ACCOUNTING AND FINANCE

LEVEL – III

Module title: Preparing, Matching and Processing

Receipts
Based on March, 2022curriculum V - I
 ACCOUNTING AND FINANCE LEVEL - III

This Course Covers:

Unit One: Receiving and recording receipts

Unit Tow: Matching receipts to documentation
Unit Three: Entering data to systems
Unit Four: Filling documentation

Introduction to the Module

The primary objective of this module is to equip you with the skills and knowledge required to manage the
inflow of financial resources into an organization. This includes everything from the moment cash or goods are
received to the final stage of secure filing and documentation.

Key Learning Outcomes:

 Identify and record various types of receipts.

 Match receipts against supporting documentation (Purchase Orders, Invoices).
 Process data into accounting systems.
 Maintain an organized filing system for financial records.

Unit One: Receiving and recording receipts

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1.1 Checking and receipt procedures

Receipt: is a formal written acknowledgment that a person or entity has received a specified
amount of money, goods, or services.
 Purpose: It serves as the primary "source document" for accounting. Without a receipt,
there is no proof that a transaction occurred.
 Example: When you pay for office supplies and the shop gives you a slip of paper
showing the date, items bought, and the total paid—that is your source document for your
journal entry.
Processing of Cash Receipts
 Cash is a high-risk "liquid" asset, requiring strict internal controls to prevent theft or error.
To ensure financial integrity, businesses follow a formal 6-Step.

 6-Steps to Processing of Cash Receipts

Step 1: Record Checks and Cash: As soon as a payment arrives, it must be entered into a
"check receipts list." This list includes the name of the payer, the check number (if applicable),
and the exact amount.

Step 2: Forward Payments: Once recorded, the physical cash and checks, along with a copy of
the receipts list, are placed in a secure pouch and delivered to the accounting department
cashier.

Step 3: Apply Cash to Invoices: The accounting staff uses software to match the payment
against the customer's account. This "clears" the debt from the Accounts Receivable ledger.

Step 4: Record Other Cash: Sometimes money comes in that isn't for a specific invoice (like a
refund from a vendor or a small scrap sale). These must be recorded separately so they don't
confuse the main sales records.

Step 5: Deposit Cash: A deposit slip is prepared. The total on the deposit slip must exactly
match the total on the initial "check receipts list" created in Step 1. The money is then taken to
the bank in a locked pouch.

Step 6: Match to Bank Receipt: After the bank processes the deposit, they provide a receipt. A
person other than the cashier (to ensure honesty) compares the bank's receipt to the internal
deposit slip.

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 Classification of Receipts
1. Revenue receipts
2. Capital receipts

1. Revenue Receipts: are those receipts that do not lead to a claim on the government. They
are hence termed non-redeemable.
- They are classified into: Tax revenues and non-Tax revenues.

o Tax revenues: are a vital component of revenue receipts, have been bifurcated into
direct taxes and indirect taxes.
o non-Tax revenues: refers to the income earned by a gov’t from source other than
taxes. Typically comes from gov’ts day-to-day operation, the service is providing, or
its ownership of asset. E.g., fees & Charges, Fines & Penalty, Interests, Dividends &
Profit, etc.…

2. Capital Receipts: The government also gets money in terms of loans or from the sale of its
assets. Loans must be given back to the agencies from which they have borrowed.

o The sale of government assets, sale of shares in Public Sector Undertakings (PSUs)
that is known as Public Sector Undertakings disinvestment.

 Remittance: is a sum of money sent by one party to another as payment for goods, services,
or a debt.

o In accounting, it is specifically refers to the “inflow” of cash or cash equivalents that

must be recorded and matched against an invoice.
o Remittance Type:

 Direct debits: payment initiated by the receiver based on the payer’s authorization.
(e.g., utilities)

 Direct drawing: a method where the payee (the one getting paid) is authorized to
withdraw funds directly from the payer’s account, often used for settling specific
business debts.
 Postal money order: A secure payment document purchased at a post office for a

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specific amount, which can be sent through the mail and cashed by the recipient.

Store receipts

- Store receipt is a document generated at point of sale to record a customer’s transaction. It

serves as a written acknowledgement that a specific article or payment has been received.

o point of sale (POS) record: a salesperson scans or records the price of a customer’s
proposed purchases, incorporating any applicable taxes, discounts, or other
adjustment.
o Standard Content: a receipt typically includes the following information:

 The date of the transfer

 A description of the product or service received
 The cost of the goods sold
 Any sales tax charged
 The payment method used (cash, check, or credit card)

 Check

- Check: is a written, dated, and signed instrument that directs a bank to pay a specific
sum of money to the bearer.

o The person or entity writing the check is known as the payor or drawer.
o The person to whom the check is written is the payee.

Types of checks:

I. Certified check: is a check where the bank verifies that the account holder (the
Drawer) has enough money in their account to cover the check.
II. Cashier's check: is a check guaranteed by the banking institution and signed by a
bank cashier, which means the bank is responsible for the funds. This type of check is
often required in large transactions, such as buying a car or house.
III. Payroll check: is a check issued by an employer to an employee as payment of their
work.

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IV. Bounced check: is a check that the bank refuses to pay, because the account from
which the money is drawn dose not have enough fund (NSF- Non-Sufficient Fund).
Steps for Write a Check:
Step 1: Date the check. Write the date on the line at the top right-hand corner.
Step 2: Who is this check for? …
Step 3: Write the payment amount in numbers. …
Step 4: Write the payment amount in words. …
Step 5: Write a memo. …
Step 6: Sign the check.
 Credit Cards
- Credit card: is a card borrowed funds issued by a financial institution, typically a bank,
and it enables the cardholder to borrow funds from that institution.
- Cardholders agree to pay the money back with interest, according to the institution’s
terms.
o Credit cards are issued in the following variety of categories:
a) Standard cards: simply extend a line of credit to their users for making
purchases, balance transfers, and/or cash advances, and they often have no
annual fee.
b) Premium cards: offer perks such as concierge services, airport lounge
access, special event access, and more, but they usually have higher annual
fees.
c) Rewards cards: offer cash back, travel points, or other benefits to customers
based on how they spend.
d) Balance transfer: cards have low introductory interest rates and fees on
balance transfers from another credit card.
e) Secured credit: cards require an initial cash deposit that is held by the issuer

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as collateral
f) Charge cards: have no preset spending limit but often don’t allow unpaid
balances to carry over from month to month.
 Debit card
- Debit card: is a payment card that makes payments by deducting money directly from a
consumer’s checking account, rather than on-loan from a bank or card issuer.
- Debit cards offer the convenience of credit cards and many of the same consumer
protections when issued by major payment processors such as Visa or MasterCard.
o Types of debit cards:
a) Standard debit cards: draw on your bank account.
b) Electronic benefits transfer (EBT) cards: are issued by state and federal
agencies to allow qualifying users to use their benefits to make purchases.
c) Prepaid debit cards: give people without access to a bank account a way to
make electronic purchases up to the amount that was preloaded onto the card.
Cash Receipts of Journal
- is that type of accounting journal that is only used to record all cash receipts during an
accounting period and works on the golden rule of accounting.
o The golden rule of accounting: debit what comes in and credits what goes out.
Cash receipt format
Cash Account Other
Account Invoice Cash Sales
Date Ref. Explanation discount receivable accounts
credited NO. Dr Cr
Dr Cr Cr

Total

Manual receipts
- Manual receipts/ Hand-written or hand-completed/: refers to acknowledgment of

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payment, typically used when an automated or computerized system is unavailable, in a

small business, and filed collection.
Types of Manual Receipt:
- Money is received in three ways:
I. Direct Receipts Cheque: this includes checks or bank transfers received directly at
office.
II. Receipts at the Mill (In-person): These are payments made during regular business
hours or open days. They are typically rung into a till and identified as either cash or
check.
III. Off‐site Receipts: These are manual records made for cash and checks received at
external events, such as fair or talks.

Identifying and Recording Receipts

- A receipts and payments account are a summary of actual cash receipts and payments
extracted from the cash book over a certain period. All cash received and paid during the
period, whether capital or revenue, is included in this account.
- Receipts are entered on the debit side of the receipts and payments account.
- All receipts are grouped on the debit side under headings such as entrance fees, annual
subscriptions, lifetime subscriptions, donations, interest, and sundry receipts.
- All payments are entered on the credit side under headings such as salaries and wages,
printing and stationery, office expenses, rent and taxes etc.
-
Format/Specimen of a receipts and payments account.
Name of company
Receipt and Payment Account
For the year ended .

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Receipt Birr Payment Birr

Total Total

To prepare a receipts and payments account, follow these steps:

Step 1: Write the title of the account and use the format shown in the specimen.
Step 2: Write the opening cash and bank balances at the top on the left-hand side.
Step 3: Add up all the receipts with different dates under the same head.
Step 4: Add up all the payments made on different dates under the same head. You can also use
a separate sheet for this.
Step 5: Write the sums of each head of receipts on the left-hand side and the total of each head
of payments on the right-hand side.
Step 6: Deduct all payments from all receipts and find the closing balance.
Example 1: A library and debating society was formed on 1st January 2017. The receipts and
payments for the year ended 31 December 2017 are as follows
Receipt: Payment:
- Subscription: 1350.00br - Library books: 1210.00br
- Donations: 2600.00br - Rent for library hall: 240.00br
- Entrance fees: 580.00br - Office expenses: 235.00br
- Locker rent: 885.00br - Postage and stationery: 178.00br
- Furniture purchased: 934.00br
- Investment: 1100.00br
Task: Show the receipts and payments account for the year ended 31 December 2017.
Example 2:
January 2,2019, ABC company received 5,000br cash from sales.
January 10,2019, ABC company recorded sales of 10,000br, receiving 8,000br in cash and the
remaining 2,000br on credit.

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January 17,2019, ABC company sold goods worth 10,000br: the customer received a 2% cash
discount, paying 7,800br in cash immediately, with the remaining 20% of the gross
sale placed on account.
Task 1: Pass journal entry for the transaction.
Task 2: Record the entry in to Cash receipt journal
Class Work (quiz)
1. . ------------------- is a written, dated, and signed instrument that directs a bank to pay a
specific sum of money to the bearer.
2. ------------------- are those receipts that do not lead to a claim on the government. They are
hence termed non-redeemable.
3. A library and debating society were formed on 1st January 2018. The receipts and payments
for the year ended 31 December 2018are as follows:
Receipts: Payments:
Subscription: 2,500br - Library books: 250br - Furniture purchased: 800br
Donations: 3,500br - Rent for library hall: 200br - Investment: 1,000br
Entrance fees: 4,500br - Office expenses: 150br
Locker rent: 5,000br - Postage and stationery: 100br
Task: Show the receipts and payments account for the year ended 31 December 2017.
4. May 07/2019, Cash Sales made of Birr4,000
May 20/2019, Loan from Bank Birr1,000
May 22/2019, Interest received on Bank account of Birr350
May 28/2019, Cash Sales made of Birr2,000
Task: shows how cash receipt journal accounting works.
Unit Two: Match receipts to documentation
2.1 Checking and matching receipts
Matching Receipts Process
 Receipt matching: - is the critical verification process that ensures invoice information
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correctly matches both the original Purchase Order (PO) and the Goods Receipt Note
(GRN). This process prevents overpayment and ensures the organization only pays for what
it actually ordered and received.
Key supporting documents:
o Purchase Requisition: an internal document created by employee to request the
purchase of good/service from an outside vendor.
o Purchase Order (PO): one approved, the PO is generated and sent to vendor, citing
the agreed product and price.
o Goods Received Note (GRN): a document signifying that the delivery from the
supplier has been received by the organization.
o Inspection Slip: records that a delivery has been accepted specifically after a quality
or quantity is inspection.

Levels of Invoice Matching

 Matching is the process of comparing different documents to ensure that the details of a
purchase are consistent across all stages. There are three primary levels of matching:
i. Two-Way Matching (2-Way)
ii. Three-Way Matching (3-Way)
iii. Four-Way Matching (4-Way)
i. Two-Way Matching (2-Way)
 is the most basic form of verification. It focuses on the financial agreement between the
buyer and the seller.
Documents Involved:
o Purchase Order (PO): The contract sent by the buyer to the seller.
o Invoice: The bill sent by the seller to the buyer.
What is checked?

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o The quantity and the unit price on the Invoice are compared against the quantity and
unit price on the Purchase Order.
Goal:
o To ensure that the vendor is charging the agreed-upon price for the agreed-upon
quantity. It does not necessarily verify if the goods have arrived yet.
ii. Three-Way Matching (3-Way)
 adds a layer of physical verification. It is the standard practice for most manufacturing and
retail businesses to prevent paying for items that were never delivered.
Documents Involved:
o Purchase Order (PO)
o Invoice
o Goods Received Note (GRN): Also known as a "Receiving Report," created by the
warehouse or receiving dock when the delivery arrives.
What is checked?
o The system ensures that the Invoice matches the PO (Price/Quantity) AND that both
match the GRN (Actual quantity received).
Goal:
o To ensure the business only pays for the quantity of goods that were actually received in
the warehouse.
iii. Four-Way Matching (4-Way)
 is the highest level of control, typically used for technical or high-value items where the
quality of the goods is as important as the quantity.
Documents Involved:
o Purchase Order (PO)
o Invoice
o Goods Received Note (GRN)

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o Inspection Slip / Acceptance Note: A document signed by a quality control specialist or

the department head confirming the goods meet the required standards.
What is checked?
o All four documents must align. The invoice must match the PO, the GRN, and the
Inspection Slip.
Goal:
o To ensure that the business does not pay for damaged or substandard goods, even if the
quantity delivered was correct.

Purchase order
 A Purchase Order is a legally binding document sent by a buyer to a seller. It indicates
types, quantities, and agreed prices for products or services.
 They help sellers by guaranteeing the future safety of their cash flow since any PO counts as
a legal document that requires the buyer to pay for the products they receive.
o Key Purpose: Once accepted by the vendor, it forms a contract between the buyer and
the seller.
o Significance: It protects the buyer by ensuring they receive exactly what was ordered at
the price specified.

 The 7 Steps to Process a Purchase Order

 The lifecycle of a PO generally follows these seven stages to ensure financial accuracy and
accountability:
1) Creation of the Requisition (Order creation): The department in need fills out a
Purchase Requisition.
2) Approval: The requisition is reviewed by management or the finance department to
ensure there is enough budget available.

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3) Dispatch: After the requisition is approved, the PO is sent to the selected vendors. The
vendors then submit bids based on the POs. The bids are approved based on price,
quality, support, service, schedule, and other factors relevant to your business.
4) Binding contract: After the bid is accepted, the company and the vendor must agree to a
contract.
5) Goods delivery: The supplier will then produce and deliver the items being purchased
based on the outlined schedule and shipping requirements.
6) Three-way match: When the items arrive, the warehouse creates a Goods Received Note
(GRN). The accounting team then performs the Matching Process (comparing the PO,
GRN, and Invoice).
7) Closure: If the matching is successful, the invoice is approved for payment, and the PO
is marked as "Closed" in the system.

 Types of Purchase Orders

 Depending on the business needs, different types of POs are used:
1) Standard Purchase Order: Used for one-time, specific orders where the items, quantity,
price, and delivery date are clearly known.
2) Planned Purchase Order (PPO): Used for long-term needs where the items and price
are known, but the delivery dates are tentative and "released" as needed.
3) Blanket Purchase Order (BPO): An agreement with a vendor to buy a specific amount
of goods over a long period (e.g., one year) with a maximum spending limit. This helps in
negotiating better prices.
4) Contract Purchase Order: A formal agreement that sets the terms and conditions for
future orders. It doesn't list specific items but serves as a framework for future Standard
PO’s.

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 Purchase Requisition (PR)

 is an internal document used by an employee or a department head to notify the purchasing
department that certain goods or services are needed.
o Key Purpose: It acts as a formal request for permission to make a purchase.
o Approval: It must be signed by an authorized supervisor or department manager before
the procurement team can take action.
o Contents: Typically includes the requesting department, quantity, description of items,
estimated cost, and the required date.

Information on a Purchase Requisition Form

1. Name of the department requesting
2. Purchaser’s location and mailing address
3. Exact amount of items
4. Description of items
5. Legal name of the outside supplier
6. Expected price of purchase
7. Requested delivery date

 Purchase Requisition Workflow

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Unit Three: Enter data to systems

Charts of Account
 is a listing of all the individual accounts in the general ledger that contains the account's
name, a brief description of the account, and optional other identifiers (codes) or a coded
account number assigned to aid in recording, classifying, summarizing, and reporting
transactions
 Balance Sheet Accounts
o Assets
o Liabilities
o Owner's (Stockholders') Equity
 The order of the listing of the asset and liability accounts is based on liquidity. The most
liquid accounts are listed first.
o Thus, when listing assets, cash is listed before accounts receivable which comes
before inventory.
o For liabilities, accounts payable comes before notes payable because accounts payable
are normally paid before notes payable.

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 Income Statement Accounts

o Revenue
- Operating Revenues
- Non-operating Revenues and Gains
o Expenses
- Cost Of Sales
- Operating Expenses
- Non-operating Expenses and Loses
 Account numbering
o 1000 - 1999: asset accounts
o 2000 - 2999: liability accounts
o 3000 - 3999: equity accounts
o 4000 - 4999: revenue accounts
o 5000 - 5999: cost of goods sold
o 6000 - 6999: expense accounts
o 7000 - 7999: other revenue (for example, interest income)
o 8000 - 8999: other expense (for example, income taxes)
 Batching: To manage high volumes of receipts, data is often entered in "batches." Each
batch is assigned a total (Batch Header) to ensure that the sum of the individual entries
matches the total amount processed.
 Poundage: refers to the fee charged by a post office or bank for the service of issuing or
cashing a postal money order.

Entering to receipt system

 The receipt system is the formal accounting framework where all incoming financial
transactions are documented.
o System Integration: Modern accounting systems (like Sage 50/Peachtree) require
receipts to be entered into specialized journals.
o Data Integrity: Before entry, every receipt must be checked for a valid date,
authorized signature, and correct amount to ensure the system remains accurate.
 Manual Receipts Processing
 In many scenarios, especially where digital tools are unavailable or as a backup, manual
receipts are used.

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Understanding Manual Receipts

 A manual receipt is a hand-written acknowledgment of payment, typically issued from a pre-
printed, numbered receipt book. It serves as the primary source document for the accounting
cycle.
Understanding the Steps for Processing Manual Receipts
Step-1: Preparation: Fill out the receipt in duplicate or triplicate (one for the customer, one for
accounting, one remains in the book).
Step-2: Verification: Ensure the "Amount in Words" matches the "Amount in Figures."
Step-3: Authentication: Secure the signature of the receiving officer and the official stamp of
the organization.
Step-4: Classification: Identify if the receipt is a Revenue Receipt (e.g., tax, fees) or a Capital
Receipt (e.g., loan proceeds, sale of assets).
Step-5: Recording: Enter the details into the manual Cash Receipts Journal.
 Matching and Identifying Data
Matching Receipt into the System
 This involves comparing the incoming payment against existing documentation (Purchase
Orders or Invoices) to ensure the payment is expected and correct.
Identifying Debit Data and Allocating Discrepancies
 Debit Data: In receipt processing, "Debit" usually refers to the increase in Cash or Bank
accounts.
 Allocating Discrepancies: If the amount received does not match the amount invoiced, the
difference must be allocated to specific accounts, such as "Sales Discounts," "Shortages," or
"Overages."
Seeking Advice on Source and Solution to Discrepancies
 If a discrepancy cannot be immediately resolved:
o Internal Inquiry: Consult the storekeeper or the sales department to verify if goods
were returned or if a discount was authorized.
o External Inquiry: Contact the customer or vendor to clarify payment differences.
o Referral: If unresolved, the matter should be referred to a senior accountant or auditor
for a decision on whether to write off the amount or pursue further collection.
 Updating Systems and Reconciliations
Updating Related Systems
 a receipt is processed, related ledgers must be updated:
o Accounts Receivable Ledger: To reduce the balance owed by a customer.

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o Inventory Ledger: If the receipt was for a return of goods.

Understanding Reconciliation
 Reconciliation is an internal control process used to confirm that the organization's internal
financial records match external records (like bank statements). It ensures that every cent is
accounted for.
The Reconciliation Process
I. Compare: Check the Bank Statement against the Cash Book.
II. Identify Timing Differences: Note Deposits in Transit (money sent to the bank but not yet
on the statement) and Outstanding Cheques (payments made but not yet cleared).
III. Adjust for Bank Actions: Record bank fees, service charges, or interest that only appear on
the bank statement.
IV. Correct Errors: Identify any transposition errors (e.g., writing 540 instead of 450).
Reconciliation Methods
o Bank-to-Book Method: Starting with the bank balance and adjusting it to match the
company's book balance.
o Book-to-Bank Method: Starting with the company's records and adjusting them to
match the bank statement.
o Adjusted Balance Method: Adjusting both the bank and book balances to reach a single
"True Balance." This is the most recommended method for accuracy.

Unit Four: Filling documentation

Filing Documentation
 is a critical step in the accounting cycle to ensure records are preserved and accessible for
future reference or audits.
o Purpose: To maintain the skills and knowledge required to securely store data
after it has been entered into organizational operating or accounting systems.
o Action: Once receipts are matched to documentation and entered into the system,
all necessary documentation must be filed.
Accessing and Tracing Filed Documents
 To effectively manage a filing system, a professional must be able to locate and track
documents as needed. This process typically follows a structured approach to resolve
issues or locate specific records.
I. Understand the Scope of the Problem
 Before attempting to trace a document, you must define the search parameters.

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o Identify the Information Needed: Determine exactly what record is missing or

being sought (e.g., a specific purchase order or receipt).
o Define Timeframes: Establish the date range for the documents you are looking
for.
o Verify Context: Understand which department or transaction type the document is
associated with.
II. The Records Inventory
 A records inventory is an essential tool for identifying and managing the lifecycle of
documentation.
o Definition: It is a high-level survey of the records an organization holds.
o Application: It helps in understanding the relationships between different files,
such as chronic files, subject files, or working papers.
o Outcome: By completing an inventory, you can better determine the appropriate
retention periods for each piece of documentation.
III. Identify Duplicate, Fragmented, and Related Records
 During the filing and inventory process, it is important to categorize records to maintain
system integrity:
o Identifying Duplicates: Identifying and removing duplicate records helps uncover
omissions or fraudulent transactions and prevents the waste of storage space.
o Fragmented Records: These are parts of a record that may be stored in different
locations. Tracing helps bring these pieces together to form a complete transaction
history.
o Related Records: Recognizing how documents relate to one another (e.g.,
matching a Purchase Order to a Goods Receipt and an Invoice) is the core of the 3-
way matching process. This ensures that the quantity and price quoted in the PO
match what was actually received and invoiced.

Quiz 10%
1. True/False: A purchase requisition is an internal document, while a purchase order is sent to
an outside vendor.
2. Choice: Invoice matching that verifies information against the purchase order and the goods

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receipt is called:
A. 2-way matching B. 3-way matching C. 4-way matching D. Batch matching
3. Choice: What is the process of matching internal transactions against external sources like
bank statements called?
A. Batching B. Posting C. Reconciliation D. Allocation
4. Wright the 4 types of purchase order?
1. Standard Purchase Order
2. Planned Purchase Order (PPO
3. Blanket Purchase Order (BPO):
4. Contract Purchase Order
5. Goods Received Note (GRN): a document signifying that the delivery from the supplier has
been received by the organization.

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