SU 7 Flashcards
1
Q
What is the nature of the p&p cycle (3)
A
- Acquisition of g+s & payment to suppliers
- Doesn’t deal with puchase of capital assets
- Contains business & accounting function
2
Q
Purpose of p&p cycle (3)
A
- Sufficient g+s purchased at competitive price to satisfy demand of customers
- Promptly & appropriately record purchase in financial records
- Pay suppliers for purchases in timely manner
3
Q
Typical transactions in p&p cycle (5)
A
- Originates from internal requisition when inventory levels are low
- With approval goods ordered from supplier
- Supplier delivers goods ordered to warehouse & requests payment through invoice
- Entity records purchase in financial records
- Entity pays supplier & records transaction
4
Q
2 Major GL accounts affected by cycle
A
SoPL
- Purchases (periodic)
- Cost of sales (perpetual)
- Period costs allocated to expense accounts when services are purchased
SoFP
- Cash & cash equivalents
- Inventory
- Trade & other payables
5
Q
Accounting treatment for purchases / cost of sales (4)
A
Periodic
- Record acquisition under purchases
- After stock-count at year end, purchases reversed against inventory & cost of sales
Perpetual
- Record acquisition under inventory
- Upon sales = cos written off against inventory
6
Q
Accounting treatment for credit purchases
A
Recorded in creditors subsidiary ledger & allocated to control account
7
Q
Accounting treatment of accuels
A
Accrual account is a liability used to records outstanding amounts
8
Q
Accounting treatment for expenditure / capitalisation (2)
A
- Distinguish between costs related to acquisition of items & costs not related
- Related = expenses can be capitalised
9
Q
Accounting transactions for date of acquisition
A
Establish time when control of goods purchased passed from supplier to entity to record transaction
10
Q
Accounting transactions for currency exchange rates
A
Recorded at spot rate (rate ruling on date of purchase)
11
Q
What are the 8 functional areas of the p&p cycle
A
- Purchase requisition
- Ordering g+s
- Receiving g+s
- Recording purchases
- Payment preparation
- Paying supplier
- Recording payments
- Returning goods & recording purchase adjustment
12
Q
Purpose of ‘purchase requisition’
A
Ensure entity operational & sales requirements met timeously
13
Q
Main activities of ‘purchase requisition’ (4)
A
- Determining anticipated sale level using sales forecasts & budgets
- Identifying low levels of inventory / services that needs replenishment
- Preparing requisition & obtaining authorisation therefor
- Requesting procurement department to obtain goods from suppliers
14
Q
Persons involved in ‘purchase requisition’ (2)
A
- Warehouse staff
- Departmental supervisor
15
Q
Documents involved in ‘purchase requisition’
A
Purchase requisition
16
Q
Risks associated with ‘purchase requisition’ (2)
A
- Failure to identify need for inventory / services = production delays, loss of sales, customer dissatisfaction
- Unauthorised requisition of items not needed / incorrect items
17
Q
Control objective of ‘failure to identify need for inventory / services = production delays, loss of sales, customer dissatisfaction’ (2)
A
- Sales / production demand timeously identified to ensure availability of goods for sale to customers
- Operational control
18
Q
Manual controls of ‘failure to identify need for inventory / services = production delays, loss of sales, customer dissatisfaction’ (3)
A
- Sales forecasts, budgets, production schedules prepared based on market research / historical sales & production data
- Regular interpretation made of production, sales, business info to identify production demand trends that affect purchase requirements
- Regular inventory counts & reviews of balances in perpetual records to identify low inventory levels
19
Q
Control objective of ‘unauthorised requisition of items not needed / incorrect items’ (2)
A
- Only items needed by entity requisitioned
- Operational objective
20
Q
Manual controls of ‘unauthorised requisition of items not needed / incorrect items’ (2)
A
- Departmental supervisors authorise each requisition before sent to procurement department
- Supporting documentation attached & cross-referenced to inventory reorder report / sales budget / customer order
21
Q
Purpose of ‘ordering g+s from suppliers’
A
Ensure purchases made from reliable suppliers in cost-effective & timely manner on approved requisitions
22
Q
Main activities of ‘ordering g+s from suppliers’ (5)
A
- Identifying most suitable suppliers
- Obtaining quotes
- Negotiating competitive prices
- Purchase order created & sent to supplier
- Following up on long-outstanding orders
23
Q
Persons involved in ‘ordering g+s from suppliers’ (2)
A
- Buying clerk
- Chief buyer
24
Q
Documents involved in ‘ordering g+s from suppliers’ (4)
A
- Purchase order
- Approved supplier list
- Supplier quote
- Purchase requisition
25
Risks associated with 'ordering g+s from suppliers' (5)
- Unauthorised orders sent to suppliers = unnecessary inventory received / items ordered for own use
- Purchase orders created don't agree with supporting purchase requisitions = incorrect orders placed
- Purchase orders not sent to suppliers in timely manner = no delivery of ordered items
- Items ordered from inappropriate suppliers
- Items ordered at excessive prices
26
Control objective of 'unauthorised orders sent to suppliers = unnecessary inventory received / items ordered for own use' (2)
- All purchase orders supported by valid & authorised documents
- Validity
27
Manual controls of 'unauthorised orders sent to suppliers = unnecessary inventory received / items ordered for own use' (2)
- Purchase order cross-referenced to authorised purchase requisition
- Chief buyer reviews & authorises purchase order by ensuring approved supplier of entity & authorised purchase requisition submitted by requesting department
28
Control objective of 'purchase orders created don't agree with supporting purchase requisitions = incorrect orders placed' (2)
- Purchase order only sent to suppliers if accurate
- Operational control
29
Manual controls of 'purchase orders created don't agree with supporting purchase requisitions = incorrect orders placed' (4)
- Chief buyer checks casts & calculations on purchase order
- Chief buyer compares quantity & description on order with supporting purchase requisition
- Chief buyer compares price on order to quotation of supplier
- Chief buyer signs purchase order as evidence of check
30
Control objective of 'purchase orders not sent to suppliers in timely manner = no delivery of ordered items' (2)
- All purchase orders sent to suppliers lead to delivery in timely manner
- Operational control
31
Manual controls of 'purchase orders not sent to suppliers in timely manner = no delivery of ordered items' (3)
- Purchase orders created in numerical sequence
- Purchase orders matched to GRN & filed in purchase order nr sequence
- Chief buyer reviews file on regular basis to follow up on missing / not matched purchase orders
32
Control objective of 'items ordered from inappropriate suppliers' (2)
- Most appropriate supplier identified to fulfil business need of items' quantity & nature
- Operational control
33
Manual controls of 'items ordered from inappropriate suppliers' (3)
- New supplier authorised by chief buyer before orders made
- Approved suppliers included on official list of suppliers
- Orders only placed with suppliers on official list
34
Control objective of 'items ordered at excessive prices' (2)
- Best prices obtained for ordered prices
- Operational control
35
Manual controls of 'items ordered at excessive prices' (2)
- Company policy requires min nr of quotations from suppliers before ordering
- Chief buyer reviews selected quote before approving purchase order
36
Purpose of 'receiving g+s from suppliers'
Ensure all g+s ordered from suppliers received according to approved purchase order
37
Main activities of 'receiving g+s from suppliers' (5)
- Receiving & accepting delivery of goods from suppliers at receiving bay
- Checking quantity & quality of goods received
- Transferring goods into warehouse
- Recording inventory received in inventory system
- Receiving services from suppliers & ensuring service was sufficiently rendered by supplier at required quality
38
Persons involved in 'receiving g+s from suppliers' (2)
- Goods receiving clerk
- Designated staff member signing off proof of service rendered
39
Documents involved in 'receiving g+s from suppliers' (3)
- Supplier delivery note
- Goods received note
- Purchase order
40
Risks associated with 'receiving g+s from suppliers' (5)
- Items not ordered accepted & recorded as inventory
- Items received are stolen after recorded as inventory
- Goods received not recorded on source documents = insufficient evidence = difficult to identify inventory losses
- Inferior quality / damaged goods accepted
- Inventory quantities inaccurately recorded on GRNs = over/understatement of purchases
41
Control objective of 'items not ordered accepted & recorded as inventory' (2)
- All inventory received was ordered in terms of approved purchase order
- Validity
42
Manual controls of 'items not ordered accepted & recorded as inventory'
Goods receiving staff match quantities & descriptions of supplier delivery note to copy of purchase order. Don't accept any additional items
43
Control objective of 'items received are stolen after recorded as inventory' (2)
- All inventory received is kept secure
- Validity
44
Manual controls of 'items received are stolen after recorded as inventory' (3)
- Separate fenced-off area for receipt of goods to avoid goods being mixed with previously recorded items
- Goods receiving staff sole responsibility for receiving goods
- Physical security measures (security guard, CCTV, lock)
45
Control objective of 'goods received not recorded on source documents = insufficient evidence = difficult to identify inventory losses' (2)
- All goods delivered are recorded on entity's inventory system in timely manner
- Completeness
46
Manual controls of 'goods received not recorded on source documents = insufficient evidence = difficult to identify inventory losses'
Preprinted sequentially nr GRN created upon receipt of items before transferring inventory into warehouse
47
Control objective of 'inferior quality / damaged goods accepted' (2)
- All goods received are standard quality of entity
- Validity
48
Manual controls of 'inferior quality / damaged goods accepted'
Goods receiving clerk inspects goods received for damage / inferior quality before accepting goods by signing supplier delivery note
49
Control objective of 'inventory quantities inaccurately recorded on GRNs = over/understatement of purchases' (2)
- Physically accepted quantities agree with quantities on GRN
- Accuracy
50
Manual controls of 'inventory quantities inaccurately recorded on GRNs = over/understatement of purchases' (2)
- 2nd Staff member checks GRN against actual items received for accuracy of quantities before accepting goods
- Signs GRN as evidence of receipt
51
Purpose of 'recording of purchases'
Ensure all valid purchases made are accurately accounted for in entity's financial records in timely manner
52
Main activities of 'recording of purchases' (3)
- Invoice received from supplier & purchase recorded
- Cost of sales & other related creditors in financial records
- Performing creditors reconciliations
53
Persons involved in 'recording of purchases' (3)
- Accounts payable clerk
- Senior bookkeeping clerk
- Financial manager
54
Documents involved in 'recording of purchases' (6)
- Standard chart of accounts
- GRN
- Supplier invoice
- Supplier statement
- Purchase journal
- GL creditor control account
55
Risks associated with 'recording of purchases' (5)
- Fictitious purchases recorded / erroneously duplicated
- Purchases not recorded in financial period to which transaction relates
- Amounts on supplier invoices inaccurately recorded in accounting records
- Purchase transactions allocated to wrong GL account
- Unrecorded purchases
56
Control objective of 'fictitious purchases recorded / erroneously duplicated' (2)
- All purchase transactions recorded relate to actual purchase that took place with supplier
- Validity
57
Manual controls of 'fictitious purchases recorded / erroneously duplicated'
Senior bookkeeping clerk reviews purchase journal to ensure each recorded purchase supported by GRN, supplier delivery note, authorised purchase order
58
Control objective of 'purchases not recorded in financial period to which transaction relates' (2)
- All purchases recorded in correct financial period
- Validity
59
Manual controls of 'purchases not recorded in financial period to which transaction relates'
Senior bookkeeping clerk checks date on GRN when inventory was received to ensure recording in correct period
60
Control objective of 'amounts on supplier invoices inaccurately recorded in accounting records' (2)
- All purchases in records have correct quantities & prices agreed with supplier
- Accuracy
61
Manual controls of 'amounts on supplier invoices inaccurately recorded in accounting records' (4)
- Accounts payable clerk reperforms calculations on supplier invoice before recording
- Accounts payable clerk matches quantities on supplier invoice to GRN & unit prices on supplier invoice to purchase order
- Price variances are followed up on & resolved
- Invoice is signs by clerk as evidence of checks
62
Control objective of 'purchase transactions allocated to wrong GL account' (2)
- Purchase orders recorded in correct accounts based on their nature
- Accuracy
63
Manual controls of 'purchase transactions allocated to wrong GL account'
Expense account transaction should be posted to is specified on purchase requisition with reference to standard chart of accounts
64
Control objective of 'unrecorded purchases' (2)
- All goods received has corresponding purchase transaction in purchase journal
- Completeness
65
Manual controls of 'unrecorded purchases' (7)
- Accounts payable clerk keeps numerical file of all GRNs to match with supplier invoices
- Senior bookkeeping clerk
- Reviews file on regular basis & follows up on missing GRNs
- Ensures all GRNs & supplier invoices was recorded in purchases journal & CL
- Reviews purchase journal for sequentially nr transactions & follows up on missing entries
- All GRNs with no supplier invoice at year-end = accrual created
- Accounts payable clerk performs recon between control account in GL & total of all creditors in CL & financial manager reviews recon
- Accounts payable clerk performs supplier statement recon to identify amounts recorded in one & not other
66
Purpose of 'payment preparation'
Prepare payment timeously for purchases payable to suppliers
67
Main activities of 'payment preparation' (2)
- Performing recons of supplier's account in records to statement
- Preparing payment documents based on valid supporting documents
68
Persons involved in 'payment preparation' (3)
- Accounts payable clerk
- Senior bookkeeping clerk
- Financial manager
69
Documents involved in 'payment preparation' (3)
- Payment schedule
- Remittance advice
- Supplier invoice & statement
70
Risks associated with 'payment preparation' (2)
- Amounts for payment incorrectly determined due to fictitious / unauthorised suppliers & invoices
- Entity forfeits opportunity to receive discount due to not keeping to negotiated payment terms
71
Control objective of 'amounts for payment incorrectly determined due to fictitious / unauthorised suppliers & invoices' (3)
- All payment amounts relate to goods actually received & are accurate
- Occurrence
- Accuracy
72
Manual controls of 'amounts for payment incorrectly determined due to fictitious / unauthorised suppliers & invoices' (6)
Performing supplier statement recon
- Performed by accounts payable clerk before payment
- Identifies errors in entity's records to be corrected
- Financial manager performs review of supplier recon & ensures valid reasons & documents exist for all recon items
Preparing payment schedule
- Done by accounts payable clerk from CL & contains all balances due
- Remittance advice & supplier statement included with each balance
- Reviewed by financial manager to ensure accuracy
73
Control objective of 'entity forfeits opportunity to receive discount due to not keeping to negotiated payment terms' (2)
- Amounts due timeously identified for payment to qualify for discount & avoid penalty charges
- Operational control
74
Manual controls of 'entity forfeits opportunity to receive discount due to not keeping to negotiated payment terms' (2)
- Accounts payable clerk reviews file of unpaid supplier statements regularly to identify unpaid amounts due
- Senior bookkeeping clerk follows up on unpaid statements on regular basis to ensure payment
75
Purpose of 'paying supplier'
Pay suppliers based on valid payment documents
76
Main activities of 'paying supplier' (2)
- Approval of payment
- Paying suppliers
77
Persons involved in 'paying supplier' (2)
- Management
- Payment signatories
78
Documents involved in 'paying supplier' (3)
- POP
- Bank statement
- Bank recon
79
Risks associated with 'paying supplier' (2)
- Suppliers paid that aren't on payment schedule
- Amounts paid don't agree with prepared amounts
80
Control objective of 'suppliers paid that aren't on payment schedule' (2)
- Only supplier invoices authorised for payment paid
- Validity
81
Control objective of 'amounts paid don't agree with prepared amounts' (2)
- Payments made according to amounts that should be paid
- Accuracy
82
Manual controls of 'paying supplier'
Payment documents reviewed by senior personnel & authorised (signature) before payment made
83
Purpose of 'recording payments'
Properly record all payments made to suppliers in entity accounting records
84
Main activities of 'recording payments' (2)
- Recording payments in books of primary entry
- Posting to subsidiary & general ledgers
85
Persons involved in 'recording payments' (3)
- Cash book clerk
- Senior bookkeeper
- Financial manager
86
Documents involved in 'recording payments' (4)
- Receipt
- POP
- Bank statement
- Bank recon
87
Risks associated with 'recording payments' (3)
- Fictitious payments recorded
- Payment amounts incorrectly recorded
- Not all payments recorded
88
Control objective of 'fictitious payments recorded' (2)
- All recorded payments relate to actual payments made
- Validity
89
Control objective of 'payment amounts incorrectly recorded' (2)
- Payments recorded at correct amounts
- Accuracy
90
Control objective of 'not all payments recorded' (2)
- All payments recorded
- Completeness
91
Manual controls of 'recording payments' (2)
- Cash book clerk performs bank recon to identify reconciling items
- Financial manager reviews recon to ensure all recon items resolved & explained
92
Purpose of 'returning goods & recording purchase adjustment' (2)
- Return unsatisfactory goods purchased & record transaction as purchase return
- Record other adjustments to supplier accounts
93
Main activities of 'returning goods & recording purchase adjustment' (3)
- Returning goods to suppliers
- Updating inventory system with returned goods
- Initiating & recording debit note
94
Persons involved in 'returning goods & recording purchase adjustment' (3)
- Warehouse staff
- Accounts payable clerk
- Senior financial staff
95
Documents involved in 'returning goods & recording purchases adjustment' (4)
- Goods returned to supplier voucher
- Debit note
- Goods received note
- Supplier invoice & delivery note
96
Risks associated with 'returning goods & recording purchase adjustment' (3)
- Ungenuine purchase returns recorded
- Amounts of purchase return inaccurately recorded
- Not all purchase returns recorded
97
Control objective of 'ungenuine purchase returns recorded' (2)
- All purchase returns recorded relate to actual returns
- Validity
98
Manual controls of 'ungenuine purchase returns recorded' (2)
- Debit notes only created if supported by GRSV, GRN, supplier invoice
- Financial manager approves all debit notes after confirming supporting documents
99
Control objective of 'amounts of purchase return inaccurately recorded' (2)
- Amounts accurately recorded in terms of quantity & price
- Accuracy
100
Manual controls of 'amounts of purchase return inaccurately recorded'
Senior staff member signs debit note after checking if accurate casts & calculations, quantities agree with GRSV, prices agree with supplier invoice
101
Control objective of 'not all purchase returns recorded' (2)
- All purchase returns timeously recorded
- Completeness
102
Manual controls of 'not all purchase returns recorded' (3)
- All GRSV & debit notes are sequentially nr
- Accounting department files copy of GRSV in nr order
- Senior bookkeeper reviews file on regular basis to ensure missing GRSV followed up with warehouse, all GRSV match debit notes, debit notes have been recorded
103
Explain the info system in p&p cycle
Aims to achieve management control objectives of accuracy, validity, completeness of financial info
104
Documents & records used in p&p cycle (20)
- Purchase requisition
- Quotation
- Purchase order
- Supplier delivery note
- GRN
- Supplier invoice
- Supplier statement
- Remittance advice & POP
- GRSV
- Debit note
- Purchase journal
- CB
- Purchases returns journal
- GJ
- CL
- GL
- Creditors list
- Creditors age analysis
- Supplier statement recon
- Creditors recon
105
Explain 'purchase requisition' (4)
- Created when need for g+s identified in entity
- Originates from various sources in entity
- Has to be authorised by relevant department supervisor
- Not sent to supplier = only for internal purposes
106
Explain 'quotation'
Stipulates best price of g+s as they can be compared between suppliers
107
Explain 'purchase order' (2)
- Internal sequentially nr document sent to supplier indicating g+s needed
- Based on approved purchase requisition & quotation from supplier
108
Explain 'supplier delivery note' (2)
- Document that specifies details of goods delivered to entity
- Receiving staff member signs as proof of acceptance
109
Explain 'GRN' (2)
- Written record created by entity's staff upon taking custody of inventory
- Serves as proof of goods received
110
Explain 'supplier invoice'
Supplier's documented instruction that entity owes it compensation for g+s delivered
111
Explain 'supplier statement' (2)
- Received from supplier at periodic intervals
- Indicates entity's amount outstanding with supplier
112
Explain 'remittance advice & POP' (2)
- Sent by entity to supplier with payment & indicates to which invoice payment relates
- Informs supplier of payment made
113
Explain 'GRSV'
Document indicating goods returned to supplier
114
Explain 'debit note'
Documentary request to supplier to reduce outstanding debt owing by entity to supplier
115
Explain 'purchase journal'
Book of primary entry where credit purchase transactions recorded in nr sequence
116
Explain 'CB'
Book of primary entry where all payment transactions recorded
117
Explain 'purchases returns journal'
Book of primary entry used to record debit notes
118
Explain 'GJ'
Book of primary entry used to record all non-routine transactions
119
Explain 'CL' (2)
- Detailed record of all transactions to creditors
- Each creditor has own account
120
Explain 'GL' (2)
- Collection point of all credit purchases
- Creditors control account reconciled with list of creditors from CL
121
Explain 'creditors list' (2)
- Compiled from balances of each supplier's CL
- Should agree with total in control accout
122
Explain 'creditors age analysis'
Breakdown of balances owed to each creditor in terms of balances ageing
123
Explain 'supplier statement recon' (2)
- Between balance in CL & balance on supplier statement
- Internally prepared by staff
124
Explain 'creditors recon' (2)
- Between control account & CL
- Identifies inaccurate & missing postings
125
Financial reporting risks in expense transactions (5)
- Not all purchase transactions recorded = overstatement of profits (favourable financial performance) & understatement of liabilities (favourable liquidity & solvency)
- Invalid purchases recorded = reduced profits = reduced taxes
- Purchases not recorded accurately = under/overstated expenses
- Purchases not recorded in correct financial period = under/overstatement of expenses
- Purchase transactions not classified in appropriate records = under/overstated expenses
126
Financial reporting risks in payment transactions (2)
- Not all payments to suppliers recorded = overstatement of accounts payable & CB
- Invalid payment transactions recorded = understatement of accounts payable & bank
127
Misappropriation risks (2)
- Goods received from supplier & recorded as inventory but stolen before sold = overstatement of inventory
- Theft of cash before suppliers paid = invalid party paid instead of supplier = no effect on financial statements
128
What computer technologies are used in the p&p cycle (2)
- EFT
- Electronic data interchange
