Accounting Information System 3
Chapter 5 The Expenditure Cycle Part 1: Purchases and Cash Disbursements Procedures
Accounting Information Systems, 5th edition James A. Hall
COPYRIGHT © 2007 Thomson South-Western, a part of The Thomson Corporation. Thomson, the Star logo, and South-Western are trademarks used herein under license
Objectives for Chapter 5
• Tasks performed during purchases and cash disbursement processes • Departments involved in purchases and cash disbursement activities and the flow of these transactions through the organization • Documents, journals, and accounts that provide audit trails, promote the maintenance of records, and support decision making and financial reporting • Risks associated with purchase and cash disbursements activities and the controls that reduce these risks • Operational features and the control implications of technology used in purchases and cash disbursement systems
Purchase Requisition 1
Purchasing 2 PROCUREMENT CYCLE (SUBSYSTEM)
Cash Disbursements 5
Receiving/ Inspection 3
Accounts Payable 4
1
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
• 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
2
A Manual Purchases System
• Upon receipt, Receiving counts and inspects the goods.
– A blind copy of the PO is used to force workers
Accounting Information Systems, 5th edition James A. Hall
COPYRIGHT © 2007 Thomson South-Western, a part of The Thomson Corporation. Thomson, the Star logo, and South-Western are trademarks used herein under license
Objectives for Chapter 5
• Tasks performed during purchases and cash disbursement processes • Departments involved in purchases and cash disbursement activities and the flow of these transactions through the organization • Documents, journals, and accounts that provide audit trails, promote the maintenance of records, and support decision making and financial reporting • Risks associated with purchase and cash disbursements activities and the controls that reduce these risks • Operational features and the control implications of technology used in purchases and cash disbursement systems
Purchase Requisition 1
Purchasing 2 PROCUREMENT CYCLE (SUBSYSTEM)
Cash Disbursements 5
Receiving/ Inspection 3
Accounts Payable 4
1
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
• 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
2
A Manual Purchases System
• Upon receipt, Receiving counts and inspects the goods.
– A blind copy of the PO is used to force workers