Expenditure cycle ( topic 7) Flashcards
expenditure cycle
A recurring set of business activities and related data processing operations associated with the purchase of and payment for goods and services.
Expenditure cycle - key decisions
- What is the optimal level of inventory?
- Which suppliers provide the best quality at the best price?
- How can IT be used to improve efficiency and accuracy of logistics?
- How can we take advantage of vendor discounts?
- How can we maximize cash flow?
General threats and controls to expenditure cycle
Threats 1. Inaccurate or invalid master data 2. Unauthorised disclosure of sensitive info 3. loss or destruction of data poor performance
Control
1 a . Data processing integrity controls
b. Restriction of access to master data
c. Review of all changes to master data
- a Access controls
b. Encryption
3a. Back up and disaster recovery procedures
4a. Mangerial reports
Basic Expenditure Cycle Activities
- Order materials, supplies, and services
- Receive materials, supplies, and services
- Approve supplier (vendor) invoice
- Cash disbursement
Order Goods (Materials/Supplies) or Services Processing Steps
• Identify what, when, and how much to purchase
– Source document: purchase requisition
• Choose a supplier Several factors should be considered when selecting suppliers: ● Price ●Quality of materials ●Dependability in making deliveries – Source document: purchase order
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 supplier.
purchase order
A document that formally requests a supplier to sell and deliver specified products at designated prices. it is also a promise to pay and becomes a contract once the supplier accepts it.
Ording goods/ services
Threats and controls
Read notes - image document
Receiving Process
• Goods arrive
– Verify goods ordered against the purchase order (what, how much,
quality)
– Source document: receiving report
The three possible exceptions to this process are
(1) receiving a quantity of goods differ- ent from the amount ordered,
(2) receiving damaged goods, or
(3) receiving goods of inferior quality that fail inspection
receiving report
A document that records details about each delivery, including the date received, shipper, supplier, and quantity received.
Receiving process
Threats and controls
Threats
- Accepting unorded items
- Mistakes in counting
- Verifying receipt of services
- Inventory Theft
Controls
1 a. Authorised purchase orders needed before receiving goods
2 a. bar codes or RFID
b receiving employees sign receiving report
c. Do not inform receiving of quality ordered
3 a. Budget controls and audits
4 a. Restrict physical access to inventory
b. Document all inventory transfers
c. Segregate custody vs receiving of inventory
Approve Supplier Invoice and Cash Disbursements
• Match the supplier invoice to: – Purchase order – Receiving report supplier invoice + purchase order + receiving report = voucher • Approve supplier invoice for payment - Source document: disbursement voucher • Pay vendor
voucher package
The set of documents used to authorize payment to a supplier. it con- sists of a purchase order, receiv- ing report, and supplier invoice.
nonvoucher system
A method for processing accounts payable in which each approved invoice is posted to individual supplier 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 supplier records in the accounts payable subsidiary ledger. The disburse- ment voucher identifies the supplier, lists the outstanding invoices, and indicates the net amount to be paid after deduct- ing any applicable discounts and allowances. Contrast with nonvoucher system.
