Purchase and Payment Cycle

Purchase and Payment Cycle

Payment Cycle

Key Documents:

Remittance advices
Cheques
Bank Statements
Cash Payment Journal

Recording Payments

Controls over Check form

Drawing and Signing of Cheques

Purchase Cycle

The Ordering of goods:
-Purchasing Department/Buyer
-Purchasing Policy that governs reordering level of inventories
-List of approved suppliers
-Purchase orders

sequentially numbered
name of supplier
Quantity ordered
description of goods
price of goods
discounts
terms of payment
delivery address
signature of buyer/purchasing department
order to be authorised by purchasing manager
purchase order issued in triplicate form : supplier, receiving dept, deliveries pending register

Recording of goods
-Invoices received must be checked for accuracy
-Quality, type, quantity and date of GRN and DN
-The price, terms and account details to the agreed PO
-Calculations on the invoices
-Purchases entered in purchasing journal and filed under the supplier's name and checked to the statement received from the supplier
-Disputed invoices to be kept separately and followed up by senior official
-goods returned sent back to supplier and credit note made out to supplier

Receiving of goods
-inspect goods for type, quality and quantity against the purchase order
-Details of goods captured on GRN and signed off of person doing the receiving
-GRN includes the following:

quantity of goods received
purchase order number
date goods received
Description of goods
Details of person receiving goods

-GRN issued in duplicate form: Ordering Department; Copy of PO and DN to Accounts dept

Payment:
Control Objectives and Internal Controls

Purchases:
Control Objectives and Internal Controls

a. Cancelled cheques should be clearly marked as ‘cancelled’ and attached to the relevant cheque counterfoil, or separately filed;

b. All cheques should be sequentially numbered;

c. All paid cheques should be filed in a numerical order;

d. Cash cheques should be discouraged; and

e. All cheques must be crossed with the words ‘not transferable

a. Cheques drawn should be presented to persons authorised to sign and must be supported with the necessary supporting documentation;

b. 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; and

c. Cheques should be signed by two signatories with the necessary level of authority to sign the cheques

a. 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;

b. Cheques returned from bank must not be available to the person who keeps accounts payable records;

c. The control account must not be accessible to the individuals responsible for maintenance of the accounts payable sub ledger;

d. Regular reconciliations are to be done by a person independent from those maintaining the sub ledger; and

e. Individual creditor’s reconciliations must be produced on a monthly basis of all creditor balances.

. EFT’s is also a valid payment method

Classification:
All purchase transactions are correctly classified according to the nature thereof.

Internal Control:
Inter-group purchases are clearly distuiguished by a code number and separately recorded.

Recording:
All ourchase transactions are correctly recorded.

Internal Control:
-The purchase journal is updated from the purchase invoice
-From the purchase journal, purchases are posted to:
Creditors accounts in the creditors ledger
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.

Accuracy:
All orders are carried out accurately ie quantity, correct amount and airthmetically correct

Internal Control:
-The purchase invoice is independently checked for mathematical accuracy before recorded in purchase journal
The following must be verified:

Prices should be compared with orders/price list
Quantity should be checked on the GRN
accounting accuracy checked

Completeness:
All valid purchase transactions are recorded and nothing is left out

Internal Control:
Two persons inspect goods for quantity and quality and prepare GRN
-The GRN is matched with the delivery note and short deliveries indicated on delivery note and credit request is made out
-Register kept for unmatched invoices and followed up by senior buyer
-The GRN is matched with the invoice and recorded in purchase journal
-All requistions, orders and GRN are recorded numerically and missing numbers are followed up.

Authorisation:
All purchases are authorised according to company policy

Internal Control:
-Requistion is made out when stock decreases to re-order level by computer/store man
-Orders are prepared by purchasing dept and best prices are selected
-orders are authorised by purchase manager

Cutt-off:
All purchases transactions are recorded in the correct reporting period.
Internal Control:
The purchase journal updated from invoices in respect of the date of delivery

Occurrence/Validity:
All recorded purchases are valid and supported by proper documentation.

Internal Control:
All enteries in purchase journal should be supported by
-Purchase requsitions
-PO
-GRN
-DN from supplier
-Invoices
-Creditors Statement

Authorisation:
All payments are authorised according to company policy
Internal Control:

payments made to creditors done by means of a cheque requisition which is authorized by senior official.
Two signatories review and cancel supporting documentation, before approving payment.

Completeness:
All valid payment transactions are recorded and nothing is left out
Internal Control:
Creditors control account is kept up to date in the general ledger and regularly reconciled with the creditors ledger

Payment advices are recorded numerically and missing numbers are followed up

Occurrence/Validity:
All payments on creditors accounts are valid and are supported by proper documentation

Internal controls:
Creditor payments supported by:
a. cheque payment requisition
b. creditor statement
c. creditors reconciliation
d. purchase order, GRN, DN from supplier and an invoice.

Accuracy:
Payments are made at the correct amount and is arithmetically correct.

Internal Control:
Individual creditors reconciliations (supplier reconciliation) are prepared and serve as supporting documentation for payments.

All Calculations are reviewed by an independent person.

Recording:
All payment transactions are correctly recorded

Internal Controls:
Payments are posted from the payment advice to the individual creditor's account and the total to the creditors control account.

Cutt-Off:
All payments recorded at date of payment per payment advice and date of cheque

Internal Control:
All payments are recorded in correct period in respect of the date of cheque..

Classification:
All payments classified to the correct creditors account

Internal Control:
Payments are coded according to the creditors number and posted on the date of cheque.

Independent person reviews codes and date of payment