Tài chính kế toán - The expenditure cycle

The expenditure cycleLearning objectivesTo learn the expenditure cycle business activities.To learn how to flow chart the expenditure cycle business activities.To understand the processing of expenditure cycle transactions using a computer.To know what the control practices and procedures are in the expenditure cycle.key termscarrying costseconomic order quantitymaterials requisition notemaximum stock levelminimum stock levelordering costspayment voucherpurchase requisitionreorder levelreorder quantitystorekeepingExpenditure cycleDeals with transactions involved in purchasing goods and servicesCustodianship of goods and materials purchasedCash and credit paymentsExpenditure cycle business activitiesMain functions (cash purchase):requests for purchasesordering goods to be purchasedreceiving delivery of goods purchasedstorekeepingdealing with goods to be returnedpayment of purchased goods and servicesExpenditure cycle business activitiesAdditional functions (credit purchase):applying for credit facility from supplierrecording accounts payablerequesting adjustment noteschecking periodical statements from suppliersapproving vendor invoicesExpenditure cycle business activitiesCategories of activities in the expenditure cycle:Requesting purchasesPlacing orders with suppliersReceiving goodsStorekeepingProcessing supplier invoicesCash disbursementsRequesting purchasesPurchasing department responsible for purchasesGoods categorised as: general goodsspecial itemsPurchase requisition used for special orders to ensure:control and accuracyPlacing orders with suppliersThis is achieved by:identifying supplierprice and quantity availabledelivery timeterms and deliveryplacing the order with supplierin writing on serially numbered formsdescription, quantity, unit price, total price, trade discount and delivery dateReceiving goodsGoods accompanied by delivery note showing:description, source and quantity deliveredspace for signature of person accepting goodsGoods checked for quantity and qualityGoods received note raised and attached to delivery note for filing. A copy is sent to accounts payable departmentStorekeepingGoods received are stored in a secure placeSafeguarded by authorised personsReleased on proper authorisation – goods/materials requisition noteAuthorised dispatch note required for dispatch of goods soldStorekeeping functionsMaintain orderly storePrevent waste and deterioration of goodsSecure from unauthorised personnelKeep records and issue goodsRaise purchase requisitionsReceive goods deliveredStock levelsMaintain appropriate level to facilitate production and sales functionsMaintain a ‘buffer’ of stock for emergenciesPhysical stock verificationInventory is counted and amounts and other details are recorded on stock sheets Verification objectives are:accounting valuationloss through theft or misusephysical state of stockallow proper cut-off procedures to be carried out (i.e. inventory is counted only if invoices have been received and processed)Perpetual inventory systemMaintains a set of records that ensure that stock movements are recorded on a continuous and consistent basis by competent staffStock cards maintain a record of stock movements in the storesAccuracy is verified by a stocktakePhysical stock is compared to records to identify errorsProcessing supplier invoicesTax invoice is received and checked for accuracy using goods received noteLiability is recorded when tax invoice is received and verifiedAccounts payable may be adjusted by adjustment or credit notes received for returned goodsCash disbursementsThe activity of settling a debt by paying for the goods and services received completes the expenditure cycle Supplier payments may take the form of:cash cheques – most common form of paymentbank transfersdirect deposits or EFT Details of all payments are recorded in the cash payments journalFlowchart for purchasing functionFlowchart for purchase returns functionInternal controls for expenditure cyclePrenumbered purchase ordersAuthorised personnel to initiate all purchasesDeliveries accepted on verification of purchase orderInvoices, purchase orders and receiving reports matched to verify invoice for processing and paymentExpected refunds are followed up Paid invoices are cancelled with a stamp – ‘paid’ or punchInternal controls for expenditure cycle (cont.)Cheque signatories have limitsAuthorised person responsible for petty cash fundAccounts payable is reconciled on a regular basisInventory is protected and accounted for both physically and in terms of dollar valueReorder levels are maintainedProper authorisation procedures apply for release of goods from storesComputer application systems for the expenditure cycleComputers play an important role where large numbers of transactions are processed:record the information in the same categories as a manual systemquick production of the documentation requiredreduce clerical handling errorseasily generate detailed reports for management usereduce errors in pricing etc.enable maintenance of large perpetual inventory systems with a minimum amount of labour costsControls in the computer environmentApplication controls required:Input controls detect and prevent errors when data is inputProcessing controlsdetect and prevent errors while processing is in progressOutput controlsdetect and prevent errors in outputs from processing