The Expenditure Cycle:

Purchasing to Cash Disbursements

Chapter 13

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 Learning Objectives
• Explain the basic business activities and related
information processing operations performed in
the expenditure cycle.

• Discuss the key decisions to be made in the

expenditure cycle, and identify the information
needed to make those decisions.

• Identify major threats in the expenditure cycle, and

evaluate the adequacy of various control
Copyrightprocedures for
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 Basic Expenditure Cycle Activities

• Order materials, supplies, and services

• Receive materials, supplies, and services
• Approve supplier (vendor) invoice
• Cash disbursement

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 Order Goods (Materials/Supplies) or
Services Processing Steps

• Identify what, when, and how much to purchase

▫ Source document: purchase requisition
• Choose a supplier
▫ Source document: purchase order

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 Ordering Goods/Services
Threats Controls
1. Stockouts and excess 1 a. Perpetual inventory system
inventory b. Bar-coding, RFID
2. Purchasing items not needed 2 a. Review and approval of
3. Purchasing items at inflated purchase requisitions
prices 3 a. Price lists
4. Purchasing goods of poor b. Competitive bids
quality 4 a. Use approved suppliers
5 a. Monitor supplier
5. Unreliable suppliers
performance
6. Purchasing from
b. Require quality certification
unauthorized suppliers
6 a. Purchase from approved
7. Kickbacks
suppliers
7 a. Supplier audits
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 Receiving Process

• Goods arrive
▫ Verify goods ordered against the purchase order
(what, how much, quality)
▫ Source document: receiving report

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 Receiving Goods or Services

Threats Controls
1. Accepting unordered items 1 a. Authorized purchase orders
2. Mistakes in counting needed before receiving
3. Verifying receipt of services goods
4. Inventory theft 2 a. Bar codes or RFID
3 a. Budget controls and audits
4 a. Restrict physical access to
inventory
b. Document all inventory
transfers
c. Segregate custody vs.
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 Approve Supplier Invoice and Cash
Disbursements

• Match the supplier invoice to:

▫ Purchase order
▫ Receiving report
supplier invoice + purchase order + receiving report = voucher

• Approve supplier invoice for payment

▫ Source document: disbursement voucher
• Pay vendor

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 Approve Supplier Invoice
Threats
1. Errors in supplier invoice
2. Mistakes in posting to
accounts payable
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Control
1 a. Verify invoice accuracy
2 a. Data entry edit controls
b. Reconcile detailed accounts
payable records to the
general ledger accounts
payable account
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 Cash Disbursements
Threats Controls
1. Failure to take discounts 1 a. File invoices by due date to
2. Pay for items not received take advantage of discounts
3. Duplicate payments 2 a. Match supplier invoice to
4. Theft of cash supporting documents
(purchase order, receiving
5. Check alteration
report)
6. Cash flow problems
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
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 Key Terms

• Expenditure cycle • Vendor-managed inventory

• Economic order quantity • Kickbacks
(EOQ) • Receiving report
• Reorder point • Debit memo
• Materials requirement • Voucher package
planning (MRP) • Nonvoucher system
• Just-in-time (JIT) inventory • Voucher system
system • Disbursement voucher
• Purchase requisition • Evaluated receipt settlement
• Purchase order (ERS)
• Blanket purchase order • Procurement card
• Imprest fund
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