CH:13 Expenditure Cycle

Question 1

Basic Expenditure Cycle activities

Answer 1

• order materials , supplies , and services
• Receive materials , supplies, and services
• Approve Supplier (vendor) invoice
• Cash disbursement

Question 2

Key decisions of expenditure cycle

Answer 2

• what is the optimal level of inventory
• which suppliers provide best quality for the best price
• How can we take advantage of vendor discounts

Question 3

General threats and controls expenditure

Answer 3

Threats :
-inaccurate or invalid master data 
-loss or destruction of data
Controls :
-backup and disaster recovery procedures 
-Restriction of access of master data

Question 4

Order Goods or service processing steps

Answer 4

• Identify what, when and how much to purchase source document :”purchase requisition”
• Choose a supplier Source document : “purchase order”

Question 5

the three approaches to ordering .

Answer 5

• Economic quantity order(EOQ): is used to minimize costs and stock-outs
• Material requirements planning (MRP): based on forecast sales
• Just in time inventory (JIT): responds to actual sales (demand)

Question 6

ordering goods/services threats controls

Answer 6

Threats :
-Stock-out and excess inventory 
-purchasing goods of poor quality 
Controls :
-perpetual inventory system
-Use of approved suppliers

Question 7

Receiving Process

Answer 7

-Goods arrive , verify quality and quantity of goods against the purchase order, source document : receiving report

Question 8

Receiving goods or services threats and controls

Answer 8

Threats :
-Accepting unordered items 
-inventory theft 
Controls :
-authorize purchases orders needed before receiving goods 
-restrict physical access to inventory

Question 9

Approve supplier invoice and cash disbursements

Answer 9

• match the supplier invoice to purchase order and receiving order (supplier invoice + purchase order +receiving report=voucher)
• Approve supplier invoice for payment , source document: disbursement voucher
• pay vendor

Question 10

Approve supplier invoice threats and controls

Answer 10

Threats :
-errors in supplier invoice 
-mistakes in posting to accounts payable 
Controls :
-Verify invoice accuracy 
-data entry edit controls

Question 11

cash disbursements threats and controls

Answer 11

Threats :
-theft of cash 
-pay for item not received 
Controls :
-file invoices to take advantage of discounts 
-separation of duties