Final answer:
A process for approving and documenting all purchases and payments on account is referred to as a voucher system. It is a series of steps that includes the creation, approval, and processing of vouchers to ensure all transactions are authorized and recorded properly.
Step-by-step explanation:
A process for approving and documenting all purchases and payments on account is referred to as a voucher system. This type of system is particularly important in business accounting practices as it helps maintain a clear audit trail for every transaction. In a voucher system, when goods or services are received, the responsible personnel will generate a voucher that details the transaction.
This voucher acts as an authorization for payment, typically including information such as the vendor's name, items purchased, quantities, prices, and terms of payment. Once created, the voucher is then reviewed and approved by the appropriate authority within the company. This ensures that all expenditures are necessary and within company policy before they are processed. The methodical approach of this system allows for effective monitoring and control of corporate finances, minimizing the risk of errors or fraud.
There are other systems such as the imprest system, typically used to manage petty cash, and the reconciliation procedure, which verifies that the balance in the company’s accounting records matches the amount of cash in the bank. However, when it comes to managing purchases and payments on account, the voucher system stands as the formal process.