PART 3 Flashcards
Goals of the Expenditure Cycle
The goal of providing needed resources to organization can be broken down into several
objectives:
- purchase from reliable vendors
- purchase high quality items
- obtain best possible price
- purchase only items that are properly authorized
- have resources available when they are needed
- receive only those items ordered
- ensure items are not lost, stolen, or broken
- pay for the items in a timely manner
A Manual Purchases System
Begins in Inventory Control when inventory levels drop to reorder levels
⚫ A purchase requisition (PR) is prepared and copies sent to Purchasing Department (PO)
and Open requisition file
⚫ Valid vendor file: This information includes the name and address of the primary
supplier, the economic order quantity of the item, and the standard or expected unit
cost of the item.
⚫ Purchasing prepares a purchase order (PO) for each vendor and sends copies to Vendor,
AP (Pending file), Receiving department (BC), Open PO file, & Open PR file.
⚫ Upon receipt, Receiving counts and inspects the goods.
⚫ A blind copy of the PO is used to force workers to count the goods.
⚫ A receiving report is prepared and copies sent to the raw materials storeroom, Open PO
file, AP (Pending file), Inventory control, & Receiving report file.
⚫ A/P eventually receives copies of the PO, receiving report, and the supplier’s invoice.
⚫ A/P reconciles these documents, posts to the purchases journal, and records the liability
in the account’s payable subsidiary ledger.
⚫ A/P periodically summarizes the entries in the purchases journal as a journal voucher which is sent to the General Ledger (G/L) department.
Inv-Control or Purchases
DR
Accts Payable-Control
CR
⚫ A/P also prepares a cash disbursements voucher and posts it in the voucher register.
⚫ G/L department:
- posts from the accounts payable journal voucher to the general ledger
- reconciles the inventory amount with the account summary received from
inventory control
Manual Cash Disbursements System
⚫ Periodically, A/P searches the open vouchers payable file for items with payments due:
- A/P sends the voucher and supporting documents to Cash Disbursements
- A/P updates the accounts payable subsidiary ledger
⚫ Cash Disbursements:
- prepares the check
- records the information in a check register (cash disbursements journal)
- Check will be released and pays the account due.
- returns paid vouchers to accounts payable
- sends a journal voucher to G/L:
Accounts Payable
DR
Cash
CR
⚫ G/L department receives:
- the journal voucher from cash disbursements
- a summary of the accounts payable subsidiary ledger from A/P
⚫ The journal voucher is used to update the general ledger.
⚫ The accounts payable control account is reconciled with the subsidiary summary
Computer-Based Accounting Systems
⚫ CBAS technology can be viewed as a continuum with two extremes:
- Automation - use technology to improve efficiency and effectiveness
- Reengineering – use technology to restructure business processes and firm’s
organization
⚫ Master Files:
- Supplier (vendor) master file
- Accounts payable master file
- Inventory master file
⚫ Transaction and Open Document Files
- Purchase order file
- Open purchase order file
- Supplier’s invoice file
- Open vouchers file
- Cash disbursements file
⚫ Other Files
- Supplier reference and history file
- Buyer file
- Accounts payable detail file
Automated Batch Purchases & Cash Disbursements
⚫ A Data Processing dept. performs routine accounting tasks.
⚫ Purchasing - a computer program identifies inventory requirements
⚫ The following methods are used for authorizing and ordering inventories:
- the system prepares POs and sends them to Purchases for review, signing, and distributing
- the system distributes POs directly to the vendors and internal users, bypassing Purchases
- the system uses electronic data interchange (EDI) and electronically places the
order without POs
⚫ Other tasks performed automatically by the computer:
- updates the inventory subsidiary file from the receiving report
- calculates batch totals for general ledger update
- closes the corresponding records in the open PO file to the closed PO file
- validates the voucher records against valid vendor files
⚫ Tasks performed automatically by the computer:
- the system scans for vouchers currently due
- prints checks for these vouchers
- records these checks in the check register
- batch totals are prepared for the general ledger update procedure
Levels of Reengineering Ordering
⚫ Computer generates PR
- Purchases manually generates PO
⚫ Computer generates PO (no PR needed)
- PO not sent until manually reviewed
⚫ Computer-generated PO is automatically sent without manual review
⚫ Electronic Data Interchange (EDI)
- Computer-to-computer communication without PO
Control Implication in Computer based System
⚫ Improved inventory control - Inventory requirements are detected as they arise and are
processed automatically. As a result, the risks of accumulating excessive inventory or of
running out of stock are reduced.
⚫ Better cash management - The automated system promotes effective cash management
by scanning the voucher file daily for items due, thus avoiding early payments and
missed due dates. In addition, by writing checks automatically, the firm reduces labor
cost, saves processing time, and promotes accuracy.
⚫ Time lag - A lag exists between the arrival of goods in the receiving department and
recording inventory receipts in the inventory file.
⚫ Less paper documents.
Control Implication in Reengineered System
⚫ (1) It uses real-time procedures and direct access files to shorten the lag time in record
keeping
⚫ (2) It eliminates routine clerical procedures by distributing terminals to user areas, and
⚫ (3) It achieves a significant reduction in paper documents by using digital
communications between departments and by digitally storing records.
⚫ Segregation of duties - This system removes the physical separation between
authorization and transaction processing. Here, computer programs authorize and
process POs as well as authorize and issue checks to vendors.
⚫ Accounting records and access controls
Traditional Segregation of Duties
⚫ Warehouse (stores)
⚫ Inventory control
⚫ Accounts payable
⚫ General ledger
⚫ Requisitioning
⚫ Purchases
⚫ Purchases returns and allowances
⚫ Cash disbursements
