Presentation on theme: "Objectives for Chapter 5"— Presentation transcript: 1 Chapter 5 The Expenditure Cycle Part 1: Purchases and Cash Disbursements Procedures Show
2 Objectives for Chapter 5 3 The time lag splits the expenditure transaction cycle into two phases
4 Goals of the Expenditure Cycle 5 DFD for Purchase System
6 A Purchase System Begins in Inventory Control when inventory levels drop to reorder levels A purchase requisition (PR) is prepared and copies to sent to Purchasing and
Accounts Payable (A/P) Purchasing prepares a purchase order (PO) for each vendor and sends copies to Inventory Control, A/P, and Receiving 3
7 A Purchase System Upon receipt, Receiving counts and inspects the goods. A blind
copy of the PO is used to force workers to count the goods. A receiving report is prepared and copies sent to the raw materials storeroom, Purchasing, Inventory Control, and A/P. 4 8 A Purchases System A/P eventually receives copies of the PR, PO, receiving report, and the supplier’s invoice. A/P reconciles these documents, posts to the purchases journal, and records the liability in the accounts payable subsidiary ledger. 5 9 Inv-Control or Purchases DR
10 A Purchase System G/L department:
11 Manual Purchase System 12 DFD for Cash Disbursements System 13 Cash Disbursements System
14 Cash Disbursements System 15 Cash Disbursements System 16 Cash Disbursements System
17 Computer-Based Accounting Systems 18 Levels of Automating and Reengineering Ordering 19 Expenditure Cycle Database
20 Computer-Based Purchases 21 Computer-Based
Purchases
22 Computer-Based Cash Disbursements 23 Batch Purchases System 24 Batch Purchases
System (continued) 25 Advantages of Real-Time Data Input & Processing Over Batch Processing 26
Reengineered Purchases/ Cash Disbursements System 27 Summary of Internal Controls 28
General Internal Controls
29 Authorization Controls 30 Computer-Based Authorization Controls 31 Traditional Segregation of Duties 32 Segregation of Functions 33
Computer-Based Segregation of Functions 34
How do these controls change in a CBAS?
35 Computer-Based Supervision 36 How do these controls change in a CBAS? 37 Computer-Based Accounting Records
38 How do these controls change in a CBAS?
39 Computer-Based Access Controls
40 Independent Verification 41 Computer-Based Independent Verification What are the controls in expenditure cycle?Some controls usually found in the expenditure cycle:. Purchases based on approved requisition.. Purchasing agents review requisitions for proper approval and budgets.. Purchases made from approved vendors.. Compare goods received to purchase order.. Document receipt on receiving report.. What are the four main processes in the expenditure cycle?EXPENDITURE CYCLE INFORMATION NEEDS
The AIS needs to provide information to evaluate the following: (1) purchasing efficiency and effectiveness; (2) supplier performance; (3) time taken to move goods from receiving to production; and (4) percent of purchase discounts taken.
What are the control objective of expenditure cycle activities?The objective of expenditure control is to ensure that public resources are spent as intended, within authorized limits, and following sound financial management principles.
What two types of exposures can close supervision of the receiving department reduce?Response: The receiving clerks have access to many of the firm's assets: its inventory. Two exposures potentially exist: (a) the clerk failing to perform his or her duty and (b) the clerk pilfering or stealing the inventory.
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