EXPENDITURE CYCLE

Chapter 13
Acquire Goods and Services
Pay for Goods and Services
Spring 2002
If the Expenditure Cycle Fails

 Inventory is under-stocked.
 Inventory is over-stocked.
 Disbursements made for
unauthorized purposes.
 Cash Receipt Fraud

Unrecorded Sales 30%

A/R - customer adjustments 18%
A/R - lapping 17%
No attempt to conceal 14%
 Cash Disbursement Fraud

Fictitious A/P or Customer Refunds 24%

Unauthorized loans 10%
Payroll - overstate earnings - self 7%
Payroll - overstate earnings - others 3%
Payroll - fictitious employees 2%
 Expenditure Cycle is Mirror
of Revenue Cycle

Revenue Cycle Expenditure Cycle

 Create Sales Order  Create PO
 Ship Goods  Receive Goods
 Send Invoice  Receive Invoice
 Collect Cash  Disburse Cash
Identify a Need

 Need to know when to order

» Reorder point, two bin system,
MRP
 Need to know what to order
» EOQ, MRP, JIT
 Needs identified outside of
purchasing.
Approve Requisitions
 Needs communicated to
purchasing
» Use purchase requisition
(p. 470)
 Purchasing reviews
requisition
» Proper approval
» Within budgets
 Select Vendor
 Use approved vendor list.
» You get what you pay for!
 Important factors in this
decision:
» Price and quality of product
» Ability to deliver on time
» Service after the sale
» Other features
Create Purchase Order

 Purchase order
becomes contract
between buyer and
vendor.
 P.O. example: p. 473
 System example: p. 474
 Alternatives to POs

 Procurement Cards
» Focus 13.2 (p. 476)
 Custom On-line
Catalogues
Control Over Purchasing Agents

 True Story:
» Purchasing agent given Bulls tickets.
» Purchasing agent given Weber grill.
 What can be done to assure that
purchasing agents engage in arms
length transactions?
 Receive Goods

 Count & compare to packing slip & P.O.

» Test basis?
» May also use a “blind” P.O.
 Inspect quality.
 Document on receiving report.
 Deliver Goods

 Route goods to
warehouse or other
departments.
 End users sign for
goods.
 Examples: p. 478 &
479.
 Approve Payment

Purchase Order

}

 = Receiving Report Approved Invoice
 = Invoice
Record liability.
File by due date.
 Prepare & Make
Disbursement

 Cashier prepares check.

 Treasurer
» reviews supporting documentation
before signing check.
» signs check, cancels supporting
documentation, and mails check
 Record disbursement.
 Summary

Order Goods

Receive Goods

Approve Invoice

Disburse Cash