Unit 2: Purchases and Payments Cycle

Lesson 4 : Payment cycle

Lesson 1 - 3: The Purchases Cycle

  1. The ordering of goods

It’s within this cycle that orders are placed on goods that have reached the re-order level

Documentation present within this cycle

Documentation

Requisitions

List of approved suppliers

Supplier price lists, and

Purchase orders

Activities and Control

Controls

A separate purchasing department or buyer must be employed by the company.

The entity must have a purchasing policy governing re-ordering levels of inventory.

A purchase requisition must be generated once the entity reaches re-order level.

An entity must draft a list of approved suppliers from which the buyer may acquire goods.

Purchase orders must be sequentially numbered. POs must first be authorised by the purchase manager before sent to the supplier.

POs must then be issued in triplicate with copies issued to the supplier, the receiving department, and to the deliveries pending register.

  1. The receiving of goods

It’s within this function that the ordered goods will be received by the organisation.

Documentation

Copy of the PO

Supplier DN (delivery notes)

GRN (goods received note)

Controls

In receipt of goods, staff responsible for the receiving of goods should inspect the goods for type, quality, and quantity against PO

The GRN should be signed off by the individual responsible for receiving.

The GRN should be issued in duplicate format with copies sent to the ordering department and to the accounts department (together with the copy of PO and DN).

. 3. Recording of goods

Documentation

Supplier invoice

Copy of PO

Copy of GRN

DN

Purchases Journal

Credit Notes

Controls

Invoices received should first be approved as correct before entered into the records.

The purchases should entered directly in purchases journal and filed under supplier’s name.

Disputed invoices are to be kept separately and followed by senior member.

In this function, the entity has an obligation to pay the supplier for the goods received.

  1. Payments to creditors/payables

Documentation

Remittance advices

Cheques

Bank statements

CPJ

Lesson 5: Control Objectives and Internal Controls

Occurrence/Validity

All payments on creditors accounts are valid and are supported
by proper documentation

Authorisation

Payments are authorised according to company policy

Completeness

All valid payment transactions are recorded and nothing is left out

Accuracy

Payments are made at the correct amount and is arithmetically correct

Recording

Payment transactions are correctly recorded

Classification

Payments classified to the correct creditor's account

Cut off

All payments recorded at date of payment per payment advice and date of cheque