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  • Chapter 5 - The Expenditure Cycle Purchasing To Cash Disbursements

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    Hads Luna
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    The document summarizes the procurement cycle and basic expenditure cycle activities, including ordering goods or services, receiving items, approving supplier invoices, and making cash disbursements. It outlines the key processing steps and documents involved at each stage, as well as common threats to the process and recommended internal controls to address those threats.

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    Chapter 5 - The Expenditure Cycle Purchasing to Cash Disbursements

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    The document summarizes the procurement cycle and basic expenditure cycle activities, including ordering goods or services, receiving items, approving supplier invoices, and making cash disbursements. It outlines the key processing steps and documents involved at each stage, as well as common threats to the process and recommended internal controls to address those threats.

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    © All Rights Reserved
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    461 views3 pages

    Chapter 5 - The Expenditure Cycle Purchasing To Cash Disbursements

    Uploaded by

    Hads Luna
    The document summarizes the procurement cycle and basic expenditure cycle activities, including ordering goods or services, receiving items, approving supplier invoices, and making cash disbursements. It outlines the key processing steps and documents involved at each stage, as well as common threats to the process and recommended internal controls to address those threats.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Flag for inappropriate content
    Download as docx, pdf, or txt
    of 3

    Chapter 5

    The Expenditure Cycle: Purchasing to Cash Disbursements


    The procurement Cycle

    P u rc h a s e R e q u is itio n P u rc h a s in g
    1 2

    PR O CU R EM EN T C Y CLE
    (S U B S Y S T E M )
    R e c e iv in g /
    C a s h D is b u rs e m e n ts In s p e c tio n
    3
    5

    A c c o u n ts P a y a b le
    4

    Basic Expenditure Cycle Activities


     Order materials, supplies, and services
     Receive materials, supplies, and services
     Approve supplier (vendor) invoice
     Cash disbursement

    Order Goods (Materials/Supplies) or Services Processing Steps


     Identify what, when, and how much to purchase
    o Source document: purchase requisition
     Choose a supplier
    o Source document: purchase order

    Threats Controls
    1.Stock outs and excess inventory 1 a. Perpetual inventory system
    2.Purchasing items not needed b. Bar-coding, RFID
    3.Purchasing items at inflated prices 2 a. Review and approval of purchase requisitions
    4.Purchasing goods of poor quality 3 a. Price lists
    5.Unreliable suppliers b. Competitive bids
    6.Purchasing from unauthorized 4 a. Use approved suppliers
    suppliers
    5 a. Monitor supplier performance
    8.Kickbacks b. Require quality certification
    9.Stock outs and excess inventory 6 a. Purchase from approved suppliers
    7 a. Supplier audits
    b. Prohibit gifts
    Receiving Process
     Goods arrive
    o Verify goods ordered against the purchase order (what, how much, quality)
    o Source document: receiving report

    Threats Controls
    1.Accepting unordered items 1 a. Authorized purchase orders needed before
    2.Mistakes in counting receiving goods
    3.Verifying receipt of services 2 a. Bar codes or RFID
    4.Inventory theft 3 a. Budget controls and audits
    5.Accepting unordered items 4 a. Restrict physical access to inventory
    6.Mistakes in counting b. Document all inventory transfers
    c. Segregate custody vs. receiving of inventory

    Approve Supplier Invoice and Cash Disbursements


     Match the supplier invoice to:
    o Purchase order
    o Receiving report
     Approve supplier invoice for payment
    o Source document: disbursement voucher
     Pay vendor

    Approve Supplier Invoice

    Threats Controls
    1.Errors in supplier invoice 1. a. Verify invoice accuracy
    2.Mistakes in posting to accounts 2. a. Data entry edit controls
    payable
    b. Reconcile detailed accounts payable records to
    the general ledger accounts payable account

    Cash Disbursements

    Threats Controls
    1. Failure to take discounts 1 a. File invoices by due date to take advantage of
    2. Pay for items not received discounts
    3. Duplicate payments 2 a. Match supplier invoice to supporting
    4. Theft of cash documents (purchase order, receiving report)
    5. Check alteration 3 a. Pay only original invoices
    b. Cancel supporting document when payment is
    made
    4 a. Physical security of checks
    b. Separation of duties
    c. Reconcile bank accounts
    5 a. Check Protection machines
    6 a. Cash flow budget

    Chapter 5: The Expenditure Cycle Part I: Purchases and Cash Disbursements Procedures

    1. Which document helps to ensure that the receiving clerks b. the receiving department
    actually count the number of goods received? c. accounts payable
    a. packing list d. general ledger
    b. blind copy of purchase order
    c. shipping notice 8. Which document typically triggers the process of recording
    d. invoice a liability?
    a. purchase requisition
    2. When the goods are received and the receiving report has b. purchase order
    been prepared, which ledger may be updated? c. receiving report
    a. standard cost inventory ledger d. supplier’s invoice
    b. inventory subsidiary ledger
    c. general ledger
    d. AP subsidiary ledger
    9. Which of the following tasks should the cash disbursement
    3. Which statement is NOT correct for an expenditure system clerk NOT perform?
    with proper internal controls? a. review the supporting documents for completeness
    a. Cash disbursements maintain the check register. and accuracy
    b. AP maintains the AP subsidiary ledger. b. prepare checks
    c. AP is responsible for paying invoices. c. approve the liability
    d. AP is responsible for authorizing invoices. d. mark the supporting documents paid

    4. Which duties should be segregated? 10. Which of the following is true?


    a. matching purchase requisitions, receiving reports, and a. The cash disbursement function is part of accounts
    invoices and authorizing payment payable.
    b. authorizing payment and maintaining the check b. Cash disbursements is an independent accounting
    register function.
    c. writing checks and maintaining the check register c. Cash disbursements is a treasury function.
    d. authorizing payment and maintaining the AP d. The cash disbursement function is part of the general
    subsidiary ledger ledger department.

    5. Which documents would an auditor most likely choose to PROBLEMS


    examine closely to ascertain that all expenditures incurred 1. Accounting Records and Files
    during the accounting period have been recorded as a Indicate which department—accounts payable, cash
    liability? disbursements, data processing, purchasing, inventory, or
    a. invoices receiving—has ownership over the following files and
    b. purchase orders registers:
    c. purchase requisitions a. open purchase order file
    d. receiving reports b. purchase requisition file
    c. open purchase requisition file
    6. Which task must still require human intervention in an d. closed purchase requisition file
    automated purchases/cash disbursements system? e. inventory
    a. determination of inventory requirements f. closed purchase order file
    b. preparation of a purchase order g. valid vendor file
    c. preparation of a receiving report h. voucher register
    d. preparation of a check register i. open vouchers payable file
    j. receiving report file
    7. Which one of the following departments does not have a k. closed voucher file
    copy of the purchase order? l. check register (cash disbursements journal)
    a. the purchasing department

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