Purchases Cycle

Question 1

Step 1 - Requisition Raised & Order placed

Answer 1

Risk :
Unauthorised purchases for personal use
Purchases not obtained on best terms

Controls : Review business needs// Centralised function for buying // use of an authorised suppliers // bulk discounts from company basis // Match quotation to order // Authorisation// Sequentially and serially number orders to then match with invoice // Supplier terms maximised

Question 2

Step 2 - Receipt of Goods & GRN

Answer 2

Risk:
Goods accepted but not ordered
Faulty or poor quality goods

Controls:
Serially numbered GRNs

Goods check for damage & completeness

Match to original purchase order

Notify GL by GRN copy

Update inventory records and AP and accruals

Question 3

Transaction recorded in accounts

Answer 3

Risks: liabilities are not recognised correctly ,
Goods received but not liability recog’d
Goods diverted for personal use

Controls:
Batch control system
Supplier rec, reconciling what clietn thinks they owe with supplier and what supplier thinks they owe
GRN accrual for year end

Question 4

Receipt of invoice

Answer 4

Goods received but liability not recognised

Controls
Check to GRN

Check to supplier statement

Complete calculations (discounts)

Record in purchase ledger and purchase ledger

Question 5

Cash payment

Answer 5

Risk : paying invoices in error // goods not received at all // Paying a supplier too soon // Payments in error, paying the wrong ‘smith’ //payments not correctly recorded // credits not correctly recorded

Controls
Paying for what was received

Payment going out the door needs to be authorised

AP updated