Accounting information system an overview 9e bodnar and hopwood 2015 chapter 13

The Expenditure Cycle: Purchasing to Cash
Disbursements
Chapter 13

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Learning Objectives
• Explain the basic business activities and related
information processing operations performed in
the expenditure cycle.
• Discuss the key decisions to be made in the
expenditure cycle, and identify the information
needed to make those decisions.
• Identify major threats in the expenditure cycle,
and evaluate the adequacy of various control
Copyrightprocedures
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Inc. dealing with those threats.
for

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Basic Expenditure Cycle Activities
•
•
•
•

Order materials, supplies, and services
Receive materials, supplies, and services
Approve supplier (vendor) invoice
Cash disbursement

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Order Goods (Materials/Supplies) or
Services Processing Steps
• Identify what, when, and how much to purchase
▫ Source document: purchase requisition

• Choose a supplier
▫ Source document: purchase order

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Ordering Goods/Services
Threats

Controls

1.

1 a. Perpetual inventory system
b. Bar-coding, RFID
2 a. Review and approval of
purchase requisitions
3 a. Price lists
b. Competitive bids
4 a. Use approved suppliers
5 a. Monitor supplier
performance
b. Require quality certification
6 a. Purchase from approved
suppliers
7 a. Supplier audits
b. Prohibit gifts

2.
3.
4.
5.
6.
7.

Stockouts and excess
inventory
Purchasing items not needed
Purchasing items at inflated
prices
Purchasing goods of poor
quality

Unreliable suppliers
Purchasing from
unauthorized suppliers
Kickbacks

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Receiving Process
• Goods arrive
▫ Verify goods ordered against the purchase order
(what, how much, quality)
▫ Source document: receiving report

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Receiving Goods or Services
Threats

1.
2.
3.
4.

Accepting unordered items
Mistakes in counting
Verifying receipt of services

Inventory theft

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Controls

1 a. Authorized purchase orders
needed before receiving
goods
2 a. Bar codes or RFID
3 a. Budget controls and audits
4 a. Restrict physical access to
inventory
b. Document all inventory
transfers
c. Segregate custody vs.
receiving of inventory


Approve Supplier Invoice and Cash
Disbursements
• Match the supplier invoice to:
▫ Purchase order
▫ Receiving report
supplier invoice + purchase order + receiving report = voucher

• Approve supplier invoice for payment
▫ Source document: disbursement voucher

• Pay vendor

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Approve Supplier Invoice
Threats

Control

1. Errors in supplier invoice
2. Mistakes in posting to
accounts payable

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1 a. Verify invoice accuracy
2 a. Data entry edit controls
b. Reconcile detailed accounts
payable records to the
general ledger accounts
payable account


Cash Disbursements
Threats

Controls

1.
2.
3.
4.
5.
6.

1 a. File invoices by due date to
take advantage of discounts
2 a. Match supplier invoice to
supporting documents
(purchase order, receiving
report)
3 a. Pay only original invoices
b. Cancel supporting document
when payment is made
4 a. Physical security of checks
b. Separation of duties
c. Reconcile bank accounts
5 a. Check Protection machines
6 a. Cash flow budget

Failure to take discounts
Pay for items not received
Duplicate payments
Theft of cash
Check alteration
Cash flow problems

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Key Terms
• Expenditure cycle
• Economic order quantity
(EOQ)
• Reorder point
• Materials requirement
planning (MRP)
• Just-in-time (JIT) inventory
system
• Purchase requisition
• Purchase order
• Blanket purchase order
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•
•
•
•
•
•
•
•
•

Vendor-managed inventory
Kickbacks
Receiving report
Debit memo

Voucher package
Nonvoucher system
Voucher system
Disbursement voucher
Evaluated receipt settlement
(ERS)
• Procurement card
• Imprest fund