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The Expenditure Cycle Part I: Purchases and Cash Disbursements Procedures
The Expenditure Cycle Part I: Purchases and Cash Disbursements Procedures
PROCUREMENT CYCLE
(SUBSYSTEM)
Receiving/
Cash Disbursements Inspection
3
5
Accounts Payable
4
Goals of the Expenditure Cycle
• The goal of providing needed resources to
organization can be broken down into several
objectives:
– purchase from reliable vendors
– purchase high quality items
– obtain best possible price
– purchase only items that are properly authorized
– have resources available when they are needed
– receive only those items ordered
– ensure items are not lost, stolen,
or broken
– pay for the items in a timely manner
DFD of Purchases System
A Manual Purchases System
• The purchases cycle begins in the Inventory
Control department when inventory levels drop
to reorder levels.
• A clerk prepares a purchase requisition and
sends copies to Purchasing and Accounts
Payable.
• The Purchasing department prepares a
purchase order for each vendor and sends
copies to Inventory Control, Accounts
Payable, Receiving (blind copy), and the
vendor.
A Manual Purchases System
• Upon receipt of the goods, the Receiving
department counts and inspects the goods.
– One of the purposes of the blind copy of the
purchase order is to force the workers to count
the goods.
• A worker then prepares the receiving
report and sends copies to the raw
materials storeroom, Purchasing, Inventory
Control, and Accounts Payable.
A Manual Purchases System
• The Accounts Payable department has now received
copies of the purchase requisition, purchase order,
and receiving report.
• Upon receipt of the supplier’s invoice, Accounts
Payable reconciles all documents, posts to the
purchases journal, and records the liability in the
accounts payable subsidiary ledger.
• Periodically, the entries in the purchases journal are
summarized in a journal voucher which is sent to
the General Ledger department.
A Manual Purchases System
• The journal voucher is prepared by
Accounts Payable and sent to the General
Ledger department:
Inv-Control or Purchases DR
Accts Payable-Control CR
• Accounts Payable also prepares a cash
disbursements voucher and posts it in the
voucher register.
A Manual Purchases System
• The General Ledger department:
– posts from the accounts payable
journal voucher to the general ledger
– reconciles the inventory amount with
the account summary received from
inventory control
Manual Purchases System
DFD of Cash Disbursements System
Manual Cash Disbursements
System
• Periodically, usually daily, Accounts
Payable searches the open vouchers
payable file for items with payments
due:
– AP sends the voucher and supporting
documents to Cash Disbursements
– AP updates the accounts payable
subsidiary ledger
Manual Cash Disbursements
System
Purchase Customer
Order Order
Sales
Order
Receiving Shipping
Report Documents
Goods
Vendor’s Sales
Invoice Invoice
Check Check
or EFT or EFT
Advantages of Real-Time Data Input &
Processing Over Batch Processing