Payment vouchers and their journal entry

Payment vouchers are used by companies as proof of payment for a cash transaction with their suppliers. For internal control purposes, they are duly signed by a minimum of three persons including the staff initiating the transaction and an internal control officer. In this article, we will explain this source document as well as show the journal entries. 

What's Payment Vouchers

These are instruments used internally by an organization to show evidence of payment for a cash transaction. A payment voucher is a source document used by a company to initiate payment for expenses, purchases, and expenditures. As an internal document, it is necessary that several employees at higher levels of authority (that is, managers) duly sign the voucher. 

A payment voucher is necessary for the physical cash transaction as well as bank transfers. In some cases, the invoice provided by the supplier is attached to a voucher to show proof of payment. This can be done both physically and/or electronically. This will make it easy for internal and external auditors to carry out their call-over tasks when needed or during an audit trail.

Failure of an internal control procedure on the authorization of this source document may lead to fraud. How? If anyone is allowed to make payments without proper authorization, employees can use the medium to embezzle money from the company. Therefore, it is paramount that the document is duly signed. As a general rule, a minimum of three staff should sign the authorization of the document. 

This includes the employee making the payment and two heads of department (the head of the department in which the expenses will be incurred and the internal control officer) or their subordinate. However, for material transactions, the finance head and the chief executive officer (or managing director) must sign a payment voucher. 

How to record payment vouchers and their journal entries

For large entities, payment vouchers will go through the book of prime entry before being posted to a ledger. However, the journal can be used as the subsidiary book for the source document. In this case, the journal entry will include the cash/bank account and the expense, purchase/supplier, or noncurrent assets involved.

For example, if a payment is made to a supplier for goods previously purchased on credit. Then you debit the supplier account and credit the bank account. Also, if a payment is made for electricity, debit the electricity/utility bill account and credit the bank account. This is also true with a payment for capital expenditure such as the acquisition of a solar system. 

In conclusion, payment vouchers are used as evidence for transactions that occur within an entity. It must be duly authorized by a minimum of three staff. Most transactions done via this source document are debited and the bank account is credited.