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Chapter 13 Purchasing to Cash Disbursement - Coggle Diagram
Chapter 13
Purchasing to Cash Disbursement
expenditure cycle
a recurring set of business activities and related data processing operations associated with the purchase of and payment for goods and services (pg395)
Objective
to minimize the total cost of acquiring and maintaining inventories, supplies and the various services the organizations needs to functions
How organizations performs the four basics expenditure cycle:
Ordering materials, supplies and services
Receiving materials, supplies and services
Approving supplier invoices
Cash Disbursement
Expenditure Cycle Information System
1. Process
figure 13-2 pg 397
inventory control department has primary responsibility for ensuring an adequate quantity of materials and supplies
figure 13-3 pg 398
2.Threat and Controls
i. inaccurate or invalid master data
error in master data could result in ordering from unapproved suppliers, purchasing materials of inferior quality, untimely deliveries, sending payments to wrong address
error in inventory master data can result in production delays due to shortage.
error in purchasing master data results in unauthorized purchase and failure to take advantage of negotiated discounts
How to reduce inaccurate master data:
employ the data processing integrity controls
restricts access to expenditure master data and configure the system so only authorized employees can make changes.
ii. unauthorized disclosure of sensitive information such as banking info about suppliers and special pricing discounts offered by preferred suppliers
way to reduce:
configure the system to employ strong access controls that limit who can view such infos
sensitive data should be encrypted in storage to prevent unwanted access.
iii. loss or destruction of master data
way to reduce:
employ backup and disaster recovery procedures
Ordering Materials, Supplies and Services
Identifying what, when and how to purchase
1. Process
to manage inventory, maintain sufficient stock
i. determine what to order
ii. select supplier
economic order quantity (EOQ)
the optimal order size to minimize the sum of ordering, carrying and stockout costs.
ordering, carrying, stockout cost
high cost/use item - use 3 types of cost
low cost/use - stockout cost only
formula of how much to order
reorder point
specifies the level to which inventories balance of an item must fall before an order to replenish stock is initiated
when to order
materials requirements planning (MRP)
an approach to inventory management that seeks to reduce required inventory levels by improving the accuracy of forecasting techniques to better schedule purchases to satisfy production needs
just-in-time inventory system
a system that minimizes or virtually eliminates inventories by purchasing and producing goods only in response to actual, rather than forecasted sales
purchase requisition
documents or electronic forms that identifies the requisitioner
specifies the delivery location and date needed
identifies the item numbers, descriptions, quantity and price of each item requested
suggest a supplier
2. Threats
i. inaccurate inventory records
ii. data entry errors
iii. errors when using bar codes
iv. purchasing item that are not needed
v. multiple purchase of the same items by different subunits
Controls
i. ensure the information about inventory stocks is always current
ii. use information technology to eliminate the need for manual data entry
iii. affixing RFID tags to individual products
iv. supervisor need to review and approve purchase requisitions
v. centralized purchasing function
Choosing Supplier
process
price
quality of materials
dependability in making deliveries
purchase order
blanket purchase order or blanket order
vendor-managed inventory (VMI)
kickbacks
Receiving
accepting deliveries from suppliers
Process
receiving report
a document that records details about each delivery, shipper, supplier and quantity received
exceptions to this process:
receiving a quantity of goods different from the amount ordered
receiving damaged goods
receiving goods of inferior quality that fail inspection
debit memo
a document used to record a reduction to the balance due to a supplier
Threats
i. accepting delivery of unordered goods
more cost in unloading, storing, returning the items
Controls
i. instruct the receiving department to accept only deliveries for which there is an approved purchase order
ii. encourage receiving clerk to count accurately
by designing the inquiry processing system so thath when reviewing open purchase orders, receiving docs workers do not see the quantity ordered
company actively communicate by require the clerk to sign the receiving report or enter employee ID numbers, or offer benefits such as bonus
iii. hold the appropriate supervisor accountable for all such costs incurred by that department
iv. detective controls are needed
internal audit function to periodically conduct detailed reviews of contract for services
v. safeguard inventory against loss
put in safe location
restricted access
transfer of inventories should be documented
v. proper segregation of duties
ii. making mistakes in counting items received
counting it right is important to maintain accurate perpetual inventory records
ensure company pays only for goods actually received
iii. establishing that the services were actually performed
iv. fraudulent billing for services
v. theft of inventory
Approving Supplier Invoices
Process
voucher package
the set of docs used to authorized payments to a supplier
consists of a PO, receiving report, supplier invoice
Two ways to process
1. nonvoucher system
- method for processing acc payable in which each approved invoice is posted to individual supplier records in the acc payable file and is then stored in an open invoice file
2. voucher system
- a disbursement voucher is prepared instead of posting invoice directly to supplier records in the acc payable subsidiary ledger
disbursement voucher
disbursement voucher identifies the supplier, list of outstanding invoices, indicates the net amount to be paid after deducting discounts and allowance
Advantages:
reduce number of checks that need to be written
disbursement voucher is an internally generated docs
facilitates separating the time of invoice approval from the time of invoice payment
evaluated receipt settlement (ERS)
invoiceless approach to acc payables that replaces the three way matching process (supplier invoice, receiving report, purchase order) with a two way match of the purchase order and receiving report
save time and money by reducing the time and expenses of generating and tracking PO
figure 13-10 (pg 413)
three way match vs two way match
Threats
i. errors on supplier invoices
discrepancies between quoted and actual prices charged
miscalculations of the total amount due
ii. freight expenses require special consideration
the complexity creates numerous opportunities for mistakes to occur
iii. mistakes in recording and posting payments to supplier
results in error in financial and performance report
results in poor decision making
Controls
i. adopting the ERS
company pay by matching counts of what they receive with prices quoted when the goods were ordered
control access to the supplier master file and monitor all changes made to it
ii. provide the purchasing and acc payables staffs with adequate training on transportation practices and terminology
iii. controls data entry and processing controls to ensure processing integrity
Cash Disbursements
Process
payments are made when acc payable sends the cashier a voucher package
many payments are made by checks, the use of EFT and FEDI is increasing
Threats
failing to take advantage of purchase discounts for prompt payment can be costly
paying for goods not received
submit fraudulent claims
reimbursement of employees travel and entertainment expenses where most likely for fraud to occur
Duplicate payment
duplication of invoice that was sent after the company's check was already in the mail, or it may have become separated from the other docs in the voucher packages
theft or misappropriation of funds
cash is the easiest to steal
online banking transaction require constant monitoring
keystroke logging software could infect the computer used for being online banking and provide criminals w the organization's banking credentials
fraudulent disbursement
issuance of checks to fictitious suppliers
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Controls
proper filing
approved invoices should be filed by due date
system should be designed to track invoice due dates and print periodic list of all outstanding invoices
cash flow budget
compare the quantities indicated on the supplier invoices w the quantities entered by the inventory control person
companies rely on budgetary controls and careful review of departmental expenses for verification of services
require all employees to use corporate credit cards for travel
to ensure that the organizations will receive a complete audit trail of all charges and credits to the account
several related control procedures
invoices should be approved for payment only when accompanied by a complete voucher package (PO and receiving report)
only the original copy of an invoice should be paid
when the check to pay for invoice is signed, the invoice and the voucher package should be canceled
requires additional control procedures
strict access controls over all outgoing EFT transactions
passwords and IDs should be identify and monitor
design a specific computer to be used for online banking
to restrict access to that computer to who responsible for authorizing payments, and to use the computer only for online banking not other activites
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