What is an approval workflow?

Definition

An approval workflow is the path a request or bill takes through the people who must sign off before the business will buy or pay. It is not an account on the Balance Sheet.

The workflow is the path those sign-offs follow. The route usually starts with the person who needs the item, then moves to a manager, and sometimes to the owner.

Only after the last required signature may the business issue a purchase order or send cash. Until then, the buy is still a request, not a completed purchase.

Where it shows up

Balance Sheet: Related to nothing extra until a later bill or payment is recorded.

P&L: Related to nothing extra.

Cash flow: Related to cash that leaves only after the route is complete.

See also: Purchase Approval Limit · Internal Controls · Segregation Of Duties

You will not see an approval workflow as a line on the Balance Sheet. Nothing sits in assets or liabilities until a later bill or payment is recorded.

The Income Statement also does not list the route. The P&L shows the expense only after the purchase is allowed and coded.

On the Statement of Cash Flows, cash leaves only after the route is complete. A request that is still waiting for a signature has not yet moved cash.

In day-to-day books, you meet the workflow in the request file. A purchase requisition starts the path, and the signatures on that file are the workflow in action.

How it works

Someone asks to buy or pay. That ask is written down so the next person can see what is wanted, how much it costs, and why it is needed.

The request then follows a set order of people. A small flour order may stop at the manager, while a larger order continues to the owner.

Each person on the route either signs, sends it back, or stops it. A sign-off means the buy may continue; a send-back means something is missing.

Dollar cutoffs usually decide how far the request travels. The cutoff itself is a purchase approval limit, and the workflow is the path that cutoff puts the request on.

After the last required signature, the business may issue a purchase order or place the vendor bill in the next check run. Until that last signature, accounts payable should not be paid.

The workflow should leave a paper trail. Who asked, who signed, and when they signed should stay with the invoice so a later reviewer can see the path.

If a request skips a person, the usual fix is to stop payment and send the file to the missing signer. The workflow's job is to catch that skip before cash leaves.

Example

A cafe baker needs another sack of flour. The baker writes a request for $180 of flour from the usual mill.

The manager can sign for bakery orders up to $500, so the manager signs the same day. The cafe then issues a purchase order, and the mill delivers.

The next week the baker wants a $640 dough sheeter. That amount is over $500, so the same request path continues to the owner.

The owner signs after seeing the quote. Only then may the cafe order the sheeter.

No journal is made for the signatures themselves. Cash leaves later, when the mill is paid.

If the baker had ordered the sheeter with only the manager's name on the file, the owner would hold the payment. The workflow's job is to stop cash until the right people have signed.

Common mix-ups

An approval workflow is not a spend policy. The policy says what is allowed and what proof is required, while the workflow is the sequence of people who apply those rules to a given request.

An approval workflow is not the purchase order. The purchase order goes to the vendor, and the workflow is the internal path that decided a purchase order could be issued.

An approval workflow is not the same as one person both requesting and paying. The point of the route is that a second person sees the buy before cash leaves.

Related terms

• Purchase Approval Limit: The dollar threshold at which a purchase needs a higher level of sign-off.
• Spend Policy: The written rules for what employees may buy and how it must be approved.
• Segregation Of Duties: Splitting recording, approving, and payment tasks so no one person controls a transaction end to end.
• Purchase Requisition: An internal request to buy something, submitted before a purchase order is issued.
• Vendor Bill: The invoice a supplier sends that becomes a payable.
• Check Run: The scheduled batch in which approved vendor bills are paid.
• Internal Controls: The procedures that keep the books accurate and assets protected.
• Audit Trail: The traceable chain from a reported number back to its source document.