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What is in this guide
- What do you use accounting for
- Important things to know about accounting and bookkeeping
- How to use a bank account
- Opening an account
- Using a cheque book
- Putting money into the accounts
- Bank statements
- How to keep daily records
- How to keep monthly records
- A petty cash book
- A cash book
- How to do annual financial statements
- Annual financial statements and audits
- How to make sure your money is secure
Every organisation needs to be accountable to its members for the use of funds within the organisation. The members of the organisation place their trust in the executive that funds will be used in an honest way to achieve the goals of the organisation.
In the same way that you need to keep records of meetings, letters and membership you also have to keep the records of the organisation’s money. Accounting is the system for keeping the records [books] of all the money you collect and all the money that you spend
Books have to be properly kept for four reasons:
- To make sure that the organisation’s executive committee and members can understand exactly what has happened to the organisation’s money.
- To help the organisation to make realistic plans of what it can spend and to monitor how the spending compares with the budget.
- For accountability and transparency – most organisations use public or donor money and should be able to show how every cent was spent
- For security to avoid losing money to mismanagement, corruption or theft
The treasurer of an organisation is usually accountable for all the money and must be able to give monthly statements of the organisation’s money at executive meetings and an annual statement at the AGM.
Financial accounting means that:
- You give regular reports to all those that have a right to know what the organisation is doing with its funds.
- The leadership of the organisation has the financial information it needs to make decisions about budgets and spending.
- You have documentary proof of receipts and payments of all moneys.
It is impossible to prepare statements if you do not have a clear and accurate bookkeeping system. A good bookkeeping system depends on proof. It is important that you keep every piece of paper connected with money that is spent or collected.
The books you keep must show:
- all the money that comes into the organisation (fundraising, donations, bank interest, grants, subscriptions)
Expenditure- all the money that is spent by the organisation (for example, stationery, running costs, bank charges, workshops, catering, media production, venue hire, transport et cetera) Balance- the money that is left over at the end of each month
Every financial transaction goes through the following steps:
- The transaction happens when the money is spent or received
- The transaction is recorded on a piece of paper as proof that it happened – usually a receipt issued by you for money you receive or a receipt issued to you by the supplier you pay for something.
- The transaction is then recorded in an accounting book – for example a cash book for all money spent.
- A summary is made of all transactions and written in a monthly statement.
- A summary of the transactions for the year is written in an annual statement.
To keep accurate books you should have the following;
- A bank account with a cheque book
- A daily record system with receipts and petty cash vouchers
- A monthly record system with a petty cash book and a cash book for recording and analysing income and expenditure
- A format for annual financial statements
The rest of this guide covers how to do all the above things.
Having a bank account means that the bank is looking after your money and you do not have to keep big amounts of cash. When you pay money into the bank you make a deposit and when you take money out you withdraw from your account.
The best bank account to have is a cheque account since you will then get a cheque book and can make most of your payments by cheque. If you have a lot of money that you want to keep for a while it is best to open an investment account as well where you will get better interest.
Opening an account
If you are part of a bigger organisation like a national organisation you must follow the guidelines set nationally about which bank to use. It is best for national organisations to use one bank because it makes transfers between different parts of the organisation easier.
If you are a local organisation, choose a convenient local bank and open an account in the name of your organisation.
The bank will usually ask for a copy of your constitution so that the account can be in the name of your organisation. Organise with the bank that 3 people will be allowed to sign cheques and that any two of the signatories must sign any specific cheque. You will have to supply copies of the ID documents of the signatories.
The treasurer should be one signatory and the secretary and chairperson the other two. Every time the treasurer needs to pay someone with a cheque then he or she has to get the cheque signed by the secretary or treasurer as well. This is a safety measure because 2 executive members then know what each cheque is being used for.
Using a cheque book
When you have a cheque account the cheque book is used to:
you take a signed cheque to the bank with the amount you need to draw out and the bank then gives you the cash
- Draw money out of the account:
To pay your accounts: you give the person/organisation you owe money a signed cheque for that amount. That person or organisation then pays your cheque into their bank account. Use cheques to pay for amounts over R20. Any smaller expenses, like tea or milk you can pay out of petty cash (see Petty Cash).
When you make out a cheque you must always fill in the left-hand side of the cheque (the stub) in as much detail as possible to show exactly what that cheque was used for.
Never issue a cheque if you do not have another piece of paper to prove what the cheque was used for, for example, an invoice from a catering company.
Below there is an example of a cheque requisition form that you should fill in to keep clear records for what cheques are issued.
Cheque requisition: Date __________ Cheque number ___________ Amount _____________
Cheque made out to: ___________________________________________
What is the money for: __________________________________________
Requested by: _______________ Authorised by: ______________________
Attach invoice or account.
Cheques should only be issued if:
- You are sure the organisation’s money may be spent on the item
- You have filled in the cheque requisition form and attached the invoice or account
- The signatories have signed the cheque
- You have filled in the stub in the cheque book
- There is enough money in the bank
After paying make sure you:
- File the requisition plus the documents in a file for cheque requisitions
- You write the transaction in your cash book
Putting money into the bank account
When you put money into your cheque account it is called making a deposit. You go to the bank and fill in a deposit slip, which you get at the bank. The bank will give you a copy of the slip and this must be kept in a file for deposits for your financial records. Write the receipt number on the deposit slip so that you can easily tell what money you deposited.
Once a month, usually halfway through the next month, you will get a bank statement from the bank which is a record of all the cheques that were issued in that month and of all the deposits that were made from your account. So, on about 15 November you will get a bank statement showing all your cheques and deposits for October.
You should use the bank statement to double-check with your own financial records that everything is in order and you must let the executive see the bank statement each month. Check that all cheques have gone through the bank and that all deposits are recorded. Also record the bank charges and interest under expenditure and income in your cash book.
The most important things that you need for your daily records are a receipt book for recording income and petty cash vouchers for recording small expenses.
- these are quite cheap and you can buy them at a local stationery store. When anyone hands any money to the organisation you must give him or her a receipt which shows the amount they gave you. You give the original receipt to the person and leave the duplicate in your receipt book. When you receive money deposit it in the bank as soon as possible. It must never be used as petty cash. Keep the deposit slip as a record and write the receipt number on it. Here is an example of a receipt:
- A receipt book
Received from: …………………….. ………………….
The amount of: …………………………………………
Date ………. Rands Cents
- you should always keep some money for small payments. If you need R5 for stamps or milk you will use petty cash to make these payments. Petty cash should only be used for small expenses – pay everything else by cheque since it is much safer. The executive should decide how much money should be kept as petty cash. The treasurer should use a cheque to draw enough out of the bank each month for petty cash. This could be R50 to R100 depending on what money you spend each month on small things.
- Petty cash vouchers
The executive should decide how much money must be kept in petty cash and whatever is spent each month should be put back into the cash box by the treasurer. This is called an imprest system.
All the petty cash that is spent must be recorded on a petty cash voucher which you can buy cheaply from a stationery shop. The till slips, cash slips or invoices that you get when you pay for something must be kept as well. These slips should be pinned onto the petty cash vouchers.
Petty cash voucher
What was money spent on Amount Signature ……………………………….Name ………………………………..
Attach cash slip.
A petty cash book
At the end of each month the treasurer should record the information from all the petty cash vouchers into the petty cash book. You can use an ordinary school exercise book for the petty cash book. Make TWO columns on the right hand side of a page called INCOME and EXPENDITURE. Here is an example:
Petty cash book for April 2001
Balance: beginning of the month [carried over from last month] …………
Balance: end of month [previous balance plus Income minus expenditure] …..
Under INCOME write in the amount the treasurer drew out of the bank and put in the petty cash box. Under expenditure record all the petty cash vouchers. At the end of the month you must also balance the petty cash book.
To balance the petty cash book you must:
- Add up the expenditure column to get a total. This is called TOTAL EXPENDITURE.
- Add together the balance you had in the beginning of the month plus the income during the month. Then subtract the total expenditure from this amount. This is the BALANCE at the end of the month.
- Check that the balance is the same amount as the money left in the petty cash box.
The treasurer must then go to the bank and draw out the amount under total expenditure so that the petty cash box has the same amount of money again. This must be recorded under INCOME on the page in the petty cash book for the next month.
A cash book
A cash book is a record of all the money that moves in and out of your bank account. It should show what money you have received, what money you have spent and what amount is left over. You should also use your cash book to check the bank statement
At the end of each month all the records you keep should be recorded in one book called the cash book which you can buy cheaply from a stationery shop. You can also make your own cash book.
The records in the cash book include all the bank deposit slips, cheques, receipts and petty cash book. The deposit slips are the records for the INCOME. Income can also come from other people depositing money in your account or from interest paid by the bank – look for these on your bank statement.
The cheques and the petty cash book are the records for the EXPENDITURE. Expenditure like bank charges and debit orders will be shown on your bank statement.
The Income as well as the Expenditure is recorded in the cash book. You use two pages each month. The whole of the left-hand page is the income side of the cash book and the right hand page is the expenditure side of the cash book:
Example of the Income side of the cash book (left hand page)
The income side is called the debit side. In this example there are five main columns on the income left hand page:
Cash book April 2001 INCOME
- Receipt or voucher number
- Date of transaction
- Details - the name of the person or organisation who gave the money
- Analysis columns [the ones that are not in bold]: This tells us what kind of income it was and it should be written in the correct section. For example fundraising, donations, grants, subscriptions.
- Bank column: write every item’s amount in the right column as well as in the bank column when you deposit the money.
Before you write your income side of the cash book, make sure you have:
- The bank statement for that month
- Deposit slip copies for that month
- Receipts of money received for that month
Example of the expenditure side of the cash book (right hand page)
The expenditure side of the cash book is called the credit side.
Cash book April 2001 EXPENDITURE
All the cash and cheque payments and bank charges should be recorded on the expenditure page. In this example there are 5 main columns on the expenditure page:
- Cheque number: the actual number of the cheque, not the amount
- Date of each cheque
- Details. Write the name of the person/organisation to whom the cheque was made out and what the cheque was used for e.g. Catering for workshop.
- Analysis. The analysis columns [the ones that are not in bold] tell you what your expenses were for example running costs, stationery, transport, catering and so on. You must decide how many columns you need and what headings to use for each. Make sure that you have the main types of expenditure that you will have in the office: Running costs, Stationery, Workshops, Campaigns, Sundries.
- Bank column: Write down any withdrawals from the bank. All expenditure should be written in the right analysis column and in the bank column. Bank charges are always recorded under sundries.
To write the expenditure side of the cash book you will need:
- The bank statement for that month
- The cheque requisition file
- The cheque book stubs
Balancing the cash book - reconciliation
After writing your cash book you must draw a line under each side and add up the totals. Then you must work out the balance of what you have left over. You do this writing down the following:
Balance at the beginning of the month _____________ Plus income total for that month _____________ Sub-Total _____________ Minus expenditure total for month _____________ Balance at the end of the month _____________
Next month your end balance will become your balance at the beginning of the month.
Adding up the analysis columns
The analysis columns tell us what kind of income and what kind of expenditure there was. This will help us to answer questions like how much money did we get from province or region in one month or how much did we spend on running costs in one month. To answer this you need to have the totals for each column added up at the bottom. When you add all column totals together they should be the same as the total for the bank column.
You should also look at the bank statement and make sure that that cash book and bank statement show the same balances. Remember that your cash book may be ahead of your bank statement since some people may not have cashed the cheques you made out to them. So write your bank reconciliation like this:
Balance on bank statement: __________ Minus outstanding cheques: __________ Real balance: __________
The Real balance should be the same as the one in your cash book at the end of the month.
Monthly report backs
The treasurer must give a monthly report to the management or executive on the income and expenses for the organisation the previous month. All the books should be up to date for the report back. The treasurer should have the slips, bank statements, chequebook and stubs, invoices, petty cash vouchers, receipts, etc. at the meeting in case of questions.
At the end of each year you should prepare a financial statement for the organisation where you can give a complete picture of the income, expenditure and balance for that year. Income should be broken down into donations, fund-raising, and subscriptions. Expenditure should be broken down into running costs, stationery, workshops, campaigns and sundries which will include bank charges.
The treasurer should present the financial statement to the AGM in a way that makes it easy for people to understand. Write a summary up on newsprint and explain what is meant by each item so for example, if you spend R500 on running costs, give people an idea of what these costs were. If you raised R5000 in fundraising give people a breakdown of which events contributed what. It is also a good idea to give people a copy of the most recent bank statement so that they can see the balance for themselves.
If it is possible you should organise for an independent accountant to audit your books every year to make sure that you are doing everything correctly and so that you can prove that none of the organisation’s money has been misused. Audits cost money so it is best to ask for a volunteer to assist with this, for example the accountancy teacher at the local high school can help you.
It is very easy to steal money from organisations. This can happen in a number of ways:
- people can withdraw money with cheques that were issued without checking that the proper documents existed
- people can use the organisation’s cheques for their private purposes. This is one of the reasons why it is very important to insist that two people must sign every cheque.
- people can overcharge the organisation for things like catering if the treasurer does not check the invoices and records and also checks that the workshop or event actually happened and that the caterers provided the amount of food they invoiced you for.
- people can steal money from petty cash.
- people can take donations and pocket them if they do not have to issue a receipt
It is very important that the treasurer takes responsibility for the safekeeping of the organisation’s chequebook and money. He or she must make sure that every single payment that is made is legitimate and that the proper documents exist for these. Never pre-sign a cheque and give it to somebody else with signing powers unless you are very sure what the cheque is for. The other signatories are there for your security and the branch’s security – you must always be one of the signatories for any cheque.. It is best that you make out the cheque in their presence and that you sign it together. Only two signatories need to sign so if one signatory is sick or away the other one should be there.
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