CHAPTER II

THE VOUCHER SYSTEM Purchasing for the Manufacturing Business Accounting for the business which manufactures its own product is a much larger problem than that for the concern which limits its activity to purchase and sale of a stock-in-trade. To the activities of a trading concern the manufacturing business adds those of the factory. Not only must more property, and a larger variety, be kept account of and handled so as to get the most efficient return therefrom, but also in the handling and operation of this property a somewhat distinct type of expenses is incurred. The problems of financial and factory management and control are different and more complicated than those of the trading business. The period between the expenditure of funds for the purchase of materials and the payment of expenses and the receipt of money from the sale of the finished product is much longer. More working capital must therefore be provided and its rate of turnover is less. A larger element of risk enters in. Raw materials must be worked and fashioned, machinery must be employed, a different class of labor must usually be handled, perhaps will have to be trained—these are problems calling for a special type of management for the manufacturing end of the business. The accounting department must be organized to serve these additional demands and complexities of management and to give the needed information. The amount and cost of the materials consumed in making the product, the labor cost expended on it, and the various items of factory expense incurred, during one period as compared with the same items for previous periods—all must be kept under constant review if successful operation is to be secured. Expansion of the Purchase Journal To make this information available as soon as the transactions giving rise to it are entered into, a different method of gathering the information becomes necessary. Because of the fact that the purchase journal is limited to the record of purchases of stock-in-trade, and that information in regard to expenses incurred is not usually brought on the books until payment of them is made, not only do the books fail to give the service which a management has a right to expect of them but they fail to reflect many liabilities at the time they are assumed. Thus a new type of record is needed. This has led to an extension or expansion of the purchase journal. The way in which this journal can be used so as to analyze purchases of stock-in-trade on a departmental basis has been explained and illustrated in Volume I. This new use of the purchase journal is merely an extension of the principle of analysis there developed. Instead of limiting it to a record of transactions involving purchases of stock-in-trade, every purchase transaction, whether of assets, supplies, or of service of any kind, finds this its place of first record. By introducing sufficient columns, as detailed an analysis of all the purchasing activities of the business can be secured as may be desirable. Furthermore, entry here being made at the time of the purchase rather than at the time of payment for the purchase, the books make available a mass of valuable data needed for purposes of management much sooner than it becomes available under the former restricted use of the purchase journal. Development of Voucher System Had the evolution of this record stopped here, the resulting gain would have been secured at high cost. The entry of all expense purchases in the purchase journal creates the necessity of opening accounts on the ledger with numerous creditors for small purchases, as well as the more important items, both to show the liability incurred and to provide a means of canceling it when payment is made. In large corporations, where oftentimes the policy of securing bids on all purchases is followed, resulting in a constant changing of firms from whom purchases are made and no regularly established trade with any of them, the burden of handling the creditors ledger becomes an increasingly heavy one with little or no gain in desirable information furnished by it. Accordingly, a further development took place which eliminated the necessity of opening regular accounts with every creditor, but instead made every transaction, whether one or many were entered into with the same individual, independent of all others. This makes possible the showing of the settlement of that transaction in the place where its original record was made, without opening up a ledger account for it. This use of the purchase journal with some slight additions has given rise to the so-called “voucher system” of handling purchases. Definition and Description of Voucher In a broad sense, a voucher is a statement which certifies, i.e., vouches for, the correctness of a transaction. As used in the restricted sense to which it is limited under the voucher system, it is a more or less formal document which shows a receipt for a particular bill of items. As distinguished from a receipt in general, this latter term is applied to all acknowledgments of money paid whether or not for a particular bill; whereas the essence of voucher accounting requires receipts for particular bills. At law a voucher has no more weight than an ordinary receipt, and a signed receipt is only prima facie evidence, capable of refutation, though the burden of proof of non-payment is placed on the complainant. A formal voucher must therefore provide for a statement of the bill of which payment is being made and a place for acknowledgment of receipt of payment by the payee. Usually provision is made also for: (1) certification of the correctness of the bill by properly authorized house employee and its approval for payment; and (2) a proper distribution on the accounting records of the payments authorized, i.e., an official determination of the debit and credit entries to be made on the books. A form of voucher is shown on pages 30, 31. On the face of the form provision is made for (1) detailed statement of bill; (2) house approval of same; and (3) receipt form to be signed by payee. On the reverse side of the voucher the distribution of the charges is provided for. This is the bookkeeper’s authorization for making the indicated entries on his books. The form is so devised that, when doubled, it is of a convenient size for filing in a vertical file. Operation of Voucher System When the invoice covering any purchase is received, it is held till the commodities bought arrive. After inspection and acceptance of the goods, a voucher is made out in duplicate on which is written a copy of the invoice, with the cash discount, if any, shown deducted. Vouchers are given consecutive numbering just like checks. If immediate payment is to be made, the voucher will be “approved” and check drawn for the amount. The voucher with check attached is sent to the creditor with a request that he receipt the voucher and return it. A creditor is not usually particularly interested in helping another concern keep its books and the result is that a large number of vouchers find their way into the creditor’s waste basket. It is here that the duplicate copy retained in the files serves to keep the file of vouchers complete, though it does not, of course, constitute a receipt for the payment. Sometimes before sending the original voucher, the distribution of the charges is made on it, and it is used as the basis of the bookkeeper’s entries. An objection to this method is frequently made that the creditor is thus given some insight into the business and perhaps a more intimate view of it than may be desirable. Where such is the case, only the office copy of the voucher shows the distribution and the book entries are made from it. Both may be filed together when the original is returned, or the one may be filed numerically according to voucher numbers, the other alphabetically according to creditors’ names and so serve as an index to the numerical file. [Illustration: _Voucher (face)_] [Illustration: _Voucher (reverse)_] In some concerns the canceled checks when returned by the bank are filed with their respective vouchers; in others, they are filed separately in their own sequence. Inasmuch as each voucher also carries its check number, cross-reference is easy. Voucher Check The difficulty referred to above in securing prompt return of receipted vouchers has led to the introduction of a combined voucher and check called a “voucher check.” The indorsement on the check, which is necessary for its collection, serves at the same time as a receipt of the bill. All vouchers thus ultimately find their way back through the bank. The legality of the indorsement serving also as an acceptance of the check in payment of the stated invoice has been thoroughly established, particularly when on the blank space for indorsement attention is drawn to the fact that such indorsement will constitute a receipt for the bill; or where the face of the check states that it is full payment for the invoices covered by it. Two forms of voucher check are in use, the folded check and the single. Below are given illustrations of both. If such checks are not unduly large, banks do not object to handling them. Because of lack of room on the voucher check, provision is not always made for showing the distribution of the charges. The single form of check can be used when a detailed statement of invoices is not desirable or when invoices carry but few items. Such a voucher check, but differing somewhat from the one shown, is frequently used for the payment of dividends to stockholders and does away with the need of a formal receipt or of signature in the dividend book. [Illustration: _Voucher Check—Double (face)_] [Illustration: _Voucher Check—Double (reverse)_] [Illustration: _Voucher Check—Single_] Form of Voucher Register The “Voucher Register,” or the “Accounts Payable Register,” as it is sometimes called, is the book of original entry in which the voucher and its distribution are recorded. This register is a journal so far as its scheme of debit and credit is concerned, but its record is not usually supplemented by a formal subsidiary ledger—though it may be—posting of it being limited to the general ledger. The register must provide columns for date, voucher number, name of creditor, explanation, amount, distribution, and payment. There are many different forms and rulings, the information desired never being quite the same in any two businesses, but a typical form of voucher register is shown on page 35. Distribution of Vouchers As soon as a purchase invoice has been approved, a voucher—sometimes called a voucher jacket where the original invoice itself is attached to it—is made for it, the distribution of the charges is authorized, and entry is made in the voucher register. All vouchers are numbered consecutively and entered in numerical sequence, which is usually also chronological sequence. The amount of the voucher is entered in the total column, Vouchers Payable or Accounts Payable, whatever the account title is on the general ledger. The next column, Purchase Discount, may or may not be merely a memorandum column, depending on the use made of it, as will be explained later. [Illustration: _Voucher Register (left-hand page)_] [Illustration: _Voucher Register (right-hand page)_] From the Vouchers Payable column, distribution on the same line is made into the columns for the various accounts to be charged. To secure a complete distribution without waste of space, a Sundry Charges column is provided for entry in detail of all items of infrequent occurrence, each account to be charged being named in the explanation space to the right of this column. Following this comes the record of date and manner of payment, with a final column in which to extend at the end of the month all unpaid vouchers and so indicate the detail of the total outstanding liability. The voucher record is capable of almost indefinite expansion through the use of short-margin insert sheets. Provision can in this way be made for a large number of columns for analysis. Posting of Summary Totals At the end of the month, or oftener if desired, the voucher register is summarized and posted. Inasmuch as usually no subsidiary ledger is kept when the voucher system is in use, there is no day-to-day record on the ledger of the purchasing activities of the business. Accordingly, a complete double entry must be made by way of periodic summary. It was at one time thought desirable to make this summary entry through the general journal or, at any rate, by setting up a formal journal entry on the face of the voucher register. As the degree of analysis increased, the futility of such a procedure became apparent and now posting to the ledger accounts is made directly from column totals as shown in the illustration. The Sundry Charges column is posted in detail to the named accounts as indicated. Proof of distribution should always be secured by checking the total of the distributive column totals against the total of the Vouchers Payable column. In posting, the total of the Voucher Payable column is credited to its account, while the totals of the distributive columns are debited to their respective accounts. Effect on Cash Book and Bank Account The advantage of this periodic posting of expense column totals as compared with the detailed posting of such items from the cash book as required under the old method is apparent. The cash book is in this way relieved of all need of naming the account to be charged for each detailed entry, the proper charge having been made from the voucher register. If every transaction which will ultimately give rise to a disbursement of cash is vouchered and therefore recorded through the voucher register, there is really no need of a detailed entry of the checks on the cash book, for only their total is posted. It is perhaps more usual, however, to enter them in detail on the cash book. Entry here is, as always, chronologic, by date of payment. Sometimes, to facilitate reconciliation with the bank account, the voucher checks are given a new series of numbers known as treasurer’s numbers when issued in payment of invoices. Where this is done, the cash book shows entry of all checks in the numerical sequence of treasurer’s numbers, just as entry in the voucher record is in the sequence of voucher numbers. Some checks are held before issue longer than others, due to different lengths of credit term, etc.; hence the need for this new series of numbers. Payment of Vouchers After a voucher has been made up and entered in the register, if payment is to be made immediately, it is passed for payment by the treasurer or other fiscal officer and the check is drawn and issued. Any cash discount offered is shown deducted on the face of the invoice and the check carries the net amount. Where payment is not immediate, but observance of the terms of credit is necessary to secure the discount, the voucher should be filed away in a tickler file which will automatically bring it up for attention at the proper time. The original invoice is placed in a temporary file, arranged alphabetically, until paid, when it may be removed and filed permanently with the paid voucher. Upon payment of the voucher, the check is entered among the cash disbursements and a notation is made in the payment column of the voucher register as to the date and manner of payment. Voucher Index of Creditors It has been stated that one of the essential features of the voucher system, as it is usually operated, is the dispensing with the formal creditors ledger. This is accomplished by treating every transaction as an independent unit, numbering it, and providing a place in the voucher register to indicate its payment, so that there is no need of a separate ledger to keep track of the cancellation of the liability. The voucher system fails, however, to give a record of volume of business done with each creditor. Furthermore, it is often desirable to make reference to past transactions with creditors. This would be very difficult without a definite knowledge of the voucher numbers under which account has been kept of the transactions with a particular creditor. Accordingly, for the proper operation of the system an alphabetic index of creditors must be made up on which should be shown the voucher numbers relating to transactions with each creditor. This is usually of the card index type, each creditor being provided with a card on which is noted a list of the vouchers recording the business done with him. This voucher index, while not a ledger in the accepted sense, yet when operated in connection with the Payment column in the voucher register serves all the essential purposes of a creditors ledger, and the use of the “Unpaid Vouchers” column, as explained above, secures at the end of the month the detail of the summary account, Vouchers Payable, carried on the general ledger. Control of Vouchers Payable With the elimination of the detailed ledger record which served as a check on its controlling account on the general ledger, particular care must be exercised to see that the control account, Vouchers Payable, reflects the correct summary of all detailed liabilities. This is readily accomplished when every item that leads to a disbursement of cash is vouchered. Then the only postings to “Vouchers Payable” come, for their credits, from the total of Vouchers Payable column of the voucher register, and for their debits, from the total of Vouchers Payable column in the cash book.