---
title: "Coding and approving a bill"
description: "One supplies invoice coded to two accounts, and the approval matrix that decides who signs: limits by amount, and the two rules that hold at every limit."
canonical: "https://lopifi.com/learn/coding-and-approving-bills"
---

# Coding and approving a bill

> One supplies invoice coded to two accounts, and the approval matrix that decides who signs: limits by amount, and the two rules that hold at every limit.

Source: https://lopifi.com/learn/coding-and-approving-bills
Part of: Lopifi — Planned: US GAAP books on autopilot, checked by a CPA (https://lopifi.com)

---

**How should a bill be coded and approved: GL accounts, approval limits and who may sign?** One supplies invoice coded to two accounts, and the approval matrix that decides who signs: limits by amount, and the two rules that hold at every limit.

A bill is a request to move money, and two decisions are made at the desk before anything is paid. Where does the cost belong? That is [coding](https://lopifi.com/md/glossary/invoice-coding). Who says it is right? That is [Approval](https://lopifi.com/md/glossary/approval). Both are cheap to get right when the bill arrives and expensive to find wrong at year end. Northwind's supplies invoice OW-5521 is the example: one invoice, three lines, two accounts.

| Line | Quantity | Unit price | Amount | Account |
| --- | --- | --- | --- | --- |
| Shipping cartons | 200 | 1.25 | 250 | 6700 Equipment and supplies expense |
| Label printer | 1 | 389 | 389 | 6700 Equipment and supplies expense |
| Inbound freight on the drill restock | 1 | 180 | 180 | 1300 Inventory |

Invoice OW-5521, line by line, with the account each line is coded to.

The total is $819, but it does not go to one account. The cartons and the label printer are supplies: the printer costs far less than Northwind's $2,500 [capitalization threshold](https://lopifi.com/md/glossary/capitalization-threshold), so it is expensed, not set up as an asset. The freight was paid to bring drills to the stockroom, and the cost of [Inventory](https://lopifi.com/md/glossary/inventory) includes what it takes to get goods to where they will be sold, so that line is coded to 1300, not to an expense. Splitting by line is the point of a bill form that codes per line, not per bill.

— [ASC 330](https://asc.fasb.org/330/tableOfContent), Inventory

1. **Read the lines.** Code line by line from the invoice, not from the total. One bill often belongs in several accounts, and in several departments.
2. **Pick the account.** Choose the account for what was bought, not for who sold it. The vendor's last bill is a suggestion to start from, not the answer.
3. **Apply the policy tests.** A service paid for months ahead is a prepaid, and equipment over the threshold is an asset. The [prepaid, expense or capitalize](https://lopifi.com/md/learn/prepaid-expensed-or-capitalized-bills) lesson works the tests.
4. **Add the dimensions.** Department, project or location go on the line as [dimensions](https://lopifi.com/md/glossary/dimension), not into a new account for every team.
5. **Attach the source.** The invoice itself is the [Evidence](https://lopifi.com/md/glossary/evidence). A bill with no attachment cannot be approved, and an auditor will ask for it.

Coding a bill.

> **Tip.** **Code by what was bought.** The same supplier sells a $389 printer and a server, and only the second is an asset. **Keep teams out of the account list.** Use dimensions for department and project, so a reorganization changes a tag, not the chart of accounts. **Set the vendor's default account and terms once** in the [vendor master](https://lopifi.com/md/glossary/vendor-master) and let the form suggest them, then override line by line.

## Approval: who signs, and for how much

An approval says the goods or the work arrived and the price is what was agreed. Most companies write down how much each person can approve: an [approval matrix](https://lopifi.com/md/glossary/approval-matrix). No rule of law sets the dollar limits. Each company chooses its own and writes them down, and then the matrix has to be followed, because a limit nobody applies is worse than none: it reads as a control that was not operating.

| Bill amount | Who must approve |
| --- | --- |
| Up to $1,000 | Budget owner |
| Over $1,000, up to $10,000 | Budget owner, Finance lead |
| Over $10,000 | Budget owner, Finance lead, CEO |

Northwind's matrix. Each rung lists everyone it needs, not what it adds to the rung below.

Two rules hold at every rung, whatever the amount. The person who entered the bill never counts toward its approval, and one person fills one role, however many titles they hold. That is [segregation of duties](https://lopifi.com/md/glossary/segregation-of-duties) at the size of a startup: the person who prepares and the person who approves are different people, so one mistake or one bad actor cannot move money alone.

— [SEC Release 33-8238 (June 2003) — Sarbanes-Oxley §404](https://www.sec.gov/rule-release/33-8238), Management's report on internal control over financial reporting

**Scenario — A budget owner on leave.** Priya, the budget owner for the stockroom, will be out for two weeks and delegates her approvals to Lee, the finance lead. Now Lee holds two roles on the same bills, and the matrix needs a second person to fill one of them. A delegation like this has an end date, written down and set to expire. A delegation with no end date is how a control quietly stops working.

1. **Enter and code.** The preparer enters the bill, codes it and attaches the invoice.
2. **Match.** Purchase order, receipt and bill agree line by line, or the exception is dispositioned. A bill that does not match does not go to the approver as if it did.
3. **Route by amount.** The amount picks the rung of the matrix, and the form shows who must still sign before the bill is submitted, not after.
4. **Approve that version.** Approval attaches to a specific version of the bill. If the bill is edited after approval, the approvals are voided and asked for again.
5. **Schedule the payment.** An approved bill joins the next [payment run](https://lopifi.com/md/glossary/payment-run), on its due date.

Routing a bill through approval.

**One approver**
- Pro: Nothing to configure
- Pro: No delay
- Con: The founder enters, approves and pays unless someone else releases the run
- Best for: The first months, when one founder buys everything

**A matrix by amount**
- Pro: Small bills do not wait for senior people
- Pro: Large ones always get a second look
- Con: The matrix has to be kept current as people and budgets change
- Best for: A team with budget owners

**Everyone approves everything**
- Pro: Feels safe
- Con: Nobody reads the invoice if every bill goes to everyone
- Best for: No one

Three ways to set up approval.

> **Mistake.** Approving from the email notification without opening the invoice. The approver is the control. If the approval is a click on a total, the control is not operating, and the first sign is a duplicate or inflated bill that was approved anyway. Open the document, check the price and the quantity, then approve.

> **Watch for.** Sales tax on purchases. When a vendor does not charge sales tax on something that is taxable where Northwind is, the buyer may owe [use tax](https://lopifi.com/md/glossary/use-tax) itself, depending on the state and on what was bought. The tax is part of what the purchase cost: it is debited with the item, to the same expense or asset account, and credited to a use tax payable account until it is remitted. Ask the person who files Northwind's sales tax returns how they want it coded.

**Exercise — Route each bill through the approval matrix.** Northwind's approval matrix: up to 1,000.00, the budget owner; up to 10,000.00, the budget owner and the finance lead; above that, the CEO too. Two rules hold at every rung: the person who entered a bill never counts toward its approval, and one person fills one role. Say what each bill needs next. Type it in the workbook at https://lopifi.com/playground.

> **Code the lines, route by the amount, and never let the person who entered a bill be the one who approves it.**

## Where this lesson's rules come from

- [SEC Release 33-8238 (June 2003) — Sarbanes-Oxley §404](https://www.sec.gov/rule-release/33-8238) — Management's report on internal control over financial reporting (sec)
- [ASC 330](https://asc.fasb.org/330/tableOfContent) — Inventory (codification)
- [Wikipedia, “Separation of duties”](https://en.wikipedia.org/wiki/Separation_of_duties) — Separation of duties (reference)
- [ASC 105-10-05-6](https://asc.fasb.org/105/tableOfContent) — Immaterial items — why a capitalization threshold is allowed at all (codification)

## Read further

- https://lopifi.com/md/journal-entries/accounts-payable
- https://lopifi.com/md/journal-entries/inventory-purchase
- https://lopifi.com/md/differences/capex-vs-opex
- https://lopifi.com/md/startups/accounts-payable-process-for-startups
- https://lopifi.com/md/startups/chart-of-accounts-for-startups
- https://lopifi.com/md/accounting/accounts-payable
- https://lopifi.com/md/accounting/audit-trail
- https://lopifi.com/md/docs/domain/procure-to-pay
- https://lopifi.com/md/docs/domain/controls-and-audit

- **Track:** [Accounts payable](https://lopifi.com/md/learn/ap)
- **Lesson:** Lesson 9 of 21 — 10 min
- **Terms taught:** [Approval](https://lopifi.com/md/glossary/approval), [Segregation of duties](https://lopifi.com/md/glossary/segregation-of-duties), [Dimension](https://lopifi.com/md/glossary/dimension), [Evidence](https://lopifi.com/md/glossary/evidence), [Chart of accounts](https://lopifi.com/md/glossary/chart-of-accounts), [Use tax](https://lopifi.com/md/glossary/use-tax), [Vendor master](https://lopifi.com/md/glossary/vendor-master), [Capitalization threshold](https://lopifi.com/md/glossary/capitalization-threshold), [Invoice coding](https://lopifi.com/md/glossary/invoice-coding), [Approval matrix](https://lopifi.com/md/glossary/approval-matrix)
- **Previous:** [Filing 1099s: deadlines, Form 1096 and IRIS, AP · Lesson 8](https://lopifi.com/md/learn/1099-nec-and-1099-misc-at-year-end/filing-1099s-iris-and-form-1096)
- **Next:** [Vendor credits, short pays and duplicate payments, AP · Lesson 10](https://lopifi.com/md/learn/vendor-credits-and-duplicate-payments)
- **The course:** https://lopifi.com/md/learn