AUDIT OF INVENTORIES

AND RELATED
EXPENSES
 WAREHOUSE AND CONVERSION
CYCLE
1. An employee or a department recognizes a need for the purchase of
goods, prepares a requisition form and sends it to the purchasing
department;
2. The purchasing department locates an appropriate supplier, after
considering quality and price, and prepares and issues a purchase
order to the supplier;
3. The receiving department receives and inspects the goods, verifying
quality and quantity, prepares a receiving report.
4. The receiving department transfers the goods to the warehouse.
5. The goods are transferred from the warehouse to the production
department, upon requisition by latter.
 - Separate departments shall undertake the activities for effective
internal control.
- Manufacturing entities are engaged in another set of activities after
the warehousing cycle – conversion cycle.
Internal Control over Inventories

a. Physical inspection and counting of all items of inventories received

by the company from suppliers to immediately remedy any discrepancy
between delivery and purchase order.