Romney Ais14 CH 13 The Expenditure Cycle Purchasing To Cash Disbursements

Accounting Information Systems
Fourteenth Edition
Chapter 13
The Expenditure Cycle:
Purchasing to Cash
Disbursements
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2017, 2016,
2016, 2015
2015 Pearson
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Learning Objectives (1 of 2)
• Discuss the basic business activities and related
information processing operations in the expenditure cycle,
explain the general threats to those activities, and describe
the controls that can mitigate those threats.
• Explain the process and key decisions involved in ordering
goods and services, identify the threats to those activities,
and describe the controls that can mitigate those threats.
• Explain the process and key decisions involved in
receiving goods and services, identify the threats to those
activities, and describe the controls that can mitigate those
threats.
Copyright © 2017, 2016, 2015 Pearson Education, Inc. All Rights Reserved
Learning Objectives (2 of 2)
• Explain the process and key decisions involved in
approving supplier invoices, identify the threats to those
threats.
• Explain the process and key decisions involved in cash
disbursements to suppliers, identify the threats to those
threats.
Basic Expenditure Cycle Activities
• Order materials, supplies, and services
• Receive materials, supplies, and services
• Approve supplier (vendor) invoice
• Cash disbursement
Key decisions
• What is the optimal level of inventory?
• Which suppliers provide the best quality at the best price?
• How can IT be used to improve efficiency and accuracy of
logistics?
• How can we take advantage of vendor discounts?
• How can we maximize cash flow?
General Threats and Controls
Threats Control
1. Inaccurate or invalid master data 1 a. Data processing integrity controls
2. Unauthorized disclosure of sensitive 1 b. Restriction of access to master data
information 1 c. Review of all changes to master data
3. Loss or destruction of data 2 a. Access controls
4. Poor performance b. Encryption
3 a. Backup and disaster recovery
procedures
4 a. Managerial reports
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
Ordering Goods/Services (1 of 2)
Threats Controls
1. Stockouts and excess inventory 1 a. Perpetual inventory system
2. Purchasing items not needed b. Bar-coding, RFID
c. Periodic physical counts
3. Purchasing items at inflated prices
2 a. Perpetual inventory systems
4. Purchasing goods of poor quality
b. Review and approval of purchase
requisitions
c. Centralized purchasing
3 a. Price lists
b. Competitive bids
c. Review purchase orders
4 a. Use approved suppliers
b. review and approve purchases from
new suppliers
c. Monitor product quality by supplier
d. hold purchasing managers responsible
for rework and scrap cost
Ordering Goods/Services (2 of 2)
Threats Controls
5. Unreliable suppliers 5 a. Monitor supplier performance
6. Purchasing from unauthorized suppliers b. Require quality certification
7. Kickbacks 6 a. Purchase from approved suppliers
b. Review approval from purchases of new
suppliers
c. EDI specific controls
7 a. Supplier audits
b. Prohibit gifts
c. Job rotation & mandatory vacations
d. Required disclosure of financial and
personal interests in suppliers
Receiving Process
• Goods arrive
– Verify goods ordered against the purchase order (what, how
much, quality)
– Source document: receiving report
Receiving Goods or Services
Threats Controls
1. Accepting unordered items 1 a. Authorized purchase orders needed
2. Mistakes in counting before receiving goods
3. Verifying receipt of services 2 a. Bar codes or RFID
4. Inventory theft b. Receiving employees sign receiving
report
c. Do not inform receiving of quantity
ordered
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
Approve Supplier Invoice
Threats Control
1. Errors in supplier invoice 1 a. Verify invoice accuracy
2. Mistakes in posting to accounts payable b. Require detailed receipts for p-cards
c. Restrict access to supplier master data
2 a. Data entry edit controls
b. Reconcile detailed accounts payable
records to the general ledger accounts
payable account
Cash Disbursements
Threats Controls
1. Failure to take discounts 1 a. File invoices by due date to take
2. Pay for items not received advantage of discounts
3. Duplicate payments 2 a. Match supplier invoice to supporting
documents (purchase order, receiving
4. Theft of cash report)
5. Check alteration 3 a. Pay only original invoices
6. Cash flow problems 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
b. special inks / papers
6 a. Cash flow budget
Key Terms
• Expenditure cycle • Vendor-managed inventory (VMI)
• Economic order quantity (EOQ) • Kickbacks
• Reorder point • Receiving report
• Materials requirement planning • Debit memo
(MRP) • Voucher package
• Just-in-time (JIT) inventory system • Nonvoucher system
• Purchase requisition • Voucher system
• Purchase order • Disbursement voucher
• Blanket purchase order/blanket order • Evaluated receipt settlement (ERS)
• Procurement card
• Imprest fund

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