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Unit 2: Purchases and Payments Cycle, Lesson 5: Control Objectives and…
Unit 2: Purchases and Payments Cycle
Lesson 4 : Payment cycle
In this function, the entity has an obligation to pay the supplier for the goods received.
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
Lesson 1 - 3: The Purchases Cycle
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.
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.