2.

Periodically, the petty cash fund should be replenished. At that time, vouchers are used as source documents in recording petty cash expenditures in the cash disbursements journal. Chapter XVI discusses accounting for petty cash in greater detail.

RECORDING FINANCIAL TRANSACTIONS IN JOURNALS AND
REGISTERS

Journals are also called books of original entry because entries into them first officially recognize a financial event. Each financial transaction is recorded individually, in chronological order. Double entry bookkeeping is used, i.e., for each financial transaction, balancing debits and credits are charged to the appropriate accounts. At the end of each month, the journals are totaled and a summary of the total amount charged to each account is posted to the appropriate accounts in the general ledger.

Visually, journals have both rows and columns to facilitate grouping of financial transactions by general ledger code. In turn, this facilitates the next accounting step--posting to the general ledger.

The procedures for completing journals are:

Source documents supporting each financial event are pulled together, verified as to authenticity- and accuracy, and coded according to the MAS.

Using source documents, each financial event is recorded in appropriate journal and/or register.

At the end of the month, the columns are totaled. By procedures called footing (totaling amount down a column) and crossfooting (comparing the grand total to the sum of the column totals), the balance between debits and credits is checked.

Errors are analyzed and corrected. To find an error, first recalculate the totals. If no error is found, check each line to be certain that debits equal credits.

When the accuracy of the calculations is assured, mark (X) on the bottom of each column and the bottom right side () of the appropriate journal page.

The type and number of journals vary depending on the level of financial activity and accounting method used. Under the modified accrual basis method of accounting, most AAAs will need the following journals:

Cash Receipts Journal

Cash Disbursements Journal

Payroll Journal (organizations employing five or more staff)

In-Kind Contributions Journal

General Journal

In addition, the modified accrual system requires maintaining several auxilliary registers on which accrual information is stored for use in preparing accrual basis financial statements. These registers are:

Billing Register

Resources on Order Register (Memorandum Account) and Unliquidated Obligations Register (Contra Account)

Accounts Payable Register or File

These eight accounting records are discussed below.

(1) Cash Receipts Journal

The cash receipts journal is the book of original entry in which the receipt of cash is recorded. Each financial transaction is recorded by debiting cash received and crediting the appropriate revenue account. Revenues likely to be generated by the AAA include Federal grants, State and local matching funds, Title XX reimbursements, and client contributions. Remittance advices, copied checks, cash collection reports, and pledge receipts are the source documents used to record transactions in the cash receipts journal.

The columnar headings in this journal generally consist of: date, revenue source, debit for the amount of cash received, bank deposit and date, a credit column for each revenue account in the general ledger, and an explanation column. Exhibit XIII-1 shows a sample cash receipt journal.

In addition a subsidiary cash receipts journal can be maintained for each revenue account in the general ledger. This journal would identify each revenue item by funding title, functional cost center, location, and service activity.

(2) Cash Disbursements Journal

The cash disbursements journal is the book of original entry in which amounts disbursed by check are recorded in chronological order. Each financial transaction is recorded by:

Debit:

General Ledger Expenditure Account(s) 600-690

Credit: Cash In Bank

Vendor invoices, subgrant or contract invoices, service agreements, employee timesheets, and petty cash vouchers (when approved for payment) serve as source documents for the preparation of checks. Exhibit XIII-2 shows the format of the cash disbursements journal.

There are generally two manual methods by which transactions are recorded in the cash disbursements journal:

(3)

Conventional Manual Method-Check stubs or copies on which the appropriate MAS codes have been written are used to record each disbursement in the cash disbursements journal.

Commercially Packaged, One-Write Method-Source documents on which the MAS codes and authorizing signature are written are used to initiate journal entries. The check and the cash disbursements journal entry are created simultaneously via a carbonized strip on the back of the check. Many commercial bookkeeping supply firms carry one-write systems. Payroll Journal

When an AAA employs more than five staff, it should separate payroll expenditure transactions from other cash disbursements by using a payroll journal. Two source documents are used in completing the payroll journal.

Time sheets, completed by each employee and submitted at the end of each pay period, state the number of hours worked, sick or vacation time taken, and any other unusual items to be considered in preparing the payroll. Exhibit XIII-3 provides the format of a payroll journal.

Employee earnings cards are year-to-date records of each individual's earnings (including gross pay, deductions, and net pay), salary rate, number of withholdings, and other tax information.

Together, these two documents are used in preparing periodic payrolls. There are three methods of handling payroll disbursements:

Conventional Manual Method-Check stubs or copies, on which the appropriate MAS codes have been written, are used to record each financial transaction in the payroll journal.

Commercially Packaged One-Write Method-Source documents, on which the MAS codes are written, are used to initiate journal entries. The check, the payroll journal, and the employee earnings card are recorded simultaneously via carbonized strips.

Automated Payroll Services--Many banks or accounting service companies provide automated payroll preparation functions. This method may be economical when an AAA has 15 or more employees.

(4) In-Kind Contributions Journal

AAAs often receive noncash support in the form of goods and services, personnel, or occupancy. Frequently, these are provided as local matching support or contributions. Fair market value is used to determine the amount of