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Chapter 5 Expenditure Cycle Part 1

The document describes the key activities and objectives of the expenditure cycle, which includes ordering, receiving, approving supplier invoices, and cash disbursement. It outlines the basic procedures for purchases processing and cash disbursement. Controls are discussed, including authorization, segregation of duties, supervision, accounting records, and independent verification. Physical and computer-based accounting systems are compared.

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KRIS ANNE SAMUDIO
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254 views

Chapter 5 Expenditure Cycle Part 1

The document describes the key activities and objectives of the expenditure cycle, which includes ordering, receiving, approving supplier invoices, and cash disbursement. It outlines the basic procedures for purchases processing and cash disbursement. Controls are discussed, including authorization, segregation of duties, supervision, accounting records, and independent verification. Physical and computer-based accounting systems are compared.

Uploaded by

KRIS ANNE SAMUDIO
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPTX, PDF, TXT or read online on Scribd
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CHAPTER 5

EXPENDITURE CYCLE
PART I: PURCHASES AND
CASH DISBURSEMENT
PROCEDURES

Yanong, Apple Rose C.


OBJECTIVES OF EXPENDITURE CYCLE

 To convert the organization's


cash into the physical materials
and the human resources it needs
to conduct business.
FOUR BASIC ACTIVITIES

1. ORDERING

2. RECEIVING

3. APPROVING SUPPLIER INVOICES

4. CASH DISBURSEMENT
GOALS OF THE EXPENDITURE CYCLE
 The goal of providing needed resources to
organization can be broken down into several
objectives:
 purchase from reliable vendors
 purchase high quality items

 obtain best possible price

 purchase only items that are properly authorized

 receive only those items ordered

 ensure items are not lost, stolen, or broken

 pay for the items in a timely manner


THE PURCHASE SYSTEM
PURCHASES PROCESSING PROCEDURE

1. MONITOR INVENTORY RECORDS


 Firm deplete their inventories by transferring
raw materials into the production process and
selling finished goods to customers.

2. PREPARE PURCHASE ORDER


 The prepare purchase order function receives
the purchase requisitions, which are sorted by
vendor if necessary.
3. RECEIVE GOODS
 Goods arriving from the vendor are reconcile
with the blind copy of Purchase Order.
 Upon completion of physical count and
inspection, the receiving clerk prepares a
receiving report stating the quality and
condition of inventories.
4. UPDATE INVENTORY RECORDS
 Organization that uses standard costing
systems carry their inventories at a
predetermined standard value regardless of the
price actually paid to the vendor.
 Require only information about the qualities
received.
5. SET UP ACCOUNT PAYABLE
 The set up AP function has received and
temporarily filed copies of the PO and
receiving report. The organization has received
inventories from the vendor and has incurred
an obligation to pay for a goods.
6. VOUCHER PAYABLE SYSTEM
 Voucher provide improved control over cash
disbursement and allow firms to consolidate
several payments in the same supplier on a
single voucher, thus reducing the number of
checks written.
7. POST TO GENERAL LEDGER
 The general ledger function receive a journal
voucher from AP department and an account
summary from inventory control
 The approved journal voucher s are then
posted to the journal voucher file.
DFD FOR PURCHASE SYSTEM

2 5

7
3
6

4
THE CASH DISBURSEMENT SYSTEM
CASH DISBURSEMENT PROCEDURES
1. IDENTIFY LIABILITIES DUE
 The cash disbursement process begins with AP
department by identifying items that have come
due.

2. PREPARE CASH DISBURSEMENT


 The clerk prepares a check and records the check
number, dollar amount, voucher number and
other pertinent data in the check register (cash
disbursement journal).
3. UPDATE ACCOUNTS PAYABLE RECORD
 Upon receipt of the voucher pocket, the AP clerk
removes the liability by debiting the AP
subsidiary account or by recording the check
number and payment date in the voucher register.

4. POST TO GENERAL LEDGER


 The GL receives the journal voucher from cash
disbursements and the account summary from
AP.
DFD FOR CASH DISBURSEMENTS SYSTEM
AUTHORIZATION CONTROLS
 Purchases of inventory should be authorized by
the Inventory Control department, not by
purchasing agents
 Accounts Payable authorizes the payments of
bills, not the cash disbursements clerk, who
writes the checks
COMPUTER-BASED AUTHORIZATION CONTROLS

 Authorizations are automated.


 programmed decision rules must be debugged
 Automating inventory in EDI and JIT
 faulty inventory model can lead to over-
purchasing or under-purchasing
 Cash disbursements may automate check
printing and signing.
 programming logic must be flawless
 automated signing only below a dollar threshold
SEGREGATION OF FUNCTIONS
 Custody of the asset, inventory, by the
Warehouse must be separate from
recordkeeping for the assets by the
Inventory Control.
 Custody of the asset, cash, by Cash
Disbursements must be kept separate from
recordkeeping for the asset by A/P.
COMPUTER-BASED SEGREGATION OF FUNCTIONS

 Extensive consolidation by the


computer of tasks traditionally
segregated
 computer programs authorize and process
purchase orders
 computer programs authorize and issue
checks to vendors
SUPERVISION
 Within the expenditure cycle, supervision is of
highest importance in the Receiving department,
where the inventory arrives and is logged in by a
receiving clerk. Need to minimize:
 failures to properly inspect the assets
 theft of the assets
COMPUTER-BASED SUPERVISION
 Automation often leads to a collapsing of the
traditional segregation of duties.
 requires greater supervision
 Supervision takes on new aspects as technology
advances.
 electronic monitoring
 Supervision because more difficult as the
workplace becomes more sophisticated.
 employees may have advanced IT training
ACCOUNTING RECORDS

 Must maintain adequate records for:


 accounts payable
 vouchers payable
 checks
 general ledger
 subsidiary ledgers
COMPUTER-BASED ACCOUNTING RECORDS
 Accounting records rest on the reliability and security
of stored digitalized data.
 Accountants should be skeptical about the accuracy of
hard-copy printouts.
 Backups - the system needs to ensure that backups of all
files are continuously kept

 Most automated systems still have a lot of paper


documents.
 This is good for audit trail purposes but is often inefficient.
 As the system becomes increasing paperless, maintaining
an audit trail becomes more difficult.
COMPUTER-BASED ACCESS CONTROLS

 Magnetic records are vulnerable to both


authorized and unauthorized exposure
and should be protected
 must have limited file accessibility
 programs must be safeguarded and
monitored
INDEPENDENT VERIFICATION
 A/Payable dept. verifies much of the work done
within the expenditure cycle.
 PR, PO, receiving reports, and suppliers’ invoices
must be checked and verified by A/P.
 G/Ledger dept. verifies:
 the total obligations recorded equal the total
inventories received
 the total reductions in accounts payable equal the total
disbursements of cash
COMPUTER-BASED INDEPENDENT VERIFICATION

 Automating the accounting function reduces


the need for verification by reducing the
chances of fraud and error in the
expenditure cycle.
 However, the need for verification shifts to
the computer program and the programmers
where fraud and error may still be present.
PHYSICAL SYSTEMS
 MANUAL SYSTEM
• Inventory Control
• Purchasing Department
• Receiving
• Accounts Payable Department
• General Ledger Department

 THE CASH DISBURSEMENT SYSTEMS


• Accounts Payable Department
• Cash Disbursement Department
• General Ledger Department
COMPUTER-BASED ACCOUNTING SYSTEMS

 CBAS technology can be viewed as a


continuum with two extremes:
 automation - use technology to

improve efficiency and effectiveness


 reengineering – use technology to

restructure business processes and firm


organization
LEVELS OF AUTOMATING AND REENGINEERING ORDERING

 Computer generates PR
 Purchases manually generates PO
 Computer generates PO (no PR needed)
 PO not sent until manually reviewed
 Computer-generated PO is automatically sent
without manual review
 Electronic Data Interchange (EDI)
 Computer-to-computer communication without PO
EXPENDITURE CYCLE DATABASE
 Master Files  Other Files
 supplier (vendor) master file  supplier reference and history
 accounts payable master file file
 merchandise inventory master  buyer file
file  accounts payable detail file
 Transaction and Open
Document Files
 purchase order file
 open purchase order file
 supplier’s invoice file
 open vouchers file
 cash disbursements file
CONTROL IMPLICATIONS
 THE AUTOMATED SYSTEM
• Improved inventory control
• Better cash management
• Tim lag
• Purchasing bottleneck
• Excessive paper documents

 THE REENGINEERED SYSTEM


• Segregation of duties
• Accounting records and access controls

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