disbursement journal

Bank Accounts PEGBOARD ACCOUNTING SYSTEM Many OSU Extension offices use a pegboard (sometimes called "one-write") system to account for their checking accounts. Most use the system manufactured by Safeguard, so all examples will make reference to that system. Pegboard accounting systems are intended to reduce the amount of time spent on routine bookkeeping tasks, and at the same time to improve the effectiveness of the bookkeeping system. Other online systems can be used (ex. Quickbooks and Quicken) but the same level of detail should be printed and kept on file for audit records. Regardless of the accounting system used, it is necessary to keep exact records of the inflow and outflow of all monies. This involves the following standard procedures:   Receipting of all funds taken in, to show the amount, the source, and the reason for the transaction. Payment of all obligations by check or via a properly-documented petty cash fund, to record the amount, the payee, and the reason for the expenditure. Checks are supported by vouchers (usually vendor invoices) to document this information. Maintenance of a ledger(s) to record the income and expenses, plus the fund balance. Generally the ledger is used to subdivide the transactions into classes of expense/income or subaccounts (e.g. by program area). Monthly reconciling of the ledger to the statement(s) furnished by the bank, to be sure that all items are properly recorded.   The Safeguard system includes all of these elements in a format that eases the recording function while ensuring that all transactions are recorded and accounted for. Each office's pegboard system is made up of the following elements:        Pre-numbered receipts * Receipt journal pages * Receipt writing board Checks Cash disbursement journal pages * Check writing board Storage binder OSU Extension Business Procedures Revised 6/2/2006 Bank Accounts Note: Items marked with an asterisk (*) are maintained in stock in the Business Office, and may be obtained via 100-W. Other items must be ordered from Safeguard. The Business Office periodically coordinates a check order for all offices in order to receive a quantity discount. Receipt Writing System This portion of the pegboard system is made up of receipts, cash receipt journal pages, and the receipt writing board. Receipts are pre-numbered in accordance with guidelines from Internal Audit, and have a carbon strip on the back. Journal pages have one area that records the basic transaction information, and another area that allows the income to be categorized by program area or income type. To write receipts, a journal page is hooked into the "pegs" of the receipt writing board; a group of receipts is hooked on top of the journal page. As a receipt is completed, relevant information (date, receipt number, transaction amount, cash or check, etc.) is transferred via the carbon strip to the journal page. The only other step needed to complete a transaction is to record the receipt amount in the appropriate income category. Sometimes more than one category may be needed for a single transaction -- as when the purchase of a publication requires part of the income to be recorded for the sales price and part for sales tax collected. Whenever approximately $200 has accumulated or at the end of the week, a deposit should be prepared from the information on the receipt journal. It also is wise to make a deposit on the last day of the month, regardless of the amount of money on hand at that point. This makes balancing to the bank statement easier. To prepare a deposit, proceed as follows: 1. 2. Move receipts down one peg, leaving a blank line. Total journal columns since the point of the last deposit: checks, cash, and total receipts; also total the individual income categories. Be sure that the individual category totals, when added together, equal the total receipts. If a discrepancy is found, check individual lines until problem is located and corrected. (It is easier to locate the discrepancy at this point than to wait until month end, when an entire month's activity has to be checked to find an error.) Count cash on hand for deposit and run a tape on checks. These amounts should match the journal totals. Remember, all income must be deposited in the form in which it is received (cash or check). It is not acceptable to withhold cash that has been received to serve as a "petty cash" or change fund. 3. OSU Extension Business Procedures Revised 6/2/2006 Bank Accounts 4. If the cash and check amounts balance to the journal, complete a bank deposit ticket, indicating the amount of cash and checks, and the total deposit amount. If the amounts of cash and checks on hand do not balance to the journal totals, an adjusting entry will be required. Draw a red line across the journal page below the totals and note the deposit date. This allows you to reconstruct the deposit information if a question should arise later, and gives you a "starting point" from which to run totals for your next deposit. Note the deposit total on the check register, so that it can be added to your balance (see below). This will be needed when reconciling the monthly bank statement. 5. 6. Each receipt journal page has 29 lines. If the volume of receipts issued in any one month requires more space than that, activity can be continued on another page. The receipts are simply lifted off the pegs so another journal page can be inserted. All columns on the first page are subtotaled and carried forward to the spaces provided near the bottom of the new page. Then the receipts are reattached so that the carbon strip aligns with the new journal page. With this method, as many pages as are needed can be used in any given month. We recommend that a new page be started at the beginning of each month. At month end, total income for each income category is tallied. The sum of the various category totals must equal the total of all receipts issued for the month. This allows detection of any recording errors. If category totals have been balanced as part of the deposit process, errors should already have been corrected. Once the monthly totals have been obtained and recorded at the bottom of the last journal page, all pages for that month are filed in the storage binder. Check Writing System This portion of the pegboard system consists of checks, cash disbursement journals, and the check writing board. In principle, it works much like the deposit system. The journals and checks fit into the writing board over pegs, and a carbon strip on the back of the checks enters the basic transaction information when the checks are written. Also like the receipt journals, the check disbursement journals have two sections: one for the basic information and the other to record the expense in the proper category or program area. Note that the categories must be the same on both the cash disbursement and cash receipt journals. OSU Extension Business Procedures Revised 6/2/2006 Bank Accounts Despite these basic similarities, there are a few differences that need to be noted. The first of these concerns the cash disbursement journal. Instead of recording only disbursements, it also records the cash balance of the account. This is much like the journal in a personal checkbook -- both checks and deposits are listed, so that a running balance can be maintained. Whenever deposits are tallied in the receipt journal, the information is noted in a special column on the disbursement journal, as was noted above. You record a running balance in another special column on the journal. You can calculate a balance after each transaction, at the time of deposits, or once a week. As with a personal checkbook journal, the idea is to make sure that adequate funds are in the account before writing a check. Another difference from the receipt system is that there are two copies of each check. The original is used to make the intended payment; the duplicate is kept with the payment voucher in your files to document the payment. Remember that each check should have some sort of documentation -- an invoice, order form, receipt, etc. -- for audit purposes. This documentation should include information on what was purchased, why it was purchased, when it was purchased, by whom it was purchased and where it was purchased from. You are telling a story, make it clear for auditors who may look at this transaction many years later. You can use as many journal pages as are necessary in any given month. The procedure is the same as with the receipt system: subtotal the first page, remove the checks, insert another page, then realign and insert the checks. Prior page totals are brought forward throughout the month and final totals are calculated at month end. The total of the checks written for the month must equal the total of all expense category entries. After calculation of monthly totals, the journal sheet is filed in the storage binder. Some offices do not use an entire journal page in one month, and prefer to drop the checks several pegs and enter monthly totals in the blank space. Then they begin the next month's activity on the same journal sheet. While this is acceptable, it makes for easier filing and subsequent retrieval of the journals if a new sheet is started with each new month. Maintaining Balances By Category We noted above that the cash receipt and cash disbursement journals must be laid out with the same categories of income and expense. The specific categories may vary from one Extension office to the next, depending on programming efforts. Enough categories should be maintained to see if major programs are losing money or making money (a break-even position is the goal); but too many categories should be avoided, since this simply makes the accounting process more complicated without providing any additional useful information. We have found the following to be adequate categories for most county operations: OSU Extension Business Procedures Revised 6/2/2006 Bank Accounts       Publications -- for purchasing publications inventories and recording income from their sale. Sales Tax -- for recording sales tax collected on publications, groundhog bombs, etc., as well as remittance of tax collected to the State. ANR -- for income and expenses relating to programs in agriculture and natural resources. CD -- for income and expenses relating to programs in community development. FCS - for income and expenses relating to programs in the Family and Consumer Sciences. 4-H -- for income and expenses relating to office 4-H programs, including camp registrations and expenses. (Some offices use a separate category for 4-H Camp). Miscellaneous -- for other income and expenses not relating to a specific program area, such as bank interest/service charges, general office expenses that will not be reimbursed via OSU, etc. OSU Reimbursements -- for expenses which are to be reimbursed from an OSU fund (appropriated, EFNEP, development, innovative grant) via submission to Business Office on an OSU Request for Payment, and for recording deposits of such reimbursements. If an expense is to be reimbursed, it is recorded here, not in one of the program area columns. This way, deposits of reimbursement checks from Columbus need only be entered in the OSU Reimbursements column, saving the effort of splitting the reimbursement into a number of separate categories. Since the OSU Reimbursements column entries will always "wash" eventually, the balance at any given time represents the amount of expense that has yet to be reimbursed. These could be expenses that have been submitted to Columbus, but not paid; or expenses that have yet to be submitted.   In order to maintain category balances, activity from the receipt and disbursement ledgers must be "combined". There are a number of different methods used to accomplish this, depending on the preferences of local offices. Some examples: Summary Journal OSU Extension Business Procedures Revised 6/2/2006 Bank Accounts A separate journal page may be set up with the same categories as the Receipt and Disbursement journals. Each month the total receipts and total disbursements for each category may be transferred from the monthly journals to the summary journal. Receipts are added to, and disbursements subtracted from, the balance in each category for the prior month to obtain the new monthly balance. As a check, all the category balances should be added to be sure they total to the overall cash balance shown on the disbursement journal. This system is illustrated below. Various Subaccounts PUBS TAX 450 50 190 10 0 0 640 60 Account Balance forward Monthly Income Monthly Expenditures Year to date balance Total $2,000 1,000 500 $2,500 AG 1000 500 300 1,200 4-H 500 300 200 600 The summary journal is stored in the storage binder with the monthly cash receipts and disbursement journals. Adjusting Entries Sometimes it is necessary to record non-routine or adjusting entries on the pegboard system. Examples would be bank service charges, interest, returned checks, refunds for returned publications, etc. While it will not be possible to cover in these instructions every conceivable entry that may be required, the examples below should provide guidance for most situations. There are three basic types of adjustments: bank adjustments, transaction adjustments, and year-end adjustments. Bank Adjustments These are adjustments that the bank makes to your account and must be recorded on your ledger to keep it in balance with the bank. Service charges, interest, and returned checks are the most common of these. Since your bank balance is carried on the disbursement journal, these entries always involve that journal; some will involve the receipts journal as well. Service Charges This is the easiest of the adjustment entries. Move the checks down a peg to provide a blank line. Then simply enter the date and write “Service Charge” in the “Check Issued To” column of the journal. Enter the amount of the charge in the Check Amount column, OSU Extension Business Procedures Revised 6/2/2006 Bank Accounts and in the Miscellaneous category on the right side of the journal. Calculate a new balance and enter it in the "Bank Balance" column of the journal. Interest Earned Interest represents income, so is recorded on the disbursement journal much like a deposit. The date and amount are entered in the Deposits column, just the same as with any other deposit. Label the entry as interest, to distinguish it from a regular deposit. Record a new balance reflecting the earnings. Since entries in the Deposits column are always transferred from the cash receipts journal, interest earned must be entered there as well. This may require dropping the receipts one line. Enter the date, write “Checking Account Interest” (or “CD Interest” if earnings from a certificate of deposit are transferred to your checking account) in the Description column, and the amount. Finally, the amount earned should be posted to the Miscellaneous income category. Tip: You may want to highlight the interest entry, so you will not add it into your next deposit. Returned Checks This is the most complicated of the bank adjustments. It is required when a check you have deposited to your account is not honored by the bank on which is it drawn. General procedure is for your bank to attempt for a second time to clear the check. Most times banks do not charge for this service. However, if the check fails to clear the second time, your bank will send the check back to you, and charge your account for the amount of the check (since your account was originally credited when you deposited the check). Most banks charge you a fee in addition, to offset their cost in handling the returned check; you will need to recover the fee from the customer. Since returned checks may arise at any point during the month, you probably will need to move your checks down on the pegs to make space for the required adjusting entries. Both the cash receipts and cash disbursement journals are needed to handle this type of adjustment. The first step is to record the debit for the amount of the check. Look through the cash receipts journal and locate the entry that was made when the check was accepted. Above the Name or Description write “CK RETURNED--xx/xx/2003”. Make note of the original receipt number and income category. Return to the disbursement journal, enter the date of the bank charge and the amount of the check. To identify the charge, and tie it back to the original transaction, enter “RETURNED CHECK--(NAME)” in the Check Issued To column; in the Description column enter “REF: RECEIPT #xxxxxx, xx/xx/2003”. Post the charge to the same category as was used for the income originally. The second step is to record the bank charge for handling the bad check. This entry is made on the next line of the disbursement journal. The procedure is just OSU Extension Business Procedures Revised 6/2/2006 Bank Accounts like entering a monthly service charge, except the description of the transaction is the same as that used to record the bad check: “RETURNED CHECK--[NAME], REF: RECEIPT #xxxxxx, xx/xx/2003”. The amount of the bank charge is posted to the Miscellaneous category. At this point you must contact the customer and ask them to come in and pay in cash for the amount of the check and the bank handling fee. Upon receipt of the cash, issue a receipt to the customer for the total amount received, and give them the returned check. The description on the receipt should be “COLLECT RET. CK, REF: RECPT#xxxxxx” (the original receipt number). Post the amount of the bank fee to the Miscellaneous column on the receipts ledger; post the amount of the check to the same income category as was originally used. Transaction Adjustments Transaction adjustments are the second type that may be needed occasionally. These are transactions needed to correct payments you may have made or receipts you may have issued. Refunds These are the most common transaction adjustments (e.g. refunds for publications or registration fees). All refunds are processed in the same manner. Look through your cash receipts journal and locate the original entry. Above the Name or Description write “REFUNDED--xx/xx/2003”. Make note of the original receipt number and income category (on publications, make note of the sales tax amount collected). Refunds must be paid by check. Make the check payable to the same person that originally paid the money. In the check description, note “REFUND--REF:RECEIPT#xxxxxx.” Post the amount of the check to the same column(s) as the original transaction. If sales tax is being refunded, be sure to include this in your next sales tax report to the state. Payment corrections Another type of transaction adjustment is a correction to a payment you have made. If you underpaid an invoice and need to pay an additional amount, make the second check out the same way as the initial payment. In the description field, note any relevant invoice number, and note “ADDTN TO CHECK#xxxxxx, xx/xx/2003”. If you overpaid the original invoice, you may receive a refund check or a credit memo. A credit memo is simply subtracted from a subsequent invoice. A refund check would need to be receipted into the cash receipts journal. The description should note “REFUND RECVD--REF. CK#xxxxxx, xx/xx/2003”. Stop Payments or Uncashed Checks OSU Extension Business Procedures Revised 6/2/2006 Bank Accounts If it becomes necessary to stop payment on a check already written, first contact the bank and arrange for the stop. (Consider the amount of the fee charged by the bank, as it wouldn't make sense to stop payment on a $10 when the bank charges $15 to process the stop.) Find the original check entry on the disbursement journal, and write “PAYMENT STOPPED--xx/xx/2003” in the description area. Note the category to which the check had been posted. Then drop the checks on the present journal page one peg, enter the date and the description “STOP PAY CK#xxxxxx--[REASON]”. Enter the amount of the check in parentheses, to show that funds are coming in, not going out. Add the amount of the check back into your ledger and note the new account balance. Finally, enter the amount, in parentheses, in the same expenditure column as was used originally. If your bank charges for the service, drop the checks another peg, note “STOP PAY FEE-CK#xxxxxx,” and enter the amount of the charge in the Amount column and the Miscellaneous column. Then record a balance reflecting the charge. Cash Overage or Shortage in Deposit Occasionally you may find in preparing a deposit that you have more or less cash on hand than is recorded on the ledger since your last deposit. The first thing to do is recount the cash. It's easy to make a mistake, especially if you get interrupted. If this does not find the problem, go ahead and total the checks on hand. Add the check total to your count of the cash. Does this total agree with what the ledger indicates should be the deposit amount? If so, it indicates that someone has been cashing checks or allowing customers to write checks for more than the amount of a purchase, then giving change in cash. Neither of these practices is acceptable. Go ahead and make this deposit, but ask the chair to send a memo to all staff that it is not acceptable to have customers write a check for than the amount of purchase or to cash checks from the cash drawer. If the total deposit is off by the same amount as your cash shortage, an adjusting entry will be required. Ask someone else (preferably your supervisor) to count the cash and total the checks, to verify your work. Then, make a journal entry labeled “Cash Over” or “Cash Short” in the cash receipts journal. Post the amount to the Miscellaneous column (a shortage will need to be indicated in parentheses). The entry should be initialed both by you and the person who verified the overage/shortage. Then proceed with your deposit as usual. Including the correction entry as you total the ledger columns should make your calculated totals agree with the actual total of cash and checks on hand for deposit. Year-End Adjustments OSU Extension Business Procedures Revised 6/2/2006 Bank Accounts At year end, some special adjusting entries are needed. These are basically "housekeeping" entries that keep your journal reflecting current information.  Income/Expense Close-outs -- Earlier we discussed various ways to combine the income and expense totals by category to get running balances in each category. This process should be started fresh every year. Any totals you have on your summary ledger showing year-to-date income or expense should be dropped, and the new year should begin with $0 as YTD income and expense. This will not affect the actual balance in the account, or in the various categories. Some offices like to set up "budgets" for the various program areas within the non-appropriated account each year. If your office does this, all categories should be zeroed out to the Miscellaneous category at the end of December. (The only exceptions are the OSU Reimbursements, Publications, and Sales Tax categories, which should be carried forward at their existing balances.) Then, the first transactions noted for January would be transfers from Miscellaneous to each category. The amount of each transfer would be the amount of "budget" to be allocated for the new year.  There may be other adjustments that arise from time to time, but these examples should provide enough guidance to allow you to handle them without difficulty. The main thing to remember about adjustments is to document thoroughly the reason for the adjustment, always providing a reference to a previous transaction where appropriate. If there are any questions on making adjusting entries, or on other transactions using the pegboard system, feel free to contact the Business Office representative for your office. OSU Extension Business Procedures Revised 6/2/2006