The Expenditure Cycle_ Purchasing to Cash Disbursements

The Expenditure Cycle: Purchasing to Cash Disbursements
Chapter 13
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Learning Objectives
Explain the basic business activities and related information processing operations performed in the expenditure cycle.Discuss the key decisions to be made in the expenditure cycle, and identify the information needed to make those decisions.Identify major threats in the expenditure cycle, and evaluate the adequacy of various control procedures for dealing with those threats.
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Basic Expenditure Cycle Activities
Order materials, supplies, and servicesReceive materials, supplies, and servicesApprove supplier (vendor) invoiceCash disbursement
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Order Goods (Materials/Supplies) or Services Processing Steps
Identify what, when, and how much to purchaseSource document: purchase requisitionChoose a supplierSource document: purchase order
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Ordering Goods/Services
Threats
Controls
Stockouts and excess inventoryPurchasing items not neededPurchasing items at inflated pricesPurchasing goods of poor qualityUnreliable suppliersPurchasing from unauthorized suppliersKickbacks
1 a. Perpetual inventory systemb. Bar-coding, RFID2 a. Review and approval ofpurchase requisitions3 a. Price listsb. Competitive bids4 a. Use approved suppliers5 a. Monitor supplierperformanceb. Require quality certification6 a. Purchase from approvedsuppliers7 a. Supplier auditsb. Prohibit gifts
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Receiving Process
Goods arriveVerify goods ordered against the purchase order (what, how much, quality)Source document: receiving report
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Receiving Goods or Services
Threats
Controls
Accepting unordered itemsMistakes in countingVerifying receipt of servicesInventory theft
1 a. Authorized purchase ordersneeded before receivinggoods2 a. Bar codes or RFID3 a. Budget controls and audits4 a. Restrict physical access toinventoryb. Document all inventorytransfersc. Segregate custody vs.receiving of inventory
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Approve Supplier Invoice and Cash Disbursements
Match the supplier invoice to:Purchase orderReceiving reportsupplier invoice + purchase order + receiving report = voucherApprove supplier invoice for paymentSource document: disbursement voucherPay vendor
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Approve Supplier Invoice
Threats
Control
Errors in supplier invoiceMistakes in posting to accounts payable
1 a. Verify invoice accuracy2 a. Data entry edit controlsb. Reconcile detailed accountspayable records to thegeneral ledger accountspayable account
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Cash Disbursements
Threats
Controls
Failure to take discountsPay for items not receivedDuplicate paymentsTheft of cashCheck alterationCash flow problems
1 a. File invoices by due date totake advantage of discounts2 a. Match supplier invoice tosupporting documents(purchase order, receivingreport)3 a. Pay only original invoicesb. Cancel supporting documentwhen payment is made4 a. Physical security of checksb. Separation of dutiesc. Reconcile bank accounts5 a. Check Protection machines6 a. Cash flow budget
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Key Terms
Expenditure cycleEconomic order quantity (EOQ)Reorder pointMaterials requirement planning (MRP)Just-in-time (JIT) inventory systemPurchase requisitionPurchase orderBlanket purchase order
Vendor-managed inventoryKickbacksReceiving reportDebit memoVoucher packageNonvoucher systemVoucher systemDisbursement voucherEvaluated receipt settlement (ERS)Procurement cardImprest fund
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