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20200723211644D3064_NEW Ses1112 Chap13 The Expenditure Cycle - Purchasing to Cash Disbursements.pptx
1. Course: ISYS6186-Business Process Fundamental
Effective Period : September 2020
The Expenditure Cycle
Purchasing to Cash Disbursements
Session 11 & 12
2. Accounting Information Systems
14th (2018)
Marshall B. Romney, Paul John Steinbart
Pearson Education Limited, England
ISBN: 978-1-292-22008-6
Chapter 13
Acknowledgement
These slides have been adapted from:
3. Learning Outcome
Student will able to :
• Describe the model of business process
• Construct an integrated business process
• Illustrate the roles of Information Technology in
Business Process and Organizational
activities to achieve its goals
4. After studying this chapter, student will able to :
• Discuss the basic business activities and related information processing
operations in the expenditure cycle, explain the general threats to those
activities, and describe the controls that can mitigate those threats.
• Explain the process and key decisions involved in ordering goods and
services, identify the threats to those activities, and describe the controls
that can mitigate those threats.
• Explain the process and key decisions involved in receiving goods and
services, identify the threats to those activities, and describe the controls
that can mitigate those threats.
• Explain the process and key decisions involved in approving supplier
invoices, identify the threats to those activities, and describe the controls
that can mitigate those threats.
• Explain the process and key decisions involved in cash disbursements to
suppliers, identify the threats to those activities, and describe the controls
that can mitigate those threats.
Learning Objectives
5. Introduction
expenditure cycle - A recurring set of business
activities and related data processing
operations associated with the purchase of and
payment for goods and services.
The primary objective of the expenditure cycle is to
minimize the total cost of acquiring and maintaining
inventories, supplies, and various services the
organization needs to function.
6. Introduction
To accomplish this objective, management
must make the following key decisions:
• What is the optimal level of inventory and supplies to
carry?
• Which suppliers provide the best quality and service at
the best prices?
• How can the organization consolidate purchases across
units to obtain optimal prices?
• How can information technology (IT) be used to improve
both the efficiency and accuracy of the inbound logistics
function?
• How can the organization maintain sufficient cash to take
advantage of any discounts suppliers offer?
• How can payments to vendors be managed to maximize
cash flow?
8. General Threats
and Controls
Threats Control
1. Inaccurate or invalid
master data
2. Unauthorized disclosure of
sensitive information
3. Loss or destruction of data
4. Poor performance
1 a. Data processing integrity
controls
1 b. Restriction of access to
master data
1 c. Review of all changes to
master data
2 a. Access controls
b. Encryption
3 a. Backup and disaster
recovery procedures
4 a. Managerial reports
9. Basic Expenditure Cycle Activities
Introduction
The answers to those questions guide how an
organization performs the four basic expenditure
cycle activities depicted in Figure 13-2:
1. Ordering materials, supplies, and services
2. Receiving materials, supplies, and services
3. Approving supplier invoices
4. Cash disbursements
12. Ordering Materials,
Supplies, and Services
FIGURE 13-4
Level 1 Data Flow Diagram:
Ordering Materials, Supplies,
and Services
(annotated to include threats)
13. Ordering Materials,
Supplies, and Services
economic order quantity (EOQ) - The optimal order size to
minimize the sum of ordering, carrying, and stockout costs.
reorder point - Specifies the level to which the inventory
balance of an item must fall before an order to replenish
stock is initiated.
materials requirements planning (MRP) - An approach to
inventory management that seeks to reduce required
inventory levels by improving the accuracy of forecasting
techniques to better schedule purchases to satisfy
production needs.
IDENTIFYING WHAT, WHEN, AND HOW MUCH TO PURCHASE
just-in-time (JIT) inventory system - A system that
minimizes or virtually eliminates inventories by
purchasing and producing goods only in response to
actual, rather than forecasted, sales.
14. Ordering Materials,
Supplies, and Services
purchase requisition - A document or electronic form
that identifies the requisitioner; specifies the delivery
location and date needed; identifies the item numbers,
descriptions, quantity, and price of each item
requested; and may suggest a supplier.
IDENTIFYING WHAT, WHEN, AND HOW MUCH TO PURCHASE
Purchase
Requisition
15. Ordering Materials,
Supplies, and Services
purchase order
A document that formally requests a supplier to
sell and deliver specified products at designated
prices. It is also a promise to pay and becomes a
contract once the supplier accepts it.
blanket purchase order or
blanket order
A commitment to purchase specified items at
designated prices from a particular supplier for a
set time period, often one year.
Blanket purchase orders reduce the buyer’s
uncertainty about reliable sources of raw materials
and help the supplier plan its capacity and
operations more effectively.
CHOOSING SUPPLIERS
17. Ordering Materials,
Supplies, and Services
vendor-managed inventory (VMI)
Practice in which manufacturers and
distributors manage a retail customer’s
inventory using EDI. The supplier accesses its
customer’s point-of-sale system in order to
monitor inventory and automatically replenish
products when they fall to agreed-upon levels.
kickbacks - Gifts given by suppliers to
purchasing agents for the purpose of
influencing their choice of suppliers.
CHOOSING SUPPLIERS
18. • Identify what, when, and how much to purchase
– Source document: purchase requisition
• Choose a supplier
– Source document: purchase order
Ordering Materials,
Supplies, and Services
19. Ordering Goods/Services
(1 of 2)
Threats Controls
1. Stockouts and excess
inventory
2. Purchasing items not
needed
3. Purchasing items at
inflated prices
4. Purchasing goods of poor
quality
1 a. Perpetual inventory system
b. Bar-coding, RFID
c. Periodic physical counts
2 a. Perpetual inventory systems
b. Review and approval of purchase
requisitions
c. Centralized purchasing
3 a. Price lists
b. Competitive bids
c. Review purchase orders
4 a. Use approved suppliers
b. review and approve purchases from
new suppliers
c. Monitor product quality by supplier
d. hold purchasing managers
responsible for rework and scrap cost
20. Threats Controls
5. Unreliable suppliers
6. Purchasing from
unauthorized suppliers
7. Kickbacks
5 a. Monitor supplier performance
b. Require quality certification
6 a. Purchase from approved
suppliers
b. Review approval from
purchases of new suppliers
c. EDI specific controls
7 a. Supplier audits
b. Prohibit gifts
c. Job rotation & mandatory
vacations
d. Required disclosure of
financial and personal
interests in suppliers
Ordering Goods/Services
(2 of 2)
22. Receiving
receiving report - A document that records
details about each delivery, including the
date received, shipper, supplier, and
quantity received.
debit memo - A document used to record a
reduction to the balance due to a supplier.
23. • Goods arrive
– Verify goods ordered against the purchase
order (what, how much, quality)
– Source document: receiving report
Receiving
24. Receiving
Goods or Services
Threats Controls
1. Accepting unordered
items
2. Mistakes in counting
3. Verifying receipt of
services
4. Inventory theft
1 a. Authorized purchase orders
needed before receiving
goods
2 a. Bar codes or RFID
b. Receiving employees sign
receiving report
c. Do not inform receiving of
quantity ordered
3 a. Budget controls and audits
4 a. Restrict physical access to
inventory
b. Document all inventory
transfers
c. Segregate custody vs.
receiving of inventory
25. Approving
Supplier Invoices
voucher package - The set of documents used to authorize
payment to a supplier. It consists of a purchase order, receiving
report, and supplier invoice.
Non-voucher system - A method for processing accounts payable
in which each approved invoice is posted to individual supplier
records in the accounts payable file and is then stored in an open
invoice file. Contrast with voucher system.
voucher system - A method for processing accounts payable in
which a disbursement voucher is prepared instead of posting
invoices directly to supplier records in the accounts payable
subsidiary ledger. The disbursement voucher identifies the supplier,
lists the outstanding invoices, and indicates the net amount to be
paid after deducting any applicable discounts and allowances.
Contrast with nonvoucher system.
26. Approving Supplier Invoices
disbursement voucher – A document that
identifies the supplier, lists the outstanding
invoices, and indicates the net amount to
be paid after deducting any applicable
discounts and allowances.
27. Approving Supplier Invoices
FIGURE 13-10
Comparison of
Traditional Three-Way
Match for Accounts
Payable with the
Two-Way Match used
by Evaluated Receipt
Settlement (ERS)
Systems
28. Approve Supplier Invoice
Threats Control
1. Errors in supplier invoice
2. Mistakes in posting to
accounts payable
1 a. Verify invoice accuracy
b. Require detailed receipts
for p-cards
c. Restrict access to supplier
master data
2 a. Data entry edit controls
b. Reconcile detailed
accounts payable records
to the general ledger
accounts payable account
29. Cash Disbursements
Threats Controls
1. Failure to take discounts
2. Pay for items not received
3. Duplicate payments
4. Theft of cash
5. Check alteration
6. Cash flow problems
1 a. File invoices by due date to take
advantage of discounts
2 a. Match supplier invoice to
supporting documents (purchase
order, receiving report)
3 a. Pay only original invoices
b. Cancel supporting document when
payment is made
4 a. Physical security of checks
b. Separation of duties
c. Reconcile bank accounts
5 a. Check Protection machines
b. special inks / papers
6 a. Cash flow budget
30. Key Terms
• Expenditure cycle
• Economic order quantity (EOQ)
• Reorder point
• Materials requirement planning (MRP)
• Just-in-time (JIT) inventory system
• Purchase requisition
• Purchase order
• Blanket purchase order/blanket order
• Vendor-managed inventory (VMI)
• Kickbacks
• Receiving report
• Debit memo
• Voucher package
• Nonvoucher system
• Voucher system
• Disbursement voucher
• Evaluated receipt settlement (ERS)
• Procurement card
• Imprest fund
Editor's Notes
At each of these cycle activity levels, accounting information may be affected as well as general ledger account information.
The expenditure cycle is concerned with transacting business between the organization and its suppliers (vendors) for goods and services.
Sometimes students can get confused in understanding if they are answering questions about the revenue or the expenditure cycle. Table 13-1 in the book is a good reference as it shows the comparison between the two cycles.
The primary objective of the expenditure cycle is to minimize the total cost of acquiring and maintaining inventories, supplies, and various services the organization needs to function.
At each of these cycle activity levels, accounting information may be affected as well as general ledger account information.
The expenditure cycle is concerned with transacting business between the organization and its suppliers (vendors) for goods and services.
Sometimes students can get confused in understanding if they are answering questions about the revenue or the expenditure cycle. Table 13-1 in the book is a good reference as it shows the comparison between the two cycles.
The primary objective of the expenditure cycle is to minimize the total cost of acquiring and maintaining inventories, supplies, and various services the organization needs to function.
At each of these cycle activity levels, accounting information may be affected as well as general ledger account information.
The expenditure cycle is concerned with transacting business between the organization and its suppliers (vendors) for goods and services.
Sometimes students can get confused in understanding if they are answering questions about the revenue or the expenditure cycle. Table 13-1 in the book is a good reference as it shows the comparison between the two cycles.
The primary objective of the expenditure cycle is to minimize the total cost of acquiring and maintaining inventories, supplies, and various services the organization needs to function.
At each of these cycle activity levels, accounting information may be affected as well as general ledger account information.
The expenditure cycle is concerned with transacting business between the organization and its suppliers (vendors) for goods and services.
Sometimes students can get confused in understanding if they are answering questions about the revenue or the expenditure cycle. Table 13-1 in the book is a good reference as it shows the comparison between the two cycles.
The primary objective of the expenditure cycle is to minimize the total cost of acquiring and maintaining inventories, supplies, and various services the organization needs to function.
At each of these cycle activity levels, accounting information may be affected as well as general ledger account information.
The expenditure cycle is concerned with transacting business between the organization and its suppliers (vendors) for goods and services.
Sometimes students can get confused in understanding if they are answering questions about the revenue or the expenditure cycle. Table 13-1 in the book is a good reference as it shows the comparison between the two cycles.
The primary objective of the expenditure cycle is to minimize the total cost of acquiring and maintaining inventories, supplies, and various services the organization needs to function.
At each of these cycle activity levels, accounting information may be affected as well as general ledger account information.
The expenditure cycle is concerned with transacting business between the organization and its suppliers (vendors) for goods and services.
Sometimes students can get confused in understanding if they are answering questions about the revenue or the expenditure cycle. Table 13-1 in the book is a good reference as it shows the comparison between the two cycles.
The primary objective of the expenditure cycle is to minimize the total cost of acquiring and maintaining inventories, supplies, and various services the organization needs to function.
At this activity stage of the expenditure cycle, the key objective is to identify exactly what to order, how much do you need, and when do you need it. It is essential in managing a supply chain that raw materials are accurately ordered and received in time; otherwise, these will cause issues and added expenses in the supply chain. There are three approaches to ordering:
Economic quantity ordered (EOQ) is used to minimize costs and stockouts. For example, stores may identify certain inventory items that are sold frequently and may have an EOQ that is different than an inventory item that is not sold as frequently.
Materials requirements planning (MRP) is based on forecast sales.
Just-in-time inventory (JIT) responds to actual sales (demand).
The key objective is to make sure that the purchase is authorized and that you receive what you ordered when you wanted it and that the goods are of good quality.
P-cards are procurement cards that departments will sometimes use