CHAPTER 11

3.1CHECKING INVOICES AGAINST SUPPORTING DOCUMENTATION

When purchase invoices are received from suppliers, they must be checked. If there is any problem with an invoice, it should be followed up with the supplier immediately.

Three types of check may be required

• 1that the invoice details are correct
• 2that there is a document such as a purchase order or authorised price quotation, showing that the goods or services detailed on the invoice were properly ordered
• 3that the goods ordered were all delivered and in good condition, or that the service was delivered to the buyer's satisfaction.

The individual who does these checks needs to compare the invoice details with other documents, in particular the purchase order (or contract or price quotation) and the signed delivery note from the stores or warehouse team. This means that the accounts department should retain a copy of this supporting documentation. A copy of the appropriate documents should therefore be sent to the accounts department when they are created or received. Within the accounts department, there should be a system of filing these documents so that they can be traced easily when the purchase invoice is received, such as:

• •purchase orders for which no invoice has yet been received can be filed in purchase number order.
• •the delivery note should be attached to the purchase order when the goods have been delivered. The supplier's delivery note should show the purchase order number, which means that it should be easy to match by number the delivery note with the filed copy of the purchase order.
• •the supplier's invoice should also give the purchase order number as a reference, so that the invoice can be matched with the purchase order.

3.2CHECKING THE INVOICE DETAILS FOR CALCULATION ERRORS

Each purchase invoice should be checked to make sure that its details are correct.

If an invoice has been prepared manually rather than by computer, there is always a chance of an arithmetic error. There may be an error in multiplying a quantity by a price, or in adding up a column of figures. Even an invoice generated by a computerised system should be checked, including checking that the correct rate of sales tax has been charges and calculated on the invoice.

The recommended procedure should therefore be to check all the calculations on an invoice. If there appears to be an error, the supplier should be contacted, probably by telephone, and asked to confirm the error and issue a credit note or an amended invoice to resolve the problem.

3.3CHECKING THE SALES TAX CALCULATION

You may need to take particular care with the calculation of sales tax. Remember that when the supplier offers a settlement discount for early payment of the invoice, the sales tax should be calculated on the assumption that it will not be reduced to account for the settlement discount. Accounting for a reduced amount of sales tax due to settlement discount is excluded from the ACCA FA1 syllabus.

When sales tax is charged, you should also check that the invoice is appropriate for the relevant sales tax. The supplier's sales tax registered number should be shown on the invoice.

3.4CHECKING INVOICES FOR SERVICES

There are fewer items to check on an invoice for services than on an invoice for goods. However:

• •invoices for services should be checked for arithmetical accuracy, if they have been manually prepared
• •the amount charged should be checked against supporting documentation if it exists. For example, an invoice for the services of temporary office staff should be checked against the time sheets of the individual or individuals.

In many cases, however, there might be insufficient supporting documentation in the accounting department. For example:

• •if an invoice is received for quarterly rent of premises or for hire of machinery, the accounts department may not have a copy of the rental or hire agreement and so cannot check the invoice for accuracy
• •regular invoices for gas, electricity, telephone charges and water supplies cannot be checked for reasonableness by the accounts staff
• •there may be other regular invoices for repeated services, such as monthly invoices for office cleaning services or three-monthly invoices for waste disposal services.

In such cases, the invoice should be referred to a person who is in a position to authorise the invoice for payment. This could be an office manager, for example. Authority can be evidenced by signing or initialling the invoice, whatever the established procedure happens to be in the business.