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Chapter 5 - The Expenditure Cycle Purchasing To Cash Disbursements
Chapter 5 - The Expenditure Cycle Purchasing To Cash Disbursements
P u rc h a s e R e q u is itio n P u rc h a s in g
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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
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A c c o u n ts P a y a b le
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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
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