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ACCG2050 > Expenditure Cycle > Flashcards

Expenditure Cycle Flashcards

1
Q

What is the expenditure cycle?

A

The process that relates to acquiring goods. It begins from when an organisation signals the need for g/s and ends when it has paid for those g/s

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2
Q

What are the 4 main activities?

A
  1. Determine demand for goods
  2. Order Goods
  3. Receive Goods
  4. Pay for Goods
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3
Q

What are the key technologies used in the expenditure cycle?

A
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4
Q

What is RFID?

A

Radio frequency ID tags

Implanted/integrated in things to help with tracking
Contains information that can be updated
Can link information to specific data bases
Scans multiple items at a time

Raises privacy concerns

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5
Q

What is EDI?

A

Exhancge

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6
Q

What are the objectives of the purchasing process?

A
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7
Q

Why is SCM software useful?

A
  • helps with tracking
  • reduces inaccuracies and errors
  • allow suppliers to have partial access to inventory systems —> suppliers can track inventory levels so that when a product is low in stock, they will automatically ship more (no intervention required)
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8
Q

What are the problems with too little inventory?

A
  • Production delays
  • unutilised machines
  • unutilised workers
  • not enough items to meet demand
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9
Q

What are the problems with too much inventory?

A
  • price to buy
  • insurance
  • interest on capital (capital from loans most often)
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10
Q

What is the optimal inventory level?

A

Total holding cost = purchase cost (total cost of buying inventory)

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11
Q

Cost leadership supplier strategy

A

Purchasing process is about getting the best deal - comes from having lots of suppliers to negotiate with

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12
Q

Differentiation supplier strategy

A

Want the supplier that understands your strategy. Choose few, and work closely with, suppliers

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13
Q

R&D supplier strategy

A

Work with best suppliers and involve them in R&D

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14
Q

Customer intimacy supplier strategy

A

Supplier needs to be well-informed of what the customer wants and their changing needs and use this to inform their production and R&D

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15
Q

What are the risks with the expenditure cycle?

A

Failure to correctly manage purchasing can lead to systemic problems that impact revenue and production

Poor payment practices can damage cash flow and supplier relationships

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16
Q

What are the inputs to the purchasing process?

A

Purchase order
Vendor Invoice
Receiving report -
Bill of Lading - Specifies the contents of the package (document sent to carrier)
Purchase Requisition - no. Of items that each department requires
Packing Slip -

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17
Q

What are the strategic level decisions that need to be made?

A

Purchase consolidation
How IT can improve efficiency and accuracy
Identifying where inventories should be held

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18
Q

What are the operational level decisions that need to be made?

A

Determining optimal inventory level
Supplier selection (quality, service and price)
Cash flow considerations
- accounts receivables or payables could mean paying extra interest or taking out a loan to meet these mismatches

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19
Q

What is a just-in-time supply chain?

A

Reduce the number of inventories held at any point in time by closely communicating with suppliers

Risk - requires a good supplier to rely on

20
Q

What are the data stores in the EC?

A

INventory Master data:
Vendor master data:
Purchase requisition data:
Purchase order mast data:
Purchase receipts data:
Accounts payable data:

21
Q

What are the outputs of the purchasing process?

A

Financial Statement Information
Vendor Payments
Payment Register
Discrepancy Reports - errors coming out of the purchasing process
Cash Requirement Forecast

22
Q

What are the 4 key activities in the EC?

A
  1. Determine demand for goods
  2. Order goods
  3. Receive goods
  4. Pay for goods after receiving invoice
23
Q

What is the 1st activity in the EC?

A

Determine demand for goods
- collect requests
- Create purchase requisition

How to conduct this assessment:
- Use of technologies such as IBM tools

Why is it important?
Needed to forecast amount of production necessary and also the necessary supplies required across other departments to meet demand
Helps determine what sort of suppliers to use

24
Q

What is the 2nd activity in the EC?

A

Order Goods
- Choose the supplier
- Create the purchase order

25
Q

What is the 3rd activity in the EC?

A

Receive goods
- accept the delivery
- record goods received

Responsibility transfers from the carriers on to the seller

26
Q

What is the 4th activity in the EC?

A

Pay for goods
- approve the payment
- make the payment

ACcounts payable clerk approves when an invoice can be paid
Authorisation of payment and the payment making should be separate
Note: This is where segregation of duties is important

27
Q

What are the typical risks encountered during the goods receiving process?

A
28
Q

How do we know the EC is performing optimally?

A
  • Develop KPIs for different objectives/stages
    Eg # of invalid requests received
    # of requester complains
    # of purchases from approved suppliers
    # of supplier complaints
    # of quality complaints
    # of accounts payable adjustments
    # of requester complaints
    # of returns of suppliers
    # of unauthorised payments
    $ cash losses
    Financial delegations compliance
    $ overpayments
    Average payment time
29
Q

What are the 7 key purchasing threats?

A
  1. Stock out/excess inventory
  2. High purchasing cost - ineffiecient purchainsg process - took too long to select suppliers or supply came late
  3. Purchasing items not needed - a request may have been made before it was approved
  4. Purchasing at inflated prices
  5. Purchasing goods of inferior quality -
  6. Purchasing from unauthorised/unreliable suppliers
  7. Kickbacks - commission
30
Q

How do you manage stock out/excess inventory?

A

Perpetual inventory system
Bar coding or RFID tags
Just-in-time

31
Q

What is the difference between a periodic and perpetual inventory system?

A

Periodic inventory system - Only record items when they come in and during stock take

Perpetual - any transfer of inventory in/out of the department gets recorded

32
Q

What is the cost of material used formula and what is its purpose

A

Cost of material used (materials used) = Beginning inventory + what comes in (inventory receipts) - what goes out during sales (ending inventory)

The difference between the actual inventory and what is calculated in the equation is what amount of stock is stolen

33
Q

How do you manage high processing cost?

A

Blanket purchase order - commitment to buy specified items at specified prices from a particular supplier for a set time period
EDI - quickens orders

34
Q

How do you minimise the order of unnecessary items?

A

Integrated databases of various divisions
Double-check requisition request with original department (Ask - are you sure you need this?)

35
Q
A
36
Q

How do you prevent purhcasing goods of inferior quality?

A

Purchasing accountability for rework and scrap - purchasing officer will be penalised if they don’t check the product coming from suppliers

37
Q

How do you prevent purchasing from unauthorised suppliers?

A

Review of supplier list - supplier quality may change so this list needs to be updated
Review purchase orders
Restrict access to supplier list
Purchasing card (P-card) - Restrict transactions to authorised organistaions

38
Q

How do you prevent kickbacks?

A
  • All gifts must be declared
  • Job rotation and mandatory vacation
  • Audits of buyers (team in purchasing team) and vendors
  • Disclose/review conflict of interest statements
  • Train employees on gift handling
39
Q

What are the risks in receiving items and how do we mitigate these?

A

Theft of inventory
- secure storage locations
- restricted access to inventory
- documentation of intra-company transfers
- Segregation of duties (inventory people need to be separate from receiving people)
- periodic physical counters

Accepting unordered items
- Only accept goods when there is approved purchase order evidence (otherwise you take responsibility for unapproved stock)

Mistakes in counting
- Bar-coding ordered items
- Quantities are blanked out on receiving forms so people are forced to count
- signature of receiving clerks
- Re-counting items by inventory control

40
Q

What is a purchase order?

A

A commercial document issued by a buyer to a seller, indicating types, quantities, and agreed prices for products or services required

41
Q

What is the primary risk associated with using electronic payment methods, such as wire transfers or ACH payments?

Incorrect allocation of expenses
Unauthorized access to bank accounts
Inaccurate recording of payment amounts
Delays in payment processing

A

Unauthorised access to bank accounts

42
Q

What is the most effective control for ensuring the accuracy of vendor invoices?

Matching purchase orders to receiving reports and invoices
Requiring multiple signatures on all invoices
Conducting periodic physical inventory counts
Separating the duties of invoice processing and payment approval

A

Matching purchase orders to receiving reports and invoices

43
Q

Which of the following is a red flag for potential fraud in the expenditure process?

A high volume of transactions with a single vendor

Payment terms that are not consistent with industry standards

Unusually low prices for goods or services

A lack of detailed supporting documentation for payments

A

A high volume of transactions with a single vendor

44
Q

What is a receiving report?

A

A document companies use to record goods and materials received from suppliers during deliveries

45
Q

What is the purpose of a blind receiving process in the expenditure cycle?

A

To ensure that all goods or services are correctly received and meet quality standards

46
Q

What is the purpose of a three-way match in the expenditure process? (between receiving report, invoice and purchase order)

To verify the accuracy of payment amounts

To ensure that all goods or services were received and meet quality standards in the purchase order

To ensure that all vendors are registered with the government

To identify potential conflicts of interest among employees

A

To ensure that all goods or services are received and meet quality standards in the purchase order

47
Q

What is the purpose of a purchase requisition in the expenditure process?
To authorize payment for goods or services
To verify the accuracy of vendor invoices
To ensure that all purchases are made from approved vendors
To initiate the purchasing process and ensure proper approval before purchases are made

A

To initiate the purchasing process and ensure proper approval before purchases are made

ACCG2050 (15 decks)

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