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INTENDED LEARNING OUTCOME - At the end of these learning units, the learners shall:
1. Explain the essential tasks performed in the expenditure cycle, regardless of the technology in
place.
2. Identify the functional departments involved in expenditure cycle activities and trace the flow of
revenue transactions through the organization.
3. Explain the risks associated with the expenditure cycle and identify controls that reduce those
risks.
4. Explain the operational and control implications of technology used to automate and re-engineer
the expenditure cycle
LEARNING CONTENT
1. Overview of Expenditure Cycle
2. Key Activities under Revenue Cycle
a. Purchase Procedures
b. Cash Disbursement Procedures
3. Risks and Controls
4. Payroll and Fixed Asset Systems
C HA P TE R 1
Business activities begin with the acquisition of materials, property, and labor in exchange
for cash. Most expenditure transactions are based on a credit relationship between the
trading parties. The actual disbursement of cash takes place at some point after the receipt
of the goods or services. Days or even weeks may pass between these two events. Thus,
from a systems perspective, this transaction has two parts: a physical component (the
acquisition of the goods) and a financial component (the cash disbursement to the
supplier). A separate subsystem of the cycle processes each component.
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CONFIDENTIAL
All rights reserved. The use of this document as a whole or in part is restricted. This document has been prepared by the Accountancy Department of the Ateneo de
Zamboanga University. The reproduction and circulation of which without the entity’s written consent is strictly prohibited.
Ateneo de Zamboanga University
SCHOOL OF MANAGEMENT AND ACCOUNTANCY
ACCOUNTANCY DEPARTMENT
S.Y. 2021 – 2022 ● 1 st Semester ● 2 nd Session
C HA P TE R 2
CASH DISBURSEMENT
PURCHASE
Include the tasks involved in identifying Processes the payment of
inventory needs, placing the order, obligations created in the
receiving the inventory, and purchases system.
recognizing the liability
1. Purchase Procedures
Purchases procedures include the tasks involved in identifying inventory needs, placing
the order, receiving the inventory, and recognizing the liability
►Records and ►The receiving clerk
Update Records
Receive Goods
- Update Inventory
Prepare Purchase Order
The cash disbursements system processes the payment of obligations created in the
purchases system. The principal objective of this system is to ensure that only valid
creditors receive payment and that amounts paid are timely and correct.
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CONFIDENTIAL
All rights reserved. The use of this document as a whole or in part is restricted. This document has been prepared by the Accountancy Department of the Ateneo de
Zamboanga University. The reproduction and circulation of which without the entity’s written consent is strictly prohibited.
Ateneo de Zamboanga University
SCHOOL OF MANAGEMENT AND ACCOUNTANCY
ACCOUNTANCY DEPARTMENT
S.Y. 2021 – 2022 ● 1 st Semester ● 2 nd Session
Update Records
Prepare Cash Disbursement
process begins in the disbursement, the - Update AP Record
AP department by clerk prepares a
- Post General Ledger
identifying items that check and records
have come due. pertinent data in the
►AP function check register
reviews the open AP - The check may
file and sends require additional
payment approval in approval by the cash
the form of a disbursements
voucher packet to department manager
the cash or treasurer
disbursements
department.
C HA P TE R 3
Risks and Controls
Risks:
1. Purchase Procedures
Goods are not ordered by the department
Goods may be received that were never ordered
Goods were ordered are never received or received in the wrong quantity
Goods may be lost or damaged in transit
Suppliers may make errors in the preparation of sales invoices sent
Supplier’s AP may be incorrect due to wrong or omitted postings
Purchase discounts may be lost due to late payments.
2. Cash Disbursement Procedures
Disbursement checks may be made to wrong or fictitious people
Disbursement checks may be made for goods never received
Checks may be altered and cashed by our own employees ( CAR)
Kiting may be used by our employees responsible for cash
Cash , Inventory and related data records may be lost
Page 3 of 7
CONFIDENTIAL
All rights reserved. The use of this document as a whole or in part is restricted. This document has been prepared by the Accountancy Department of the Ateneo de
Zamboanga University. The reproduction and circulation of which without the entity’s written consent is strictly prohibited.
Ateneo de Zamboanga University
SCHOOL OF MANAGEMENT AND ACCOUNTANCY
ACCOUNTANCY DEPARTMENT
S.Y. 2021 – 2022 ● 1 st Semester ● 2 nd Session
Controls:
Transactions authorization The inventory control function
continually monitors inventory
levels. As inventory levels drop to
their predetermined reorder points,
inventory control formally
authorizes replenishment with a
purchase requisition.
The AP function authorizes cash
disbursements via the cash
disbursement voucher. To provide
effective control over the flow of
cash from the firm, the cash
disbursements function should not
write checks without this explicit
authorization
Segregation of duties (CARE)/Supervision Segregation of Inventory Control
from the Warehouse.
Segregation of the General Ledger
and Accounts Payable from Cash
Disbursements.
Supervision
Accounting records AP subsidiary ledger
General ledger,
Purchases journal
Cash disbursements journal,
Page 4 of 7
CONFIDENTIAL
All rights reserved. The use of this document as a whole or in part is restricted. This document has been prepared by the Accountancy Department of the Ateneo de
Zamboanga University. The reproduction and circulation of which without the entity’s written consent is strictly prohibited.
Ateneo de Zamboanga University
SCHOOL OF MANAGEMENT AND ACCOUNTANCY
ACCOUNTANCY DEPARTMENT
S.Y. 2021 – 2022 ● 1 st Semester ● 2 nd Session
Key Terms
Voucher register - Is a journal that records all vouchers once they are approved.
Check register - document on which is stated the payment dates, check numbers, payment
amounts, and payee names for all check payments
Cash disbursement journal - is a special journal used to record all payments of cash
Page 5 of 7
CONFIDENTIAL
All rights reserved. The use of this document as a whole or in part is restricted. This document has been prepared by the Accountancy Department of the Ateneo de
Zamboanga University. The reproduction and circulation of which without the entity’s written consent is strictly prohibited.
Ateneo de Zamboanga University
SCHOOL OF MANAGEMENT AND ACCOUNTANCY
ACCOUNTANCY DEPARTMENT
S.Y. 2021 – 2022 ● 1 st Semester ● 2 nd Session
1. Payroll Procedures
The payroll system collects labor usage data for each employee, computes the payroll,
and disburses paychecks to the employees. Conceptually, payroll is a special-case
purchases and cash disbursements system. Because of accounting complexities
associated with payroll, most firms have a separate system for payroll processing.
Department
Prepare Payroll
Personnel and Productiom
Update Records
►Personnel 1.Prepares the - Distrbute
Department payroll register Paycheeck
Authorizes Payroll by (showing gross pay, - Prepare Accounts
sending personnel deductions, overtime Payable
action forms to pay, and net pay.
personnel - Prepare Cash
2. Enters the above Disbursement
department information into the
►Production employee payroll - Update General
employees prepare records Ledger
two types of time 3. Prepares
records: job tickets employee paychecks
and time cards
4. Sends the
►Update WIP paychecks to the
records distribute paycheck
Key Terms
Job tickets - capture the time that individual workers spend on each production job. Cost
accounting uses these documents to allocate direct labor charges to work-in-process
(WIP) accounts.
Time cards - capture the time the employee is at work
Personnel Action forms - These documents identify employees authorized to receive a
paycheck and are used to reflect changes in hourly pay rates, payroll deductions, and job
classification.
Payroll register - is the record for a pay period that lists employee hours worked, gross
pay, net pay, deductions, and payroll date
Paycheck - paper document issued by an employer to pay an employee for services
rendered.
Page 6 of 7
CONFIDENTIAL
All rights reserved. The use of this document as a whole or in part is restricted. This document has been prepared by the Accountancy Department of the Ateneo de
Zamboanga University. The reproduction and circulation of which without the entity’s written consent is strictly prohibited.
Ateneo de Zamboanga University
SCHOOL OF MANAGEMENT AND ACCOUNTANCY
ACCOUNTANCY DEPARTMENT
S.Y. 2021 – 2022 ● 1 st Semester ● 2 nd Session
The fixed asset system shares some characteristics with the expenditure cycle presented
in, but two important differences distinguish these systems.
First, The fixed asset system processes non-routine transactions for a wider group of
users in the organization. Because fixed asset transactions are unique,
they require specific management approval and explicit authorization procedures. I
The second difference between these systems is that they capitalize fixed assets that yield
benefits for multiple periods. Therefore, fixed asset accounting systems include cost
allocation and matching procedures that are not part of routine expenditure systems.
1.) Asset acquisition usually begins with the departmental manager (user) recognizing
the need to obtain a new asset or replace an existing one. Once the request is approved and
a supplier is selected, the fixed asset acquisition task is similar to the expenditure cycle
procedures described
2.) Asset maintenance involves adjusting the fixed asset subsidiary account balances as
the assets (excluding land) depreciate over time or with usage. Common depreciation
methods in use are straight line, sum-of-the-years’ digits, double-declining balance, and
units of production
When an asset has reached the end of its useful life or when management decides to
dispose of it, the asset must be removed from the fixed asset subsidiary ledger. It begins
when the responsible manager issues a request to dispose of the asset.
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CONFIDENTIAL
All rights reserved. The use of this document as a whole or in part is restricted. This document has been prepared by the Accountancy Department of the Ateneo de
Zamboanga University. The reproduction and circulation of which without the entity’s written consent is strictly prohibited.