or Internal Order)

o

An entry is made as follows:

DR: Expense (against the departmental cost center or internal order only)
CR: Accrued Liability account (G/L 537000)
The posting of the GR document represents the acceptance of the goods and/or services as
delivered, and records this as an "accrued" University liability. An "accrued" liability is one where
we (UofT) acknowledge that a payment is owed to an external party, but no formal request (e.g.
invoice) for payment has been received.

Invoice Receipt (IR)

What is it?
Formal request for payment by a vendor for goods and/or services delivered.

What happens in FIS?

In the departmental FM accounts two events occur:

o

The PO commitment (reservation) is reduced by the amount requested in the

invoice and a corresponding amount of budget is made available for payment

An "actual" expense transaction is recorded at this time Note: The same budget
dollars that had been reserved by the PO transaction are now being used to issue
payment to the vendor; the PO commitment transaction is replaced with an
"actual" expense transaction.

In the departmental Controlling (CO) accounts (Cost Center or Internal Order):

o

There is no activity as a result of this transaction; the CO accounts are only

updated at the point that the GR document is posted.

Since a request for formal payment has now been made, the IR document results in the
following posting to the UofT accrual and vendor accounts

DR: Accrued Liability account (G/L 537000)

CR: Vendor account
This entry moves the liability record from the "general liability" account (G/L 537000) to the
appropriate vendor account for payment.

What to do when corrections are required

to a Purchase Order document
Purchase order no longer required:
See the quick reference guide: Finalize and Cancel Purchase Order.

Goods Receipt document recorded, but payment to the

vendor was not processed using the Invoice Receipt
process (e.g. entered as a "certified invoice")
Two steps are required:
1. Reverse the Goods Receipt document; see the quick reference guide: Goods Receipt
Reverse
2. Cancel Purchase Order; See the quick reference guide: Finalize and Cancel Purchase
Order
If you have any further questions, please contact your FAST Team Faculty Representative

Flow of Processing Purchase Order

Overview
The Flow of Processing section helps you learn how to operate the Purchase Order
Processing module for the first time and provides guidelines for operation after it is
installed.

The AddonSoftware Purchase Order Processing module is used for automatic

replenishment processing and entering, maintaining, and displaying vendor purchase
orders for all items ordered, whether they are inventory or non-stock items. It is
designed to integrate with the AddonSoftware Accounts Payable and Inventory
Control modules, and can interface to the AddonSoftware Shop Floor Control module
as well.

Flow of Daily Processing

Daily processing refers to the procedures performed each day while using the Purchase
Order Processing module, such as creating requisitions and purchase orders or
entering receipts and invoices. Depending on the volume of business your company
handles, requisitions and purchase orders are created during most daily operations. You
can process these records either singularly or in groups.

To audit the flow of daily processing, registers are printed for purchase requisitions,
purchase order receipts, and purchase invoices before an update takes place.

Create Requisitions and Purchase Orders

Generally, before purchase orders are issued, requisitions are created in the Purchase
Requisition Entry task to request a purchase. The same information required for
purchase order entry is required for requisition entry. When approval of a requisition is
granted, you can enter the requisition number in the Purchase Order Entry task to
automatically convert the requisition to a purchase order.

At other times, you may be using the Purchase Order Entry task to enter a purchase
order without a requisition. Whether using the Purchase Requisition Entry or Purchase
Order Entrytasks, general information such as the vendor name and address is
requested, as well as dates, shipping instructions, terms code, freight terms, and so
forth. As line items are entered, they are assigned codes which tell the system how to
process the line.

There are five different types of detail lines available for the items entered on
requisitions and purchase orders: standard, non-stock, vendor part number, message,
and other. See theOpen Purchase Order Conversion forms at the end of
the Installation section for the type of information requested for the different detail
lines.

Print Requisitions and Purchase Orders

Use the Print Purchase Requisitions task to print requisitions before issuing purchase
orders. Requisitions are printed by requisition number, vendor number, alternate
sequence, or warehouse. A message can be printed on the requisition if desired.

Verify that the requisitions were entered correctly. Use the Purchase Requisition
Entry task to make any necessary changes, and reprint the requisitions. When the
printed requisitions are correct, update the print file. Updated requisitions will not print
again except with the reprint option.

Just as you printed requisitions, use the Print Purchase Orders task to print current
purchase orders. The same print options and processes for requisitions are used.
Always verify that purchase orders were entered correctly. If necessary, use
the Purchase Order Entry task to make any changes before updating the print file.

If desired, print reports from the Purchase Order Reports Menu. Different reports on that
menu can show the current status of all or selected open requisitions and purchase
orders, and the cash requirements, by required date, of all outstanding purchase orders.

Convert Requisitions
Although you can convert individual requisitions into purchase orders by entering the
requisition number in the Purchase Order Entry task, you can also convert an entire
group of requisitions by updating the Purchase Requisition Register. The register may
include entries for several days and should be printed and reviewed before converting
requisitions to purchase orders. Any requisition with the Hold For Manual
Release checkbox marked is not printed on the register and is not converted in the
process. The requisitions are assigned the next available purchase order numbers.

Process Purchase Order Receipts

As purchase order receipts (generally called packing lists, shipping documents, or
receivers) come in, stamp and date them. Use the Purchase Order Receipt Entry task to
enter purchase order receipts. Purchase order receipts can be entered singularly or in
groups.

Run the Purchase Order Receipt Register to obtain a list of all purchase order receipts
entered since the last register was printed. Verify that the receipts were entered
correctly. Use the Purchase Order Receipt Entry task to make any necessary changes,
and reprint the register. When the register is correct, update the register. File the
updated register for later use. When invoices are received, they will be matched to the
receivers on this register.

The days purchase order receipts for backordered products are listed on the Suggested
Backorder Fill Report, which automatically prints at the end of the Purchase Order
Receipt Register whenever backordered products are received. The report is used to
determine whether any customer backorders can be filled by recent purchase order
receipts.

If desired, print the PO Receipt History By Vendor and the PO Receipt History By Item
reports to obtain a list of all or selected receiving transactions.

Purchase Order Invoices

Vendor invoices are entered using Purchase Order Invoice Entry and paid through the
AddonSoftware Accounts Payable module. Match the invoices received to the Purchase
Order Receivers and verify quantities, dollar amounts on the items received. Each
detail line item is reviewed and edited to reflect any differences found between the
invoiced quantity/amounts and the Purchase Order Receipt quantity/amounts.
Additional detail lines for other costs (i.e., packing and service charges, etc) may be
entered so that the total of all lines matches the total on the vendors invoice. Invoices
not relating to inventory can be entered through Purchase Order Invoices, or through
AddonSoftware Accounts Payable Invoice Entry.

Run the Purchase Order Invoice Register to obtain a list of all invoices entered since the
last register was printed. Verify that the invoices were entered correctly. Use the
Purchase Order Invoice Entry task to make any necessary changes, and reprint the
register. When the register is correct, update the register.

General Ledger postings depend on the type of costing entered in Inventory Parameter
Maintenance. Please see GL Postings for Purchase Orders for details on these
postings. Items received into inventory are credited to a Purchases account and
debited to Inventory. During the update of Purchase Order Invoices, this Purchases
account is debited and Accounts Payable Account is credited.

Replenishment Processing

Replenishment processing enables your purchasing department to buy more efficiently,

improve margins, decrease paper, and reduce inventory levels. By analyzing current
inventory data and user-defined buying parameters, you can determine what items to
purchase, from which vendors, and in what purchase quantities. Depending on the
nature and volume of your business, this process might be performed on a daily basis.

Analyzing Replenishment Data

Specify the buyer/vendor/review date in the Replenishment Selection task. You can
designate a series of buyer/vendor/review date combinations by repeatedly accessing
the task. Once the parameters for the review cycle are entered, print the Replenishment
Report. It shows recommended purchase quantities based on minimum purchase
amount, maximum stocking levels, line point, EOQ, average usage, and safety stock.

Periodic Processing
Periodic processing are those tasks you perform semi-regularly to maintain the files
within the Purchase Order Processing module.

Reporting Purchase Order Processes

The following reports can aid you in processing and tracking your purchase requisitions
and purchase orders. These reports should be run as needed.

Open Purchase Requisition Report

Shows the current status of all or selected requisitions on file.

Requisitions By Item Report

This report prints your requisitions by item. Use it to determine which vendors are
supplying particular items required by your requisitions. A total by item is displayed.

Open Purchase Order Report

Shows the current status of all or selected purchase orders which have not been
completely received or updated.

Purchase Orders By Item Report

This report is the same as the Requisitions By Item Report except that the information is
about purchase orders. See above.

Purchase Order Expediting Report

This report tracks purchase order items by their required date. Use it to determine if an
item has arrived, is due soon, or is overdue. Items are displayed by vendor.

Purchase Order Status Report

Shows the status of all current purchase orders, including quantity ordered, received,
and invoiced.

PO Cash Requirements Report

This report forecasts cash requirements based on current purchase orders and their
scheduled receipt date.

PO Billed/Unbilled Report
Shows which purchase orders have been billed (Purchase Invoices have been entered)
or unbilled (Awaiting invoice from the vendor).

PO Receipt Variance Report

This report lists receipts and shows the variance between the scheduled and actual
receipt date.

PO Receipt Cost Variance Report

This report lists receipts and shows the variance between receipt amount and actual
cost.

PO Receipt History by Vendor

Lists purchase order receipts history for a range of vendors within an input range of
receiving dates and in summary or detail.

PO Receipt History by Item

Prints purchase order receipts history for range of warehouses, product codes, and
items.

What are prepaid expenses?

Prepaid expenses are future expenses that have been paid in advance.
Prepaid expenses represent payments made for expenses which are not yet
incurred.
Prepaid expenses may need to be adjusted at the end of the accounting period. The
adjusting entry for prepaid expense depends upon the journal entry made when it
was initially recorded.

Asset Method
Under the asset method, a prepaid expense account (an asset account) is recorded when
the amount is paid. Prepaid expense accounts include: Office Supplies, Prepaid Rent, Prepaid
Insurance, and others.

Expense Method
Under the expense method, the accountant initially records the entire payment as expense.
If the expense method was used,