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

Control objectives

Cheques

Cash payment journal

Bank statement

Remittance advices

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.

Substantive procedures

Not having a proper segregation of duties

A company does not keep duplicate copies

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)