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Lecture Notes - Understanding the Disbursement Cycle

The document outlines the disbursement cycle for companies, detailing when and how payments are made to suppliers and creditors. It emphasizes the importance of timely payments while allowing for some delays if no interest is incurred on overdue accounts. The process involves the accounting department preparing payment vouchers, the treasury department securing necessary signatures, and the treasurer mailing the payments, with controls in place to prevent duplicate payments.

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Dale Jimeno
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4 views

Lecture Notes - Understanding the Disbursement Cycle

The document outlines the disbursement cycle for companies, detailing when and how payments are made to suppliers and creditors. It emphasizes the importance of timely payments while allowing for some delays if no interest is incurred on overdue accounts. The process involves the accounting department preparing payment vouchers, the treasury department securing necessary signatures, and the treasurer mailing the payments, with controls in place to prevent duplicate payments.

Uploaded by

Dale Jimeno
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
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Topic:Understanding the Disbursement Cycle

When do companiespay their accounts?


As a matter of cash management policy, payments for goods or services received shall be made only when the account is
due. Normally, suppliers and creditors send monthly statements updating their customers about their balance and the
due date.
When should companies
pay their accounts?
It is good business to pay on time. However, it is acceptable practice to delay disbursements. If accounts with suppliers
do not pay interest when overdue, it is better to hold off issuing check until the supplier follows up on the payment.
A. Accounting department
A formal request for payment is prepared in the form of a voucher. To support this request for approval, the following
documents need to be attached:
 Purchase order
 Receiving report
 Vendor’s invoice (or monthly statement if the original invoice has been partly paid)
If the client does not prepare receiving reports for items received, the auditor inspects the shipping documents from the
carrier to check whether the date and number of items received are indicated therein, plus the identification of the
personnel receiving the package.
Once validated, the voucher is approved for payment.
Who preparesthe check?
Contrary to beliefs and other practice, in theory, check preparation does not really involve custodianship function. It
simply entails typing or printing the name of the payee on the face of the check, the date and the amount of payment
due and requested. This mechanical process is performed by the accounting department.
Sometimes, if not most, when irritated and impatient vendors follow up on payments through phone calls, the
accounting department calms them down by saying that the check is already on the way.
What this means, though, is that the check has been prepared (or printed) by accounting. The only real problem is, the
proper officershave not yet signed the check . But of course, accounting does not tell that to them. At least, a certain
level of assurance is given to collectors as to the status of the billing.
B. Treasury department
After reviewing the voucher and the check forwarded by accounting, the treasury department gathers the necessary
signature/s.
One authorized signature already constitutes valid payment. However, for large disbursements, it is more appropriate
to have the check signed by at least one other higher office
r.
For example, the president or vice president may be the first signatory in disbursements for construction and other
capital expenditures.
Note: Having one person to sign the check is not an issue. You can have as many signatories as you could but what
matters most is the disbursement of check is properly approved with the an officer with proper level of authority and
contains necessary documents for disbursements. 

Who shall mail the payments?


The treasurer/cashier, who signs the checklast, is responsible for mailing the check
.
To prevent duplicate payment or even an attempt to request for second payment, the cashier shall cancel the voucher
and the supporting documents after the check has been mailed. The following produce the effect of cancellation:
 Stamping the voucher and/or the related documents as “paid”
 Writing the check number on face of the voucher
Evidence of actualpayment
In the first few days of the following month, the bank sends each depositor a monthly bank statement showing the
details of the movement of the account for the preceding month.
Checks issued in the preceding month which have cleared the bank in the same period are returned by the bank
together with the bank statement. These are the withdrawals that are already reflected as deductions in the bank
statement. These are referred to as cancelled checks
, or checks presented to the bank and debited against the
depositor-payor’s account.
It must be stressed that, for control purposes, the voucher is cancelled after the checks are mailed and not after they
have been returned with the bank statement.
What’s the auditor has obtained confidence regarding the client’s disbursement set, he is now ready to conduct further
tests to conclude whether the controls in the purchases and disbursements cycle are effective in preventing, detecting
and correcting irregularities or misstatements.

NOTHING FOL
LOWS
“Remember that you are struggling now bec
ause youhave to, that nothing good comes easy. Remember that the fire
that melts the butter is the same fire that hardenshe
t steel.” 

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