How to match paper records to computer data ?

It is a common  misconception that computerized bookkeeping inevitably does away with the need for paper. This may be the case if you have a reliable scanning system, but for most businesses the paperless office is as far away as ever. Every piece of data which is entered into the computer must be explainable in some way

Bookkeeping entries will commonly fall into four categories:

  • sales invoices
  • purchase invoices
  • bank transactions
  • non-cash journals

 The computer system should automatically number sales invoices in sequence, and indeed since 1 October 2007 sequential numbering has been a legal requirement for VAT-registered businesses. It is not strictly necessary to keep a paper copy of every sales invoice, provided that a copy can be reproduced from the system on demand, but it is good practice to keep a printout of the sales day book (see Chapter 2), and the auditors will invariably ask to see it.

Purchase invoices too should be sequentially numbered on receipt. This internal number is not to be confused with the supplier’s invoice number. If the business does not operate a scanning system, they should be duly authorized and filed in numerical order so that they can be easily retrieved by the auditors or VAT inspectors. VAT-registered
businesses should be aware that every item of VAT reclaimed on purchases must be backed up by a VAT invoice, and if the inspector cannot find one, he has the right to demand that the business pay the VAT back. Under VAT law, purchase invoices must be retained for six years (from the date of the invoice). It is acceptable to scan and then shred invoices provided that they can readily be converted into a legible form at the request of a VAT inspector.

 Most bank payments and receipts relate to purchase and sales invoices, but there will be others whichdo not. They commonly relate to salaries, tax and direct debits. It is good practice to reference each such transaction in
the computer system to a paper document such as an authorized payroll, a tax return or a direct debit instruction. The last category is the one which businesses most commonly forget to file in a logical order, which causes headaches for auditors.

Non-cash journals will typically include depreciation of fixed assets, adjustments to tax liabilities, loan interest, accruals and prepayments, and correction of errors. The temptation for a busy bookkeeper is to key these journals into the computer and make a mental note to produce a paper document later, which is then forgotten. It is important to create an audit trail at the time of posting, which may be in the following form:
                                           Debit               Credit 

Electricity and gas           350.78          

Stationery                                                     350.78

Correction of purchase ledger invoice 10045.

 Date of posting: 15 January 2008

Accounting period: December 2007

 Journal number: 2976