CHPT 12

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The Expenditure Cycle: Purchasing and Cash Disbursements
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12
UAA ACCT 316 Fall 2002 Accounting Information Systems Dr. Fred Barbee
Chapter
The Primary Objective

Main Objective
The primary objective of the expenditure cycle is to minimize the total cost of acquiring and maintaining inventories, supplies, and the various services necessary for the organization to function.
Key Decisions of the Cycle
Key Decisions
What is the optimal level of inventory and supplies to carry?
Which suppliers provide the best quality and service at the best prices?
Key Decisions
Where should inventories and supplies be held?
How can the organization consolidate purchases across units to obtain optimal prices?
Key Decisions
How can information technology be used to improve both the efficiency and accuracy of the inbound logistics function?
Key Decisions
Is sufficient cash available to take advantage of any discounts suppliers offer?
How can payments to vendors be managed to maximize cash flow?
The Expenditure Cycle Defined
Defined
The expenditure cycle is a recurring set of business and related information processing operations associated with the purchase of and payment for goods and services.
The first function of a welldesigned AIS is to support the effective performance of the organizations business activities.
The Expenditure Cycle Business Activities
Business Activities
1. Order Goods
2. Receive and Store Goods 3. Pay for Goods
Business Activities Up Close and Personal
1.0 Order Goods
Order Goods (Activity 1)

The first major business activity in the expenditure cycle involves ordering inventory or supplies.

What to purchase?
When to purchase?
How much to purchase?

From what supplier?

Inventory control methods:
EOQ
MRP
JIT
What is the major difference between MRP and JIT?
MRP Systems
Schedule production to meet estimated sales need, thereby creating a stock of finished goods inventory.
JIT Systems
Schedule production to meet customer demands, thereby virtually eliminating finished goods inventory.
Documents and Procedures
Order Goods
What is a key decision?
determine vendor
What factors should be considered?

price quality of materials dependability in making deliveries
2.0 Receive and Store Goods
Receive and Store Goods

The receiving department has two major responsibilities:
Deciding whether to accept a delivery Verifying quantity and quality
3.0 Pay for Goods
Pay for Goods

The objective of accounts payable is to authorize payment only for goods and services that were ordered and actually received.
Key Decisions and Information Needs
The third function of a welldesigned AIS is to provide useful information for decision making.
Key Decisions
Determine when and how much additional inventory to order.
Select the appropriate vendors from whom to order. Verify the accuracy of vendor invoices.
Key Decisions
Decide whether purchase discounts should be taken.
Monitor cash flow needs to pay outstanding obligations.
Other Information Needed

Efficiency and effectiveness of the purchasing department
Analyses of vendor performance such as on-time delivery, quality, etc.
Other Information Needed

Time taken to move goods from the receiving dock into production
Percentage of purchase discounts taken
Control Objectives, Threats, and Procedures
The second function of a well-designed AIS is to provide adequate controls to ensure the firm meets its objectives.
Control Objectives
Transactions are properly authorized.
Recorded transactions are valid.
Valid, authorized transactions are recorded. Transactions are recorded accurately.
Control Objectives
Assets (cash, inventory, and data) are safeguarded from loss or theft.
Business activities are performed efficiently and effectively.
Threats to the Expenditure Cycle
Threats
Stockouts
Purchasing too many or unnecessary goods Purchasing goods at inflated prices
Purchasing goods of inferior quality
Threats
Purchasing from unauthorized vendors
Kickbacks Receiving unordered goods
Errors in counting goods
Threats
Theft of inventory
Failure to take available purchasing discounts Errors in recording and posting purchases and payments Loss of data
Expenditure Cycle Exposures
Exposures
Production delays and lost sales
Increased inventory costs
Cost overruns
Inferior quality of purchased goods
Inflated prices
Exposures
Violation of laws or import quotas
Payment for items not received
Inaccurate inventory records

loss of assets
Exposures
Cash flow problems
Overstated expenses
Incorrect data for decision making
Expenditure Cycle Control Procedures
Control Procedures
Inventory control system
Vendor performance analysis
Approved purchase requisitions

Restricted access to blank purchase requisitions
Control Procedures
Price list consultation
Budgetary controls
Use of approved vendor lists

Approval of purchase orders Prenumbered purchase orders
Control Procedures
Prohibition of gifts from vendors
Incentives to count all deliveries
Physical access control

Recheck of invoice accuracy Cancellation of voucher package

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CHPT 12

Загружено:

Авторское право:

Доступные форматы

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The Expenditure Cycle: Purchasing and Cash Disbursements

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The Primary Objective

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Key Decisions of the Cycle

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The Expenditure Cycle Defined

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The Expenditure Cycle Business Activities

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Business Activities Up Close and Personal

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1.0 Order Goods

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Order Goods (Activity 1)

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Order Goods (Activity 1)

How much to purchase?

Order Goods (Activity 1)

What is the major difference between MRP and JIT?

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Documents and Procedures

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What factors should be considered?

2.0 Receive and Store Goods

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Receive and Store Goods

Deciding whether to accept a delivery Verifying quantity and quality

3.0 Pay for Goods

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Pay for Goods

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Key Decisions and Information Needs

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Monitor cash flow needs to pay outstanding obligations.

Other Information Needed

Analyses of vendor performance such as on-time delivery, quality, etc.

Other Information Needed

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Control Objectives, Threats, and Procedures

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Valid, authorized transactions are recorded. Transactions are recorded accurately.

Business activities are performed efficiently and effectively.

Threats to the Expenditure Cycle

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Purchasing goods of inferior quality

Kickbacks Receiving unordered goods

Errors in counting goods

Expenditure Cycle Exposures

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Inaccurate inventory records

Incorrect data for decision making

Expenditure Cycle Control Procedures