Please enable JavaScript.
Coggle requires JavaScript to display documents.
Purchase and Payments Cycle - Coggle Diagram
Purchase and Payments Cycle
Overview
involves the entire process from acquiring goods or services to make payments.
includes requisition, purchase order, goods receipt, invoice verification, and final payment.
ensures proper authorization, accurate recording, and timely payment fior goods or services purchased.
Functions of the Purchase cycle
Ordering function - must have a purchasing policy in which important details of the PO
Receiving function - goods should be checked and signed off
Recording function - correct invoices of purchases should be entered in the purchase journal
Functions of the Payments cycle
Control - full control of cheques and EFT transfers
Drawing and Signing - sign supporting documentation by 2 persons
Recording of payments - independent person to record payments from remittance advices
Control Objectives and Internal Controls.
Occurence/ Validity - pruchases and payments valid and supported by proper documentation
Authorization - purchases and payemnts approved to company policy
Completeness - purchases and payments are all recorded
Accuracy - purchases and payments are made accurate
Recording - purchases and payments are correctly recorded
Classification - purchases and payments correctly classified according to nature.
Cut off - purchases and payemnts recorded in correct periods
Documents for the whole cycle
Requisitions
Purchase Orders
Goods Received Notes
Delivery Notes
Invoices from Supplier
Credit requests/ notes
Purchase Journal
Creditors account in creditors journal
Creditors control account in general ledger
Creditors Statement
Remittance advices
Example of weakness/ risk
Scernario - an organization should have a re-order level in order to understand what goods need to be ordered
Weakness - if there is no re-order level then goods are ordered at random
Risk - subject to a stock out resulting in unhappy cutomers, and purchasing unnecessary goods
Substantive testing
Occuremce - the transaction has occured
Accuracy - the purchase and payment amount has been recorded appropriately
Cut-off - the payment and purchase has bee recorded in the correct period
Classification - the purchase and payment has been recorded in the proper accounts
Completeness - all purchases and payments has been recorded