Page 67 - Accounting Best Practices

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Accounts Payable Best Practices
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Some control is needed if petty cash is used as a regular form of payment.
One key item is to require a signed receipt for all moneys handed out, preferably
with an accompanying invoice from the supplier. This provides sufficient evi-
dence of why an expense was incurred and covers the company if the supplier
claims that it was never paid. Also, there should be a monthly reconciliation of
the petty-cash box to ensure that all expenditures and replenishments are
accounted for. It is particularly important when there is a high volume of pay-
ments going out of the petty-cash box, since there is a potential for thousands of
dollars to disappear over time if there is not a constant reconciliation. Finally,
given the high volume of usage, it is important to give control of the petty-cash
box to a single person who will accept responsibility for the money. When
accompanied by storage in a locked container, these measures present an effec-
tive set of controls over continual petty-cash disbursements.

Cost: Installation time:

3–31 SUBSTITUTE WIRE TRANSFERS FOR CHECKS

It is possible to save some of the labor associated with check payments by con-
verting to wire transfers, though one must be aware of the changes in costs that
will result.
Paying with a wire transfer involves entering each supplier’s identifying
bank number and account number into a computer database, which the account-
ing software then uses to compile a listing of wire transfer payments instead of
check payments. It is common for someone to review this list of wire transfers
before it is sent to a bank (in case there are obvious errors in the amounts to be
paid), at which point the information is electronically transmitted to a bank,
which immediately deducts the money from the company’s bank account and
transfers it to the accounts of the recipients. This process completely avoids all of
the check-cutting steps outlined at the beginning of this chapter.
However, there are other steps and costs associated with using wire trans-
fers that one must be aware of before using them. First, it is no longer possible
to take advantage of the mail float that goes with check payments (the time inter-
val before the recipient actually receives the check and cashes it), so a company
will lose some interest income. This problem can be avoided by delaying the
wire transfer payments to match the payment delay associated with mail float.
Another issue is the cost of each wire transfer. A company will be charged a fee
by its bank for every wire transfer it handles. The fee may go down if there is a
large wire transfer volume, but the cost will still probably exceed the mailing
cost of sending a supplier a check. However, if a company maintains a large cash
balance at the bank, it is possible that the bank will reduce or eliminate these
costs in exchange for keeping the cash invested at the bank. The last problem
with wire transfers is the one that keeps many companies from using this best