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Purchases and Payments Cycle Pt 2 - Coggle Diagram
Purchases and Payments Cycle
Pt 2
Internal Controls for Purchases and Payments
Purchases
Accuracy
All orders are
carried out accurately
, and all purchase transactions are
accurately recorded at the correct quantity and amount.
Test by re-performance
Classification
All purchase transactions are
correctly classified according to their nature
. Assess this by
inspecting the nature of the purchases
that took place.
Completeness
All
valid purchase transactions
are recorded and
nothing is left out
. Test from
source documentation to accounting records
.
Authorization
All purchases are
approved according to company policy
.
Test
and
inspect signatures
to confirm the correct level of authorization.
Recording
All purchase transactions are
correctly recorded
. Inspect the
posting from Purchases journal
to
Creditors ledger to General ledger.
Occurrence/Validity
All recorded purchases
are
valid and supported by proper documentation
. Test the flow of documentation from accounting records to source documentation.
Cut-off
All purchase
transactions are recorded
in the
correct reporting period
. Test in both directions from
source documentation to accounting records
and vice versa.
Payments
Accuracy
Payments should be
made at the correct amount
and be
arithmetically correct
.
Recording
All payments should be
correctly recorded
from
payment advice to the correct creditor
Completeness
All payments should be
correctly recorded
Classification
All payments should be
classified to the correct creditor's account
, assessed by inspecting the nature of the payments.
Authorized
All payments should be
approved according to the company policy.
A
formal policy
should be
in place
and
inspected
.
Cut-off
All payments should be recorded at the
date of payment per payment advice
and
date of the cheque
. Testing should be done in both directions, from source documentation to accounting records and vice versa.
Occurrence/Validity
All
payments on creditors' accounts
should be
valid
and
supported by proper documentation
.
Objectives for Purchasing Controls
To test Cut-Off
Match
GRNs to invoices
and follow through to the
purchase journal
to
ensure correct accounting period
.
To test Authorization
Match orders to requisitions
and
inspect authorization signatures.
To test Completeness
Observe procedures
for
re-ordering and receiving goods
, and match
credit notes to GRNs
and
delivery notes.
To test Accuracy
Verify prices
and
quantities
, and
perform calculations for a sample of purchase invoices and GRNs
.
To Test Classification
Ensure
inter-group purchases
are distinguished by
code number
and
separately recorded
.
To test recording
Test
postings to purchase
and
creditor accounts
, and
inspect evidence of reconciliation
.
To test validity
Select a
sample of purchase journal entries
and
match them to supporting documents
.