Please enable JavaScript.
Coggle requires JavaScript to display documents.
PURCHASE & PAYMENTS CYCLE - Coggle Diagram
PURCHASE & PAYMENTS CYCLE
RECEIVING OF GOODS FUNCTION:
On receipt goods should be inspected for type, quality, and quantity against the PO BEFORE DN is signed.
Details of goods received should be captured on a GRN.
GRN should be signed off by the individual responsible for receiving.
The GRN should include.:
Quantity
PO number
Date on which goods were received
Description of goods
Details of the person who received the goods
GRN should be issued in DUPLICATE, 1 copy for the orders department, & 1 copy together with the PO & DN to the accounts department.
Damaged goods are not accepted & must be returned.
Accounts & purchasing department must be notified.
THE INTERNAL CONTROLS & CONTROL OBJECTIVES WITHIN THIS CYCLE
:
:arrow_right: Weakness : Poor internal control enviroment.
:arrow_right: Risk: What will go wrong because of weaknesses.
PURCHASE CYCLE:
Occurrence/Validity: All recorded purchases are valid & supported by proper documentation.
Authorisation: All purchases are authorized according to company policy (purchase manager).
Completeness: All valid purchase transactions are recorded & nothing is left out (NB ordering, receiving & recording of goods).
Accuracy: All purchase transactions are accurately recorded at correct quantity, & amount, & are arithmetically correct (NB recording of goods).
Recording: All purchase transactions are correctly recorded.
Classification: All purchase transactions are correctly classified according to the nature thereof (inter-group purchases are clearly distinguised by a code number & seperately recorded).
Cut-off: All purchase transactions are recorded in correct reporting period ( Date of delivery).
PAYMENTS CYCLE:
Occurrence/Validity: All payments on creditors accounts are valid & supported by proper documentation.
Authorisation: All payments are authorised according to company policy (Senior official).
Completeness: All valid payment transactions are recorded & nothing is left out.
Accuracy: Payments are made at the correct amount & are arithmetically correct ( all calculations are reviewed by an independant person).
Recording: All payment transactions are correctly recorded ( Payments are posted from payment advice to individual creditors accounts & the total to the creditors control account).
Classification: All payments are classified to the correct creditor's account ( payment coded according to creditor's number & posted on date of payment).
Cut-off: All payments are recorded at date of payment per payment advice and date of cheque payment (in the correct period).
CONTROL OBJECTIVES & INTERNAL CONTROLS WITHIN THIS CYCLE.
:arrow_right: Control objectives: Certain organizational objectives that management wants to achieve.
E.g. Completeness, Accuracy, etc.
:arrow_right: Internal control: How the control objective will be achieved.
E.g. PO's signed by senior of purchasing department.
GENERAL CONTROLS:
Supervision & review
Segregation of duties
Rotation of duties
Personnel take leave regularly
Management control
Internal audits
Sufficient stationery control
Scrutinise all records & documents for extraordinary items
Test castings & calculations on all selected items, documents, & ledger accounts.
ORDERING OF GOODS FUNCTION:
A separate purchasing department/ buyer must be employed by the organization.
Must have a purchasing policy - governing the re-order level of inventory.
Purchase requisition must be made out by the purchasing department/buyer.
A list of approved suppliers must exist.
Authorisation from a senior within the purchasing department must be obtained where other suppliers are used.
All changes to the authorized list of suppliers must be authorized by a senior within the purchasing department.
Sequentially numbered PO's must be completed.
PO must incl. the name of the supplier, quantity, description, price, discount, terms of payment, delivery address, & signature of the buyer/ purchasing department.
PO must first be authorized by a senior within the purchasing department.
PO must be issued in TRIPLICATE, 1 for supplier, 1 for receiving department, & 1 for deliveries pending register to be matched with DN.
RECORDING OF GOODS FUNCTION:
Invoices should not be entered into the records if not approved as correct by the individual whose duty it is to check the accuracy of supplier invoices.
Quality, type, quantity, & date checked to GRN & DN.
Price, terms & account details agree with PO.
Check calculations on the invoice.
Purchases should be entered directly in PJ and filed under the supplier name, & checked to the statement received from the supplier.
Disputed invoices:
Kept separately
Followed up by a senior employee.
All damaged goods must be sent back to the supplier & a credit note must be made out to the supplier.
PAYMENTS TO CREDITORS/PAYABLES FUNCTION:
Documentation present within this function:
Remittance Advices
Cheques
Bank statements
Cash payments journal
Controls over Cheque forms:
Cancelled cheques = clearly marked as "cancelled" & attached to relevant cheque counterfoil/ separately filed.
All cheques = sequentially numbered & crossed with "not transferable"
All PAID cheques = filed in numerical order.
Cash cheques = discouraged.
Drawing & signing of cheques:
Signed by authorized person & accompanied by supporting documents.
Documents TO BE PAID = inspected, & if valid & accurate marked as Paid in order to prevent resubmittion for payment.
Cheques should be signed by 2 signatories with necessary level of authority.
Recording of payment:
Must be done by a person independent of those who DRAW, SIGN or HANDLE cheques to ensure segeregation of duties.
Cheques returned from the bank must not :red_cross: be available to person who keeps accounts payable records.
Control account must not :red_cross: be accessible to individual responsible for the maintenance of accounts payable sub ledger.
Regular recons must be done by person independent from those maintaining sub ledger.
Individual creditor's recons must be produced on a monthly basis of all creditor balances.
EFT's is a valid payment method.