Topic 6 - Expenditure Cycle Flashcards
What actions do we take in the receiving process?
- Goods arrive (source document: receiving report)
a) Verify good ordered against purchase order
b) The good received are what was ordered and in the correct quantity
c) The goods are of good quality
What are the basic expenditure cycle activities?
- Order materials, supplies, and services
- Receive materials, supplies, and services
- Approve supplier (vendor) invoice
- Cash disbursement
What are the threats for receiving goods or services?
- Accepting unordered items
- Mistakes in counting
- Verifying receipt of services
- Inventory theft
What are the controls for accepting unordered items (receiving goods or services)?
- Authorized purchase orders needed before receiving goods
What are the controls for mistakes in counting (receiving good or services)?
- Bar codes or RFID
What are controls for verifying receipt of services (receiving goods or services)?
- Budget controls and audits
What are controls for inventory theft (receiving goods or services)?
- Restrict physical access to inventory
- Document all inventory transfers
- Segregate custody vs. receiving of inventory
What are the steps in approving the supplier invoice and cash disbursements?
- Match the supplier invoice to purchase order and receiving report
(supplier invoice + purchase order + receiving report = voucher) - Approve supplier invoice for payment (source document: disbursement voucher)
- Pay vendor
What are the threats in approving supplier invoice?
- Errors in supplier invoice
2. Mistakes in posting to accounts payable
What are the controls for errors in supplier invoice (approving supplier invoice)?
- Verify invoice accuracy
What are the controls for mistakes in posting to accounts payable (approving supplier invoice)?
- Data entry edit controls
2. Reconcile detailed accounts payable records to the general ledger accounts payable account
What are the threats in cash disbursements?
- Failure to take discounts
- Pay for items not received
- Duplicate payments
- Theft of cash
- Check alteration
- Cash flow problems
What are the controls for failure to take discounts (cash disbursements)?
- File invoices by due date to take advantage of discounts
What are the controls for paying for items not received (cash disbursements)?
- Match supplier invoice to supporting documents (purchase order, receiving report)
What are the controls for duplicate payments (cash disbursements)?
- Pay only original invoices
2. Cancel supporting document when payment is made
What are the controls for theft of cash (cash disbursements)?
- Physical security of checks
- Separation of duties
- Reconcile bank accounts
What are the controls for check alteration (cash disbursements)?
- Check Protection machines
What are the controls for cash flow problems (cash disbursements)?
- Cash flow budget
What is economic order quantity?
The traditional approach to inventory management to ensure sufficient quantity on hand to maintain production.
What does just-in-time inventory attempt to do?
Minimize or eliminate carrying and stockout costs.
What expenditure cycle activity can be eliminated through the use of IT or reengineering?
approving vendor invoices
For good internal control, who should sign checks?
cashier
What is material requirements planning (MRP)?
An inventory control system that triggers production based on forecasted sales.
What is the just-in-time (JIT) inventory system?
An inventory control system that triggers production based upon actual sales.
What is a purchase requisition?
A document used only internally to initiate the purchase of materials, supplies, or services.
What is the imprest fund?
The method used to maintain the cash balance in a petty cash account.
What is a purchase order?
A document that creates a legal obligation to buy and pay for goods or services.
What are kickbacks?
A fraud in which a supplier pays a buyer or purchasing agent in order to sell its products or services.
What is a procurement card?
A special-purpose credit card used to purchase supplies.
What is a blanket purchase order?
An agreement to purchase set quantities at specified intervals from a specific supplier.
What is an evaluated receipts settlement (ERS)?
A process for approving supplier invoices based on a two-way match of the receiving report and purchase order.
What is a disbursement voucher?
A document used to list each invoice being paid by a check.
What is a receiving report?
A document used to record the quantities and condition of items delivered by a supplier.
What is a debit memo?
A document used to authorize a reduction in accounts payable because merchandise has been returned to a supplier.
What is vendor-managed inventory?
A system whereby suppliers are granted access to point-of-sale (POS) and inventory data in order to automatically replenish inventory levels.
What is a voucher package?
Combination of a purchase order, receiving report, and supplier invoice that all relate to the same transaction.
What is a non voucher system?
A method of maintaining accounts payable in which each supplier invoice is tracked and paid for separately.
What is a voucher system?
A method of maintaining accounts payable that generates one check to pay for a set of invoices from the same supplier.
