CHAPTER 5
THE EXPENDITURE CYCLE Part I:
Purchases and Cash
Disbursements Procedures
REVIEW QUESTIONS
1. A purchase requisition is completed by the inventory control department when a need for
inventory items is detected. Purchase requisitions for office supplies and other materials may also be
completed by staff departments such as marketing, finance, accounting, and personnel. The purchasing
2. A purchasing department is able to research the quality and pricing of various vendors. Their job
is to monitor various supply sources and choose the highest quality good for a given price that can be
3. An open accounts payable file contains all source documents, including invoices, organized by
payment date. As the due dates become close to the current date, the invoices are pulled from the file
and paid. Under the voucher system, the accounts payable clerk prepares a cash disbursements voucher
4. The three logical steps of the cash disbursements system are:
5. Accounts Payable:
6. The receiving clerk’s responsibility is to inspect the quantity and condition of the goods received.
The two exposures that are reduced by close supervision are: 1. failing to properly inspect the assets 2.
Pilfering or stealing the inventory. Thus, the copy of the purchase order which he/she uses for this
inspection should not contain quantities or prices. If the quantity is printed on the receiving clerk’s
7. A comparison of transaction details between the Purchase Order (which established that the item
was ordered), the Receiving Report (which showed that it was received), and the Invoice (which
8. The general ledger department receives journal vouchers from inventory control, accounts
payable, and cash disbursements. With these summary figures, the general ledger clerk verifies that:
9. Inventories should only be acquired from valid vendors. This control procedure helps to deter the
purchasing agent from buying inventories at excessive costs and receiving kickbacks, or from buying
10. Many companies engaged in business-to-business (B2B) transactions use the vendor invoice file
as a substitute for the traditional purchases journal and accounts payable subsidiary ledger. The
11. The blind copy contains no quantity or price information about the products being received. The
12. Vouchers provide improved control over cash disbursement, and they allow firms to consolidate
several payments to the same supplier on a single voucher, thus reducing the number of checks written.
DISCUSSION QUESTIONS
1. The three documents of the AP packet are the purchase requisition, purchase order, and receiving
report (in addition to the invoice itself). The purchase requisition originates from inventory
control and represents the inventory requirements. The purchase order originates from the
3. The receiving clerks have access to many of the firm’s assets: their inventory. Two exposures
potentially exist: 1. the clerk failing to perform his/her duty and 2. the clerk pilfering or stealing the
inventory. Thus, the copy of the purchase order used for this inspection should have the quantities and
amounts covered so that they may not be read. If the quantity is printed on the receiving clerk’s copy of
4. These functions are often automated because of their importance. Automation can help to increase
efficiencies and reduce clerical errors. In an automated environment inventory control no longer has to
physically maintain inventory records to determine if inventories are at the reorder point. The system
automatically monitors the levels and flags items that need reordering. Thus, the chance that an item is
5. In the advanced technology system, the three way match is automated. When the AP clerk
receives the supplier’s invoice, the clerk accesses the system and adds a record to the vendor
invoice file. This act prompts the system to automatically create a virtual AP packet by linking the
vendor invoice to the associated purchase order and receiving report records, using the PO
number as a common attribute. The application then reconciles the supporting documents, using
7. Some organizations have taken reengineering even further by eliminating the receiving function
entirely. The objective of this is to send goods directly to the production department and thus bypass
the receiving area and avoid production delays and the associated handling costs. An accounting and
auditing problem that must be overcome is how to account for inventory receipts when there is no
receiving function and no receiving report. One way of dealing with this is to calculate the number of
8. Multilevel security is a means of achieving segregation of duties in an integrated data processing
environment where multiple users simultaneously access a common central application. Two methods
9. The Receiving Report is evidence that the items have been received and a liability has been
10. An undetected program error may affect thousands or even millions of transactions with
devastating consequences to the financial statements. An organization’s systems development and
MULTIPLE CHOICE
1. C
2. C
3. D