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Unit 2: Purchases and Payments Cycle - Coggle Diagram
Unit 2: Purchases and Payments Cycle
Purchase Function: 1) Ordering of goods and services
Documentation present
List of approved suppliers
supplier price lists
Requisition
purchase orders
Activities and controls in place
Creating a purchase requisition
Maintaining a list of approved suppliers and obtaining authorization from a senior for any changes on the list
Establishing a purchasing policy
Preparing purchase orders
terms of payment
the name of the supplier
quantity ordered
description
price
delivery address
Separate purchasing department or buyer
these documents should be strictly controlled and properly processed as they will serve as supporting documentation for accounting journal entries
purchase orders must be authorized by the purchase manager and issued in triplicate with copies for
Receiving department
Delivers pending register
The supplier
Purchase Cycle:Receiving Function
Documentation present
Supplier delivery notes (DN)
Goods received notes (GRN)
Copy of purchase orders
Activities and controls for receiving goods
Contents of GRN
The GRN should include:
PO number
Date of goods received
Quanitity
Description
Details of person we received goods
The GRN should be issued in duplicate format with copies sent to:
Ordering department
Accounts department
Details of goods received
Capture details on GRN
Individual responsible must sign off on GRN
Inspection
Inspect goods for type,quality and quantity against PO before signing DN
Treatment of damaged goods
Return to supplier
Notify the accounts department and purchasing department
Do not accept damaged goods
Purchasing Cycle : recording function:
Documentation present
Goods received notes (GRN)
Delivery note (DN)
purchase order (PO)
supplier invoice
Purchase Journal
Credit Notes
Activities and controls
Recording of purchases
purchases should be directly entered into the purchase journal and filed under the suppliers name
disputed invoices
should be kept separately and followed up by a senior staff member
Invoices received
only recorded if approved for accuracy
The price, term and account details to the PO
Calculations on invoice
Quality, type, quantity and date to the GRN and DN
Goods returned
sent back to the supplier and a credit note should be made out to the supplier
Payments:
Payments to creditors consists of 3 functions
drawings/signing of EFT's
Recording of payments
Control over EFT's
Activities and controls
control account should not be accessible to accounts payable sub ledger maintainers
Regular recons. should be done by independent individuals
Recording should be done by the independent persons
individual creditor recons should be done monthly on all creditors
Documentation present
EFT transfer advice
Bank statements
Remittance advices
CPJ
Risk and control
Risk within the cycle
Goods received and recorded may not be accurately recorded
Payments made may be made for goods not received
Orders may not be properly authorized or timely
Control
General controls include:
segregation of tasks
internal audit
supervision
testing calculations
scrutinizing records
management control
rotation of duties
Control objectives
classification
All purchase transactions are correctly classified according to the nature thereof
cut-off
All purchase transactions are recorded in the correct reporting period
completeness
All valid purchase transactions are recorded and nothing is left out
recording
All purchase transactions are correctly recorded
authorization
: All purchases are authorised according to company policy.
Accuracy
All orders are carried out accurately. All purchase transactions are accurately recorded at the correct quantity, at the correct amount and are arithmetically correct
Occurrence / validity
All recorded purchases are valid and supported by proper documentation
General controls must be applied before specific controls can be applied
Substantive Testing
Substantive procedures on trade and other payables
completeness
clssification
Accuracy, vaulation and allocation
presentation
Existence
Obligations
Substantive testing on transacting within the purchases and payments cycle
completeness
classification
accuracy
Cut-off
occurrence
Substantive Procedures
timing
extent of testing
Nature