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Purchases and Payments Cycle - Coggle Diagram
Purchases and Payments Cycle
Also known as
the Supply Chain Management System
Procurement
Business cycle consists
2 Cycles
with
4 distinct functions
Purchase Cycle
: Focus on controls that should be implemented by an organisation to ensure that purchasing of goods, meet the relevant control objectives as implemented by management.
Payment Cycle
: The payment cycle focus on the payment transactions of an entity where it has to make payments for the purchased goods and payments to creditors.
Internal Controls
All payments are authorised according to company policy:
~ Payments made to creditors done by means of a cheque requisition which is authorised by a senior official.
~ 2 signatories review and cancel supporting docs, before approving payment.
All payments on creditors accounts are valid and are supported by proper documentation:
Creditor payments are supported by:
a) cheque payment requisition;
b) creditor statement;
c) creditors reconciliation;
d)purchase order, GRN, DN from supplier and an invoice
All valid payment transactions are recorded and nothing is left out:
~ Creditors control account is kept up to date in the general ledger and regularly reconciled with the creditor’s ledger.
~ Payment advices are recorded numerically and missing numbers are followed up.
Payments made at correct amount and is arithmetically correct:
~ Individual creditor’s reconciliations are prepared and serve as supporting documentation for payments.
~ calculations are reviewed by an independent person.
All payment transactions are correctly recorded:
~ Payments are posted from the payment advice to the individual creditors' account and the total to the creditors control account.
All Payments classified to the correct creditor's account:
~ Payments coded according to the creditor's number and posted on date of cheque.
~ Independent person reviews codes and date of payment.
All Payments recorded at date of payment per payment advice and date of cheque:
~ All payments are recorded in correct period in respect of the date of the cheque.
Purchase Cycle
Receiving
Receiving of the goods ordered
Documents Required:
2. Supplier Delivery Note - DN
3. Good s Received Note - GRN:
GRN issued in duplicate, with copies for each of the following:
i. Ordering Department;
ii. With copy of PO and DN to the accounts Team
GRN Should Contain:
i. Quantity of Goods received;
ii. PO Nr;
iii. Date goods are Received;
iv. Description of Goods;
v. Details of Person who received Goods
1. Copy of the PO
Receipt of Goods:
On receipt of the goods, inspect the goods for
type, quality and quantity
against the purchase orders before the delivery note is signed.
Details of Goods received:
Details to be captured on a GRN;
GRN to be signed off by responsible receiving person
Treatment of Damaged Goods:
Damaged goods are not accepted;
Returned to supplier;
Accounts adn Purchase departments to be notified.
Recording
:
After order and receiving, It is recorded for accounting purposes.
Documents Required:
3. Copy of GRN
4. DN from Supplier
2. Copy of PO
5. Purchase Journal
1. Supplier invoice
Invoices received should not be entered into the records if it has not been approved as correct by a person/s whose duty it is to check the accuracy of the supplier’s invoices.
The person/s should check the following:
i. Quality, Type, Quantity and date to the GRN and DN;
ii. Price, T&C's to the agreed PO;
iii. Calculations of the invoice
6. Credit Notes for Disputed Inv and Goods returned
Disputed inv kept separately and followed up by a senior member of staff
All goods returned must be sent back to the supplier and credit note to be made out to supplier.
The purchases should be entered directly in purchase journal and filed under the suppliers’ name and checked to the statement received from the supplier.
Ordering
: Re-Order goods that reach Re-Order level
Documents Required:
2. List of approved Suppliers;
Authorisation from senior within department to be obtained where un-authorised supplier needs to eb used;
List of approved suppliers must exist from which buyers acquire goods and not to be deviated from the approved list;
Any changes to list of authorised suppliers, to be authorised by a senior in the department;
3. Supplier Price Lists
;
1. Requisitions;
Separate Purchasing departments or Buyer required
Purchasing Policy
For re-order, Requisition, made ouot by Purcahse Department or Buyer
4. PO's
PO's should contain:
i. Name of Supplier;
ii. Quantity Ordered;
iii. Description of Goods;
iv. Price of Goods;
v. Discounts;
vi. Terms of Payment;
vii. Delivery Address;
viii. Signature of Buyer/PurchDep
Before order is sent to supplier, to be authorised by the purchase manager.
Consecutive Nr PO's to be completed
PO issued in triplicate with copies for each of the following:
i. The supplier;
ii. The receiving department; and
iii. A copy must also be kept in a deliveries pending register to be matched with the delivery note
Control Objectives
Accuracy
Recording
Completeness
Classification
Authorisation
Cut-Off
Occurrence/Validity
Payment Cycle
Payments to Creditors/ Payable
3 Functions:
Control over Cheque Forms:
i. Cancelled cheques should be clearly marked as ‘cancelled’ and attached to the relevant cheque counterfoil, or separately filed;
ii. All cheques to be sequentially numbered;
iii. All paid cheques to be filed in numerical order;
iv. Cash cheques should be discouraged; and
v. All cheques must be crossed with the words ‘not transferable’
Drawing & Signing of Cheques
:
i. Cheques drawn to be presented to persons authorised to sign and must be supported with the necessary supporting documentation;
ii. Documents to be paid must be inspected and if agreed that the expenditure was valid and accurate, the documents are to be marked as paid in order to prevent re-submission for payment;
iii. Cheques should be signed by two signatories with the necessary level of authority to sign the cheques.
Recording of Payments
:
i. Recording of cheques must be done by persons who are independent of those who draw, sign or handle the cheques to ensure segregation of duties;
ii. Cheques returned from bank must not be available to the person who keeps accounts payable records;
iii. Control account must not be accessible to the individuals responsible for maintenance of the accounts payable sub ledger;
iv. Regular reconciliations are to be done by a person independent from those maintaining the sub ledger;
v. Individual creditor’s reconciliations must be produced on a monthly basis of all creditor balances.
After delivery of goods, we have obligation to pay the supplier for the goods.
This obligation to be recorded in sync with the recognition of the receipt of goods
Documents to be Present
Cheques
Bank Statements
Remittance Advices
Cash Payments Journal
Strict controls to be implemented over the input; processing and final output of the documentation, as the docs will be the supporting docs for the journal entries that need to be processed during the accounting process.
Internal Controls
All recorded purchases are valid and supported by proper documentation:
~ All entries in purchase journal (and in the cash book if the purchases was cash) should be supported by the following:
1) Purchase Requisitions;
2) PO;
3) GRN;
4) DN Form Supplier;
5) Invoices;
6) Creditors Statement
All purchases are authorised according to company policy.
~ 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
.
All valid purchase transactions are recorded and nothing is left out:
~ 2 persons inspect goods on received for quantity and quality and prepare a GRN.
~ GRN matched with delivery note and short deliveries indicated on the delivery note and credit request is made out.
~ Register is kept of unmatched invoices and is regularly followed up by the senior buyer.
~ GRN is matched with invoice and thereafter recorded in the purchase journal.
~ requisitions, orders and GRN are recorded numerically and missing numbers are followed up.
All orders are carried out accurately and purchase transactions are accurately recorded at the correct quantity, at the correct amount and are arithmetically correct.
~ The purchase inv independently checked for mathematical accuracy before recording it in purchase journal. The following must be verified:
1) Prices should be compared with orders/Price list;
2) Quantity Should be checked on GRN;
3) Accounting accuracy checked
All purchase transactions are correctly recorded:
~ Purchase journal is updated from the purchase invoices.
~ From the purchase journal purchases are posted to:
1) Creditors account in creditors ledger
2) purchase and creditors control account in the General Ledger.
~ The creditors control account is kept up to date and regularly reconciled with the list of creditors. Management signs as evidence of review.
All purchase transactions are correctly classified according to the nature thereof.
~ Inter Group purchases are clearly distinguished by a code nr and separately recorded.
All purchase transactions are recorded in the correct reporting period.
~ Purchase journal updated from inv in respect of the date of delivery.
Control Objectives
Accuracy
Recording
Completeness
Classification
Authorisation
Cut-Off
Occurrence/Validity