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PURCHASES AND PAYMENTS CYCLE - Coggle Diagram
PURCHASES AND
PAYMENTS CYCLE
functions in the cycle
The ordering of goods
documentation
Requisitions;
List of approved suppliers;
Supplier price lists; and
Purchase orders (hereafter
PO’s).
The receiving of Goods
documentation
Supplier invoice;
Copy of the PO’s;
Copy of the GRN;
DN form supplier;
Purchases Journal; and
Credit Notes (Disputed
invoices and goods returned).
Recording of Goods
documentation
Copy of the PO;
Supplier delivery notes
(hereafter DN); and
Goods received notes
CONTROL OBJECTIVES
Occurrence/Validity
Authorisation
Completeness
Recording
Accuracy
Classification Cut off
Controls – Purchase Cycle
Validity – All recorded purchases are valid and supported by proper
documentation
Authorisation – All purchases are approved according to the company policy
Completeness – All valid purchase transactions are recorded and nothing is
left out
Accuracy – All purchase transactions are accurately recorded at the correct
quantity, at the correct amount and are arithmetically correct
Recording – All purchase transactions are correctly recorded
Classification – All purchase transactions are correctly classified according to
the nature thereof
Cut off – All purchase transactions are recorded in the correct reporting
period
Controls – Payment Cycle Validity – All payments on creditors accounts are valid and are supported by
proper documentation
Authorisation – All payments are approved according to company policy
Completeness – All valid payments are correctly recorded and nothing is left out
Accuracy – Payments are made at the correct amount and is arithmetically
correct
Recording – All payments are correctly recorded
Classification – All payments classified to the correct creditor's account
Cut off – All payments are recorded in correct period
Substantive procedures:
Occurrence – the recorded transaction has occurred
Accuracy – the amount of the purchase has been recorded appropriately
Cut-off – the purchase has been recorded in the correct accounting period
Classification – the purchase has been recorded in the proper accounts
Completeness – all purchases that should have been recorded have been recorded
Test Of Controls
Validity Select a sample of purchases from the purchases journal and inspect whether it is supported by the supporting documents
Authorisation Select a sample of purchase orders and inspect for the signature of the buyer.
Select a sample of purchase orders and inspect for the signature of the purchase manager
Completeness
Select a sample of requisitions, PO’s and GRN’s and inspect whether they are numerical and inspect for the signature as proof of following up on missing numbers.
Select a sample of credit notes and match it with the GRN and DN, inspect whether the details are the same.
Select a sample of entries in the register and inspect for the signature of the senior buyer as proof of following up on unmatched invoices.
Accuracy
Select a sample of invoices and Inspect whether
a. the price is same as on the PO and price list; and
b. the quantity agrees with GRN.
Re-perform the mathematical accuracy of the invoice.
Recording
Select a sample of entries in the purchase journal and trace posting to the creditor’s accounts in the creditors ledger and the purchase and creditors control account in the general ledger, inspect whether the details are the same.
Select a sample of creditors reconciliation and inspect:
the signature of management as evidence of review.
Classification Select a sample of purchases and inspect whether it has been correctly classified
Cut off Select a sample of GRN’s dated before and after year end. Match the GRN with invoices and follow through to the purchase journal. Inspect that the purchases are recorded in the correct accounting period based on the date of delivery.