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Abernethy and Chapman

Client: Lakeside Company


System: Purchasing and Cash Disbursement Cycle
Date:
Prepared by: John Ligaya

Purchase and Cash Disbursement


When inventory items appear to be in low-level, Edward Thomas prepares a purchase
requisition to replenish Lakeside’s depleted stocks. All merchandise were acquired virtually
directed from Cypress Products. The completed requisition includes the quantity being ordered
as well as a description of the needed items. This document is then forwarded to Rogers for final
review. Whenever the president disagrees or question any part of the purchase, he discusses his
concern with Thomas. If they decide to make a change, the original requisition is voided and a
new one is completed. After approval, Rogers routes one copy of the purchase requisition to the
Treasurer, a second goes to the Controller, and the final copy is returned to Thomas. The original
document serves as a purchase order and is mailed to Cypress.
Periodically, Thomas must also special-order merchandise from Cypress. Customer
requests are often received for inventory that is not in held in stock in the Lakeside warehouse.
When Thomas receives notice that specific goods are needed, a purchase requisition is
immediately prepared and forwarded to Rogers for approval.
When shipments arrive at Lakeside, the members of the inventory department unload the
merchandise and inspect each item for damage. A receiving report is prepared, indicating the
identity, quantity, and condition of the goods. One copy of this document goes to the Treasurer’s
Office while another is routed to the Controller’s Division, where the inventory purchases
journal is updated. Later, when the vendor invoice arrives from Cypress, it is stamped by
Lakeside so that document numbers and individual verifications can be marked directly on the
form. This invoice is matched by the Treasurer’s Office with the purchase requisition and the
receiving report to verify agreement. The prices shown for the acquired items are compared to a
master price list and each invoice is extended and footed to establish mathematical accuracy. If
all information is proper, the three documents are stapled together and placed in a due date file.
On this date, the forms are removed and a check is prepared for the appropriate amount after
reducing the balance for any cash discounts being offered. The Treasurer writes “PAID” across
the invoice and indicates the check number.

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