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UNIT 2: Purchases and Payments Cycle - Coggle Diagram
UNIT 2: Purchases and Payments Cycle
Functions in the cycle
Purchases Cycle
Ordering function
Recording function
Receiving function
Payment cycle
Payments to creditors/payables function
Recording of payments
Control over cheque forms
Drawing and signing of cheques
Documents in the cycle
Purchases cycle
Receiving function
Supplier delivery notes
Goods received notes
Copy of PO
Recording function
Supplier invoice
Copy of PO
Copy of GRN (goods received note)
DN (delivery note) form supplier
Purchases Journal
Credit Notes (disputed invoices and goods)
Ordering function
List of approved suppliers
Supplier price lists
Requisitions
Purchase orders
Payments cycle
Payments to creditors/payables function
Cheques
Bank statements
Cash payments journal
Remittance advices
Control objectives and their internal controls
Accuracy
Payments
-Individual creditor’s reconciliations (reconciliation per supplier, known as supplier reconciliation) are prepared and serve as supporting documentation for payments.
-All calculations are reviewed by an independent person.
Purchases
- The purchase invoice is independently checked for mathematical accuracy before recording it in the purchase journal.
Quantity should be checked on the GRN
accounting accuracy checked
Prices should be compared with orders/price list
Completeness
Purchases
-Two persons inspect goods on received for quantity and quality and prepare a GRN.
-The GRN is matched with the delivery note and short deliveries are indicated on the delivery note and a credit request is made out.
-A register is kept of unmatched invoices and is regularly followed up by the senior buyer
-The GRN is matched with the invoice and is thereafter recorded in the purchase journal
-All requisitions, orders and GRN are recorded numerically and missing numbers are followed up
Payments
- All valid payment transactions are recorded and nothing is left out
Recording
Payments
-Payments are posted from the payment advice to the individual creditors' account and the total to the creditors control account.
Purchases
-The purchase journal is updated from the purchase invoices.
-The creditors control account is kept up to date and regularly reconciled with the list of
creditors. Management signs as evidence of review
creditor's accounts in the creditors ledger
purchase and creditors control account in the general ledger
Authorization
Payments
-All payments made to creditors done by means of a cheque requisition which is authorised by a senior official.
-Two signatories review and cancel supporting documentation, before approving payment
Purchases
-If stock decreases to re-order level, a requisition is made out either by the computer store man
-Orders are prepared by purchasing department or buyers only and prices compared and best selected
-Orders are authorised by the purchase manager
Classification
Payments
- Payments coded according to the creditor's number and posted on date of cheque.
-Independent person reviews codes and date of payment.
Purchases
- Inter-group purchases (if there are any) are clearly distinguished by a code number and separately recorded.
Occurrence/Validity
Purchases
-All entries in purchase journal (and in the cash book if the purchases was cash) should be supported by the following
GRN
DN from the supplier
PO
Invoices
Purchase requisitions
Creditor’s statement
Payments
-Creditor payments are supported by
a creditor statement
a creditors reconciliation
a cheque payment requisition
a purchase order, GRN, DN from supplier and an invoice
Cut off
Payments
- All payments are recorded in correct period in respect of the date of the cheque
Purchases
- The Purchase journal updated from invoices in respect of the date of delivery
Possible weaknesses and risks.
Weaknesses
Lack of proper segregation of duties in the financial transaction process (reliance on one individual for many duties)
Risk: Financial loss due to fraudulent behavior or theft.
Inefficient systems and computerized processes for tracking and reconciling payments and purchases
Risk: In accuracy and material misstatements that inflates financial information available to current and potential stakeholders