Purchases and payment cycle Flashcards
What is the purchases and payment cycle?
- Determining the need for goods and services
- Ordering of goods and services
- Receiving goods and services
- Recording of purchases
- Payment and recording of credit purchases (debtors)
- Goods returned
What are the internal objectives, risks and controls with ‘Determining the need for goods and services?’
(ICO) Correct and required goods are requested
(Risks) Incorrect or unnecessary goods are ordered. Wastage/ Liquidity issues.
(Control) Pre-determined re-order quantities should be established by factory/store manager. Purchases requisitions should be prepared based on actual need
What are the internal
objectives, risks and controls with ‘Ordering of goods and services?’
(ICO) Only valid purchase orders are generated and processed
(Risks) Invalid purchase orders placed. Inventory levels too low/high.
(Control) Approved supplier list. Orders only placed based on authorised requisition form. Pre-numbered order forms.
What are the internal
objectives, risks and controls with ‘Receiving goods and services?’
(ICO) Goods received are complete and in good order.
(Risks) The quantities received are incorrect. Goods received are not in good order.
(Control) The receiving clerk inspects the goods. GRNs are pre-numbered.
What are the internal
objectives, risks and controls with ‘Recording of purchases?’
(ICO) All purchase transactions are accurately recorded.
(Risks) Transactions are not recorded. Transactions are recorded incorrectly.
(Control) Invoices reviewed and recalculated. Invoices compared to POs, DNs and GRNs.
What are the internal
objectives, risks and controls with ‘Payment and recording of credit purchases (debtors)?’
(ICO) All payments are valid. All transactions are recorded accurately.
(Risks) Incorrect payments are made. Transactions were recorded inaccurately.
(Control) Cheque signatories agree to the details. Supporting documentation is cancelled.
What are the internal
objectives, risks and controls with ‘Goods returned?’
(ICO) Valid returns of goods
(Risks) incorrect goods were returned. Inventory records are incorrect.
(Control) Pre-numbered debit notes were issued. Review of goods before returned to supplier
