The Expenditure Cycle:Purchasing and Cash Disbursements

2003 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, Romney/Steinbart

Expenditure Cycle: Main ObjectiveThe expenditure cycle is a recurring set of business activities and related data processing operations associated with the purchase of and payment for goods and services.The primary objective of the expenditure cycle is to minimize the total cost of acquiring and maintaining inventories, supplies, and the various services necessary for the organization to function.

Expenditure Cycle:Business ActivitiesMajor business activities in the expenditure cycleOrderingReceivingApproving supplier invoicesCash disbursement

Ordering

ProcessReorder pointFilling out a purchase requisitionSending the purchase requisition Filling out a purchase orderSending the purchase order

OrderingDocuments:Purchase requisitionPurchase order

Receiving

ProcessOrder comes inInspectionPreparation of receiving reportNotification of AP Dept.Transfer to inventory storage dept.Reconciling

ReceivingDocument:Receiving Report

Approving Supplier Invoices

ProcessReceiving of invoiceApproval of invoicePaymentUpdates to AP

Expenditure CycleOrder goodsRequestgoodsVariousdepartmentsInventorycontrolReorder point

Expenditure CycleReceivegoodsOrder goodsReceipt of goodsProductioncycleRevenuecycleNeedsVendorReceiving reportPurchase orderInventoryBack Orders

Expenditure CycleFrom purchasingFrom suppliersRECEIVING

Expenditure CycleACCOUNTS PAYABLE

Expenditure CycleCashierFrom A/PA

Control: Objectives,Threats, and ProceduresAnother function of a well-designed AIS is to provide adequate controls to ensure that the following objectives are met:Transactions are properly authorized.Recorded transactions are valid.Valid, authorized transactions are recorded.Transactions are recorded accurately.

Control: Objectives,Threats, and ProceduresAssets (cash, inventory, and data) are safeguarded from loss or theft.Business activities are performed efficiently and effectively.

Control: Objectives,Threats, and ProceduresWhat are some threats?stockoutspurchasing too many or unnecessary goodspurchasing goods at inflated pricespurchasing goods of inferior qualitypurchasing from unauthorized vendorskickbacks

Control: Objectives,Threats, and Proceduresreceiving unordered goodserrors in counting goodstheft of inventoryfailure to take available purchasing discountserrors in recording and posting purchases and paymentsloss of data

Control: Objectives,Threats, and ProceduresWhat are some control procedures?inventory control systemvendor performance analysisapproved purchase requisitionsrestricted access to blank purchase requisitionsprice list consultation budgetary controls

Control: Objectives,Threats, and Proceduresuse of approved vendor listsapproval of purchase ordersprenumbered purchase ordersprohibition of gifts from vendorsincentives to count all deliveriesphysical access controlrecheck of invoice accuracycancellation of voucher package

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