Chapter 7: Purchase system

Question 1

Name 2 risks related to the ordering stage in the purchase system

Answer 1

1. goods for personal use
2. goods not on the most advantageous terms

Question 2

Describe the process of ordering in the purchase system

Answer 2

1. BOD makes plans on requisitions for the year (set out pre-set level of inventory in each department) -> each department, based on its operations demand materials and goods
2. purchasing department receives orders from each department (numbered forms) -> find out reliable suppliers (central policy) -> authorization of suppliers made by mgt -> negotiations about methods of payment, the most advantageous prices
3. authorization of orders only for business use -> raised orders -> purchase orders will be kept in a locked office

Question 3

Name 5 risks related to the goods inwards and recording of invoices in the purchase system

Answer 3

1. goods may be misappropriated for private use
2. invoices may be mislaid leading to non-payment
3. invoices are paid at the wrong time/ amount
4. payment/ credits not recorded
5. record in wrong period

Question 4

Describe the process of goods inwards and recording of invoices in the purchase system

Answer 4

1. receives goods & invoices electronically from suppliers -> check for total quantity and quality according to orders on the day of arrival -> warehouse staff issues good received record (GRR) -> a copy of GRR is forwarded to the accounts department
   2.1. after receiving GRR and invoices, accounts department record good inwards immediately (inspect data on invoices) -> enter to payables ledger
   2.2. good in poor quality -> production department sent copy of purchase return notes to accounts department -> review credit notes, regular comparison of supplier statement

Question 5

Name 2 risks related to the cash payments in the purchase system

Answer 5

1. payments made inappropriately
2. blank cheques/ cash are stolen

Question 6

Describe the process of cash payments in the purchase system

Answer 6

1. re-check the credit terms to ensure all payment are made in advantageous term
2. clerk/ cashier takes the cheques/ cash; prepare expenditure orders -> financial controller authorize expenditure
3. accounts department record cash payment and adjust payable ledger