Chapter 13: The Expenditure Cycle: Purchasing to Cash Disbursements Flashcards
expenditure cycle
a recurring set of business activities and related data processing operations associated with purchasing inventory or raw materials in exchange for cash or a future promise to pay cash
economic order quantity (EOQ)
the optimal order size to minimize the sum of ordering, carrying, and stockout costs. Ordering costs are expenses associated with processing purchase transactions. Carrying costs are the costs associated with holding inventory. Stockout costs, such as lost sales or production delays, result from inventory shortages
reorder point
specifies the level to which the inventory balance of an item must fall before an order to replenish stock is initiated
materials requirements planning (MRP)
an approach to inventory management that seeks to reduce required inventory levels by improving the accuracy of forecasting techniques to better schedule purchases to satisfy production needs
just-in-time (JIT) inventory system
a system that minimizes or virtually eliminates inventories by purchasing and producing goods only in response to actual, rather than forecasted, sales
purchase requisition
a document or electronic form that identifies the requisitioner; specifies the delivery location and date needed; identifies the item numbers, descriptions, quantity, and price of each item requested; and may suggest a vendor
purchase order
a document that formally requests a vendor to sell and deliver specified products at designated prices. It is also a promise to pay and becomes a contract once the vendor accepts it
blanket purchase order
a commitment to purchase specified items at designated prices from a particular supplier for a set time period, often one year.
vendor-managed inventory
practice in which manufacturers and distributors manage a retail customer’s inventory using EDI. The supplier accesses its customer’s point-of-sale system in order to monitor inventory and automatically replenish products when they fall to agreed-upon levels.
kickbacks
gifts given by vendors to purchasing agents for the purpose of influencing their choice of suppliers
receiving report
a document that records details about each delivery, including the date received, shipper, vendor, quantity received.
debit memo
a document used to record a reduction to the balance due to a vendor
voucher package
the set of documents used to authorize payment to a vendor. It consists of a purchase order, receiving report, and vendor invoice
nonvoucher system
a method for processing accounts payable in which each approved invoice is posted to individual vendor records in the accounts payable file and is then stored in an open invoice file.
(Contrast with voucher system)
voucher system
a method for processing accounts payable in which a disbursement voucher is prepared instead of posting invoices directly to vendor records in the accounts payable subsidiary ledger. The disbursement voucher identifies the vendor, lists the outstanding invoices, and indicates the net amount to be paid after deducting any applicable discounts and allowances.
(Contrast with nonvoucher system)
