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The purchase and payment cycle - Coggle Diagram
The purchase and payment cycle
Functions of the cycle
The ordering function
The receiving function
The recording function
important documents
Purchase order
Delivery note(DN)
Goods received note(DRN)
Invoices
Cheques
Cash payment journal
Bank statement
Remittance advices
Control objectives
Validity
Completeness
Authorisation
Accurancy
Classiffication
Cut off
Recording
Internal controls
All entries( Purchases and payments) must be supported by proper documents
Purchase and payments must be authorised by the right person
Payments and purchases made must be recorded
Payments and purchases made must be recorded in the correct accounting period
Test of control
There should be an inspection of whether the internal controls were followed when making purchases and payments
Weaknesses and risks
It would be when a company does not have a purchasing policy in order and they run out of stock.
Not having a proper segregation of duties
A company does not keep duplicate copies
Substantive procedures
Inspection of supporting documents to check that payment or purchase occurred( occurrence)
Inspect if the amount of purchases and payments have been recorded properly( accuracy)
Inspect documents to confirm that payments and purchases were paid or received in the in the audit year( cut-off)
Check account to see if payments and purchases were recorded in the correct accounts(classification)
Re-perform a reconciliation if payments are not recorded(completeness)