13. The Expenditure Cycle: Purchasing to Cash Disbursements Flashcards
The expenditure cycle is a recurring set of business activities and related information processing operations associated with what purchase of and payment for goods and services?
Tip: raw, finished, supplies and services
Raw materials, finished good, supplies and services
In the expenditure cycle, who is the primary external exchange of information
Tip: the seller
With suppliers (vendors)
Within the organization, information about the need to purchase goods and materials flows to the expenditure cycle from where?
The revenue and production cycles, inventory control and various departments.
What is the primary objective in the expenditure cycle?
Tip: minimize and requirements to function
The primary objective in the expenditure cycle is to minimize the total cost of acquiring and maintaining inventories, supplies and the various services an organization needs to function.
How can the management achieve ‘‘minimize the total cost of acquiring and maintaining inventories, supplies and the various services an organization needs to function.’’ objectives?
Tip: what are the names of the four basic expenditure cycle activities? 1) Order, 2) receiving, 3) approving, 4) cash handout
- Ordering materials, supplies, and services
- Receiving materials, supplies, and services
- Approving supplier invoices
- Cash disbursements
In short what is the expenditure cycle
Tip: between who
The expenditure cycle is concerned with transacting business between the organization and its suppliers (vendors) for goods and services, on behalf of other in the organization.
Describe 1) ordering materials, supplies, and services from the four basic expenditure cycle activities
Tip: What, when, how much
Identifying what, how much, and when to purchase, the source document is purchase requisition
At this activity stage of the expenditure cycle, the key objective is to identify exactly what to order, how much do you need, and when do you need it.
It is essential in managing a supply chain that raw materials are accurately ordered and received in time; otherwise, these will cause issues and added expenses in the supply chain.
How many approaches are there in 1) ordering materials, supplies, and services from the four basic expenditure cycle activities?
Tip: EOQ, MRP, JIT
There are mainly three approaches to ordering:
1) Economic order quantity (EOQ) is used to minimize the sum of ordering, carrying and stock outs.
2) Materials requirements planning (MRP) is based on forecast sales (push).
3) Just-in-time inventory (JIT) responds to actual sales: demand -> pull
Describe 2) Receiving materials, supplies, and services from the four basic expenditure cycle activities
Tip: verify with PO = authorized, quantity, quality
When the delivery arrives, a receiving clerk verify goods ordered against the purchase order (what, how much, quality), the source document is the receiving report.
At this stage, when the goods are received into the warehouse, the company has a legal obligation to pay the vendor. That is why it is so important to make sure that:
- The goods were authorized (check against a purchase order)
- The goods received are what was ordered and in the correct quantity
- The goods are of correct/expected quality.
Describe 3) Approving supplier invoices from the four basic expenditure cycle activities
Tip: match
Matching the supplier invoice + the purchase order + receiving report = disbursement voucher
Describe 4) Cash disbursements from the four basic expenditure cycle activities
Tip: pay
The cashier, who reports to the treasurer, is responsible for paying suppliers.
This segregates the custody function, performed by the cashier, from the authorization and recording functions, performed by the purchasing and the accounts payable departments, respectively.
In short
Approve supplier invoice for payment, the source document is disbursement voucher: pay the vendor.
