I.C : Purchase cycle

Question 1

Objectives of purchase cycle:

Answer 1

1. To ensure purchases are made only if req.s are genuine.
2. To ensure purchases are made at optimum prices and terms.
3. To ensure purchases are made at the req. quality stds. and if purchased at substandard quality then it must be at negotiated terms.
4. To make payments as per the agreed terms
5. To make purchases on time.

Question 2

Step 1 of purchase cycle:

Answer 2

Raise a purchase requisition note:

1. Inventory levels need to be checked before raising a purchase requisition note.
2. The warehouse manager should sign the requisition note to ensure only goods required are being ordered.
3. The purchase requisition note should be sequentially pre-numbered and must be of 2 copies; one copy goes to purchase dept. and the other copy stays with warehouse.

Question 3

Step 2 of purchase cycle:

Answer 3

Raising a purchase order:

• The purchase dept. will only accept the purchase requisition note if it is signed by the warehouse manager.
• The purchase dept. will then raise a purchase order which should be sequentially pre-numbered and min. of 3 copies (supplier,warehouse dept. and other stays with purchase dept.)
• The purchase order must be prepared using authorised supplier list (must be updated annually) based on prices of the items, speed of delivery and quality of the items.
• Match PO with requisition note
• Follow up on any unfulfilled orders and have an exception report generated to identify which orders have not been accepted yet.

Question 4

Step 3 of purchase cycle:

Answer 4

Goods are received :

• A GRN will have to be raised by the warehouse dept. and should be sequentially pre-numbered and of min. 3 copies; one copy goes to purchase dept., next copy goes to accounts dept and last copy stays with warehouse.
• GRN should be signed by warehouse manager after performing quantity and quality check on the goods received.
• GRN should be matched to purchase order

Question 5

Step 4 of purchase cycle:

Answer 5

Sales invoice received by accounts dept.:

• Match it to GRN.
• Do bank transfers
• Stamp ‘entered’ on invoice once they have been recorded into the system.
• Before approving invoices for payment, have them matched to the audit trail by a senior responsible official.
• Manually number the invoices and file it in an order.
• Perform arithmetic checks on the invoices
• Stamp ‘paid’ once the payment is made
• Reconcile supplier statement to the purchase ledger on a monthly basis.
• Try and avail settlement discount and make payments as per agreed terms to maintain supplier goodwill.
• Do BRS on monthly basis.