Expenditure Cycle

EXPENDITURE CYCLEPrepared by: Christianne Nicole Ramos

Expenditure Cyclea recurring set of business activities and related data processing operations associated with the purchase of and payment for goods and services.its objective is to convert the organizations cash into the physical materials and the human resources it needs to function

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SubsystemsPurchases processingaCash disbursementsbcPayroll processingFixed assetd

PURCHASES PROCESSING SUBSYSTEM

DFD for purchases processing

CASH DISBURSEMENTS SUBSYSTEM

DFD for cash disbursements

Expenditure cycle controlsTransactions authorizationaSegregation of dutiesbcSupervisionAccounting recordsdeAccess controlsfIndependent verification

Transaction authorizationPurchases processingInventory control is responsible for inventory replenishment through purchase requisitionCash disbursementsAP function authorizes cash disbursements via cash disbursements voucher

Segregation of dutiesSegregation of inventory control from the warehouseSegregation of the general ledger from the cash disbursements

SupervisionFailure to properly inspect the assetsTheft of assets

Accounting recordsIts objective is to maintain an audit trail adequate for tracing a transaction from its source document to the financial statementsAP Subsidiary LedgerVoucher registerCheck registerGeneral ledger

Accounting recordsExpenditure cycle must be designed to provide supporting informationPurchase requisition filePurchase order fileReceiving report file

Access controlsDirect accessControl access to physical accessLocksAlarmsRegistered access to areas that contain inventories and cashIndirect accessLimit access

Independent verificationBy Accounts PayablePO should reconcile with PRReceiving report should reconcile with POAP clerk verifies the prices on the invoice are reasonable compared to the expected prices on the POBy GL DepartmentGeneral ledger function must verify that: total obligations recorded = total inventories receivedTotal reductions in AP = total cash disbursements

Manual purchases processing

Purchase SystemBegins in Inventory Control when inventory levels drop to reorder levels

A purchase requisition (PR) is prepared and copies sent to Purchasing and Accounts Payable (A/P)Purchasing prepares a purchase order (PO) for each vendor and sends copies to Inventory Control, A/P, and Receiving

Purchase SystemUpon receipt, Receiving counts and inspects the goods. A blind copy of the PO is used to force workers to count the goods.

A receiving report is prepared and copies sent to the raw materials storeroom, Purchasing, Inventory Control, and A/P.

Purchase SystemA/P eventually receives copies of the PR, PO, receiving report, and the suppliers invoice.

A/P reconciles these documents, posts to the purchases journal, and records the liability in the accounts payable subsidiary ledger.

Purchase SystemA/P periodically summarizes the entries in the purchases journal as a journal voucher which is sent to the General Ledger (G/L) department. Inv-Control or Purchases DR Accts Payable-Control CR

A/P also prepares a cash disbursements voucher and posts it in the voucher register.

Purchase SystemG/L department: posts from the accounts payable journal voucher to the general ledgerreconciles the inventory amount with the account summary received from inventory control