Accounting and Finance Concepts

Accounting and Finance - Level III: Processing Payment Documentation

• This is a module to facilitate learning the process of payment documentation
• It is intended to meet industry requirements under the Accounting and Finance occupational standard.
• Nominal duration for the module is 70 hours.
• The curriculum version is V - II and based on November 2023 standards.

Module Coverage

• Entering data to system
• Payment facility
• Payments against documentation
• Effect of payments
• Documentation
• Authorized payment

Learning Objectives

• Allocate and enter data to system.
• Identify Payment facility.
• Establish payments against documentation.
• Explain Effect of payments.
• Prepare File documentation.
• Process Authorization of Payment.

Acronyms related to Processing Payment Documentation

• POS means Point of Sale
• CNP means Card Not Present
• PA means Payment Authorization
• TX means Transformation Extender
• ATM means Automatic Teller Machine

Unit One: Entering Data to System

• Basics of data and systems
• Allocating and updating data
• System controls

Basics of Data and Systems

• Data is information that has been translated for efficient movement or processing, often converted into binary digital form.
• Data can be a singular or plural subject and is an organized, machine-readable collection of symbols interpretable as a true account of some enterprise.
• Data is a collection of individual facts or statistics
• Data can be text, observations, figures, images, numbers, graphs, or symbols.
• Information is a stimulus with meaning in some context.
• When information is entered into and stored in a computer, it is generally referred to as data.
• Data is a related group of files.
• A file is a related group of records.
• A record is a related group of fields.
• A field is a specific attribute of interest for an entity (record).

Characteristics of Data Quality - Correctness, Validity, Reliability, Timeliness, Relevance, Completeness

• Data should be sufficiently accurate for its intended use and captured only once.
• Performance data is directly input at the point of activity.
• Access is restricted through secure password controls.
• Base data, i.e., denominators and numerators, will be input into the system, which will then calculate the result in accordance with published guidance.
• Data used for multiple purposes is input once by the system administrator.
• Recorded data should comply with relevant requirements and ensure consistency.
• Relevant guidance and definitions are provided, with revisions communicated within 24 hours.
• Data should reflect stable and consistent collection processes.
• Source data should be identified and readily available.
• Data should be captured quickly and available within a reasonable time to support decision-making.
• Performance data should be available within one calendar month from the end of the previous quarter.
• Data that is captured should be relevant to its intended purpose and subject to periodic review.
• Data requirements should be clearly specified based on the information needs of the organization.
• Checks will be made and an annual assessment undertaken by Internal Audit to ensure completeness

Benefits of Data

• Improve operational efficiency
• Customer Acquisition and Retention
• Focused and Targeted Promotions
• Potential Risks Identification
• Improve Supplier Networks
• Make informed decisions
• Enhanced business performance
• Strong customer relationships

Accounting Systems

• Accounting systems can be classified as Manual and Computerized.
• Proper itemized invoices must be attached to the payment request.
• Computerized systems allow users to enter a transaction once and update all accounts accordingly, referred to as an Accounting Information System.
• Computerized accounting systems consist of: People, Procedures, Data, Software, and IT infrastructure.
• IT infrastructure includes computers, peripheral devices, and network communication devices.
• The five components enable the computerized accounting system to fulfill functions such as: collecting and storing data, processing data into information, and providing adequate controls.
• Manual accounting systems use an accountant or bookkeeper to post business transactions to the general journal, ledger, and worksheet by hand, or with computer programs like Excel.
• An expense is an outflow of money for an item, service, or category of costs.
• Common expense account types include: Cost of Goods Sold, Operating Expenses, Non-Operating Expenses, and Employee/Officer Expenses.
• In a cash flow statement, expenditures are divided into operating, investing, and financing expenditures.

Allocating and Updating Data

• Allocation is the process of requesting access to an established dataset.
• System creates space for allocated data.
• Data Allocation is an intelligent distribution of data pieces, (called data fragments) to improve database performance and Data Availability for end-users.
• It aims to reduce overall costs of transaction processing while also providing accurate data rapidly in DDBMS systems.
• Fragmentation: subdivides database for efficiency. It can be Horizontal (each tuple assigned to fragments) or Vertical (schema split into smaller schemas).
• Horizontal fragmentation involves dividing a table horizontally by assigning each row or group of rows to one or more fragments, which are then assigned to different sites.
• Vertical fragmentation splits a table by attributes, with some stored in one system and the rest in others, as each site might not require all columns.
• Distributed Database Duplication involves creating and maintaining multiple copies of data in different sites so that data ensures faster retrieval.
• Data Duplication can lead to problems such as Lost Income and Wasted Costs, Lack of a Single Customer View, and Confusion among Customers.
• Data updating means modifying information in a database, potentially creating new records or storing existing data as history.

System Controls

• Any organized assembly of resources and procedures united and regulated by interaction or interdependence to accomplish a set of specific functions.
• Can be defined as a collection of interrelated components that work together towards a collective goal.
• A system is a group of interacting or interrelated elements that act according to a set of rules to form a unified whole.
• A system, surrounded and influenced by its environment, is described by its boundaries, structure and purpose and expressed in its functioning.
• Systems are the subjects of study of systems theory and other systems sciences.

Benefits of Systems Integration

• Accessibility, Accuracy, and Coordination
• Efficiency and Productivity
• Cost Effectiveness
• Availability of New Performance Insights
• Security
• Systems development defines, designs, tests, and implements new software.
• The benefits of systems development includes: reduced time, higher expectations, reliable results, higher productivity, reduced costs etc
• Benefit of system development is increased profitability
• Double entry system of accounting takes its name from the fact that every business transaction is recorded by two types of entries:
• Debit entries to one or more accountsCredit entries to one or more accounts. In recording any transaction, the total dollar

Journal

• Transactions are initially recorded in chronological order in a journal before being transferred to the accounts.
• Referred to as the book of original entry.
• Entering transaction data in the journal is known as journalizing.
• A "Special Journal" is used to record only one type of entries.
• The following are types of special journals: sales journal, purchase journal, cash receipt journal, cash payment journal, and combination journal.
• Revenues are the gross increases in capital as the result of the sale of merchandise, the performances of services for a customer, the rental of property, the lending of money etc.
• Revenues are also known as Income.
• Expense is the decrease in capital that results from the operation of a business Business expenses are the costs of items and services used to produce revenue.
• Profit occurs when the total revenue exceeds the total cost of operating a business or expenses.
• Loss occurs when the total expense (costs) exceeds the total revenue the difference is called net loss.
• Debit and credit principles are used for revenue and expense accounts.
• Companies may use various kinds of journals, but every company has the most basic form of journal, a general journal.
• Typically, a general journal has; spaces for dates, account titles and explanations, references, and two money (amount) columns.
• Useful financial information is generated through financial statements including income statement, balance sheet, cash flow statement and statement of changes in equity.
• It is called a cycle because the steps are repeated each reporting period.
• When checking for accuracy, the beginning balance sheet is accurate if it is in balance.
• Every journal entry is accurate if the sum of the debit entry equals the sum of the credit entry.

Unit Two: Payment Facility

• Key Topics covered: Characteristics of payment facility & Maintaining Documentation

Payment Facility

• Payment is the voluntary transfer of money, equivalent, or other valuable items from one person to another in exchange for goods or services received or to meet a legal obligation.
• Payer is who gives the money, while payee is who gets the money.
• Includes the interchange of money, goods or services for goods sand services in an acceptable agreed upon amount.
• Payment methods: Cash, check, wire transfer, or debit card
• Money is convenient for transactions that makes it easy to store.

Privacy

• Refers to whether the payment model is anonymous or not
• Includes third party tracing who was involved in payment transaction

Security of Payment

• Concerned with whether the payment method is secured
• Includes easy ways to perpetrate different kinds of fraud

Transferability of Payment

• Refers to whether a payment can be carried out a third party such a bank

Divisibility of Payment

• Refers to whether a payment can be divided into arbitrary small payments
• Whose sum is equal to original payment

Acceptability of Payment

• Refers to whether the payment method is supported globally, i.e. not by a closed group only.

Types of Payments

• Credit: Using credit and debit card, although businesses are charged a fee by both merchant and bank.
• Cash: Still widely used; however, at risk of being stolen.
• Mobile Phones/Contactless Payment: Made it easier to pay over the last few years
• Checks: Still useful when vendor needs a guarantee of payment.

Maintaining Documentation

• Documentation is any communicable material that is used to describe, explain or instruct
• This regards some attributes of an object, system or procedure (example: parts, installation, maintenance and use)
• Documentation encourages knowledge sharing
• Process and finished products are easy to learn

Types of Documentation

• Product Documentation: Information related to product (example: specifications, manuals, logic etc.)
• Process Documentation: Step-by-step guide (example: policy, tutorial or a flow chart)
• Sales & Marketing Documentation: Help your sales team close deals
• Sales documentation is writing down anything that helps your sales team close deals.
• Marketing requirements document tells you how to market a particular product.
• Payment documentation defines all documents of a payment.

Product Documentation

• System Documentation: Architecture, design, and source code used by product designers and manufacturers
• User Documentation: Helps users be successful with service, depending if the audience is non-technical or technical

Process documentation includes:

• Step-by-step procedures: specific tasks
• Checklists to ensure consistency
• Tutorials with tips and best practices
• Maps for visual representation
• SOPs (Standard Operation Procedures) with formal instructions.
• Workflow for operations, interaction between different roles

Unit Three: Payments against Documentation

• Confirming authorization for payment
• Discrepancies of payment facilities.

Confirming Authorization for Payment

• The process of verifying the amount to be drawn on a payment method
• For credit cards, the system looks in the credit card systems for authorization by contacting them.
• Payment authorization, also card authorization, confirms a customer has enough funds

Importance of Payment Authorization

• Minimize fraud and chargebacks
• Confirms the authenticity and verification of a transaction
• Minimize errors: mistakes happen during payment all the time
• CNP payments may incorrectly key in payment digits or transpose the number.
• Establish positive merchant reputation.
• This shows a processor the business is serious.

Credit Card Authorization

• Process that's quick and automated.
• Three-steps: customer uses credit card, authorization for request sent to bank, request either approved or declined.
• The organization or system hosting POS device, sales support oversees
• If client's credit is in good standing the payment terminal will get authorization message, the merchant can place authorization hold, and sale completes.
• It may not be possible to collect payment personally

How to Collect Payment on Behalf

• Authorize someone in writing, like a signed authorization.
• CNP agreements between cardholder and business regarding product or service and helps confirm payment details agreed with customer Ensures that payment will debit correctly.

Payment Authorizations Forms Include

• The agreement/date, merchants' address, billing address, any business being authorized
• Name on Card or Accounts
• Specific cards and other codes
• Signature and Account Holder

Discrepancies of payment facilities

• Invoice discrepancy means discrepancy between the accounts of Paying Party or related issues with invoices
• Invoice is a document by seller to collect payment
• An auditor may review every invoice for audit association, as well as asking every customer to confirm

Invoice Elements Include

• Cost of services, name of client, descriptions, terms of sale, customer information, identifying the transaction.

Evolution of Invoice for Payment

• Stone Invoice: Transactions were carved in 5000 BC Mesopotamia
• Hand-written invoices: Animal skin, parchment, paper with signatures
• Electronic invoices: Reduce cost of labor with the help of computer changes
• Online Invoices: Paperless sent online
• Mobile invoices: Saas (Software as a service) invoice automated

Function of invoice

• Needed to demand payments, which is both parties agreed conditions

Maintaining Records for Invoice

Helps with audit of when, who, and what happened.

• Payment tracking for both buyer and seller accounts
• A proper invoice includes all details for Legal projection

Invoice and Easy Filling

• Records help report payments income and ensure it is correct
• Analytics include buying trends and identify product peaks as easy marketing strategies.

Types of invoices include pro forma, interim, recurring, final, collective, credit, and debit.

Unit Four: Effect of Payments

Key Topics covered: Payment arrangements, instruments, and cancellation

Effect of Payments

• Concerns types of credit, licenses of payment, classification, and updating.
• Credit is something of value that a consumer recieves and agreeds to later pay off, with interest, in the moment.
• Types of Credits are Trade, Bank, and Revolving.

Trade Credit in Business

• Credit when the customer promises to pay money later for goods, but customer promises promise money later,
• Supplier can guarantee based on relationship, financial capacity or Business Rules.

Bank Credit

• The bank gives loans and credit facilities to clients (secured by assets,worthiness)
• Bank guarantees are also part of the bank credit.

Revolving Credit

• Credit extension that continues, and keeps the account open.
• Lenders continue the credit so long payments are regularly deposited
• Credit Card payments happen regularly
• Limit of Credit is extended, with payment due

Other Credits

• Other credits are monthly, quaterly, fixed, installment and mutual.
• Some credits like service credit can have late payment and may cancel (like a subscription if you fail to pay)

Installment Credit

• When obtaining credit or Banks or such, they set a fixed monthly payment with some interest.

Mutual Credits

• Payment cancels because an equivalent agreement is made
• It's cancelled and the balance is settled, such as debtor/creditor relationship.

Service Credit

• The credit is given when the service is used earlier like filing taxes or electricity.

Payment Instruments

• Defines how a payment will be made, electronic or non-electronic
• Examples are checks, warrant, Travelers Cheque, electronic instrument, or other means

Ethiopia Payment Instrument

• Licenses can be obtained according to directive, by sending a complete application NBE
• May request a preliminary meeting that approves request made to the national bank

National Bank Oversees These Payments and Approvals

• Domestic remittances Load to card, card payments Payments from merchants International transactions

Classification of Payment Instruments

• Include Physical(Cash Money) or Non-Cash (Means of Credit Transfers)

Credit Transfers

• Payment service by service provider
• Funds transfer to accounts against payer's rule
• Payer and payee can be same

Checks for Payments

• Specific Fund amounts
• Negotiable instrument funds used by the payee, and from payee-> payors bank

Payment Cards

• Are usually credit or Debit

Credit Card

• Lets customers borrow or pay pre-approved credit limits
• Makes paying for purchase that much easier.

Debit Card

• Allows cardholder to acquire services or goods based on Bank or ATM

Retail Cards

• Retailers can also issue cards
• Only used at shops at only THAT retailer
• This provides a deferment of payment Sometimes without the payment of fees

Prepaid Cards

• Act like debit cards technically, but in the "loaded" and be used online to buy things, but this has no payments over time to help raise Credit Score.

Direct debits

• For utilities, payers pre-authorize transactions
• They will receive a corresponding invoice for future transfer amounts
• They have an indefinite timeframe and run until cancelled.

Cancellation Payment

• To make voiding payments

1. Call company and tell them to cancel
2. Cancel permission for company to pay for payments
3. Follow up with emailing, and explaining if you wish to cancel your ongoing subscription and how to change your payment settings

Unit Five: Documentation

Documents are kept secure

• This unit teaches students how to secure and readily obtain the best documentation.*

Records Filing

• Kept in a secure location with quick/fast

• Filing helps in any organization from losing or destroying documents

• It helps organization, efficiency and systemization Filing systems help access information easily

• There are a total of six steps needed to properly secure.

• The organization will use group work or receive/send files

• Document should be known about to be accessed

Documentation Includes

• Filing by category, subject, Alphabetical Order, Number , Place Geographic Dates

Filing in alphabetical, numerical, and alpha-numeric order are the most used ways.

• Alphabetic is used for less than 5,000 records. Filed by topic, agency, location, subject. Good for customer names.
• Numerical: Uses sequential order from record
• Type, index, and easier to find Numerical increases file productivity and quick access.
• alpha: number file uses names/numbers It's an index for the alphanumeric files as a relative measure

Documentation - Storage

• Paperless filing helps physical storage and solved misplaced data. A paperless filing system allows for shared access.

Elements in The Process of Documentation

1. Documentation of what's to be provided
2. Know who needs it
3. List end results
4. Detail inputs equipment is needed for the project
5. Determine who is involved

Digital files

• Can provide valuable info for file or system
• Useful for configuration, variable setting, and examines Trace file is a text or XML file that is for the current map execution Helps diagnose invalid data or corrupt definitions (trace general data) For data, record it as an adapter from line, map settings, imput and output too. Tx validates, which is for errors in the map, or other map outputs.

Unit Six: Authorization of Payment

Topics

1. How to Authorize
2. Release Of Finds
3. Payment Authorization

Overview

• To explain methods of authorization payment, using releasing funds, use payment authorizations*

Payment System

1. Verifying user payment, card numbers, PayPal, etc.
2. Credit card: User has card, request sent then given for service

Payments Include

• The merchant subbmits a transaction request of bank accounts
• Who then verifies or denies
• This checks cardHolder funds

Transactions are authorized, your business is charged fees

• Each is charged for services
• Pending for account and is not avail

Failure

• Banks charge fees
• Authorization is a process through which the total payment amount is confirmed to the client and merchant, or payment system itself.

When Payment is Verified

• The business can perform transaction
• If issues persist it is good to hold Authorization can fail, you can hold shipping etc until it goes through

Other

• An authorization is only a type of payment transaction (to hold) by bank account from cardHolders to pay for service
• There's always an authorization process through institution card and issuer card (Visa, Mastercard, Capital One etc.)
• When authorized the payment happens, so money can be processed on customer statement, with potential expiration date (7 days etc.)