expenditure cycle

what is the expenditure cycle?

a recurring set of business activities and related data processing operations associated with purchasing inventory or raw materials in exchange for cash or a future promise to pay cash.

in the expenditure cycle, the primary exchange of information is with _______

suppliers aka vendors

what is the primary objective in the expenditure cycle?

minimize total cost of acquiring and maintaining inventories/supplies/services to be EFFICIENT AND EFFECTIVE

who counts and inspects inventory?

the receiving clerk

who stores goods and sign off with receiving clerk?

inventory control

who approves the invoice?

accounts payable

who pays the supplier?

the cashier

who creates a purchase requisition

any employee

who orders inventory?

the purchasing (buyer)

who receives and reconciles the bank statement?

accounts payable

what is the difference between Economic order quantity (EOQ), materials requirement planning (MRP), and just-in-time (JIT) approach?

EOQ: traditional approach. optimal order size to minimize the sum of ordering, carrying, and stock out costs. (significant amount of inventory)

MRP: seeks to hold less inventory on hand by forecasting

JIT: only orders based on actual sales. no forecasting. frequent, small amount deliveries

what is a purchase requisition?

a document or electronic form that identifies the requisitioner- specifies delivery location, date needed, item numbers, descriptions, quantity, and price of each item. may suggest a supplier

who selects the supplier?

typically purchasing agents aka buyers

what is the reorder point?

once inventory falls below x -amount, order more.

what is the difference between a purchase order and a purchase requisition

purchase requisition: saying “we need this item”

purchase order: the action of actually ordering it

what is a blanket order aka blanket purchase order?

a commitment to purchase specified items at designated prices from a particular supplier for a set time period.

who is responsible for accepting and inspecting deliveries from suppliers?

receiving department

who counts the quantity of goods delivered and inspects them for any obvious damage?

the receiving clerk

what is the receiving report?

the receiving clerk records the date received, shipper, supplier, purchase order number and quantity received. (not the price- that is in the past)

what is a debit memo?

if the quality is bad, or goods are different than what was ordered, or items are damaged, a debit memo is made.

it is an agreement that the supplier will take back the goods or grant a price reduction.

the debit memo is the document used to record the reduction to the balance

when do companies record accounts payable?

once they have received goods AND approved suppliers invoice

what is a voucher package?

the set of documents used to authorize payment to a supplier. it consists of a purchase order, receiving report, and supplier invoice

what is the difference between nonvoucher and voucher system?

nonvoucher: invoices are posted to individual supplier records in the AP file then stored in an open invoice file

voucher: disbursement voucher is prepared instead of posting invoices. includes purchase order, receiving report, and invoice

what is a disbursement voucher?

a document that identifies the supplier, lists the outstanding i voices, and indicates the net amount to be paid after deducting any applicable discounts and allowances. (used in the voucher system)

what are the pros of having a voucher system? (3)

1. less checks are written

2. tracks payables better (because of pre-numbered document)

3. easier to schedule and maximizes efficiency (because it facilitates separating the time of invoice approval from the time of invoice payment)

what is the evaluated receipt settlement (ERS)?

an “invoiceless” approach. simply matches the purchase order with the receiving report.

saves time and money.

what is a procurement card

a corporate credit card that employees can use only at designated suppliers to purchase specific kind of items (used for NONinventory)

payments are made before/after accounts payable send voucher package

AFTER

why should expenditures be made by check or EFT? (compared with legit cash)

to leave an audit trail

what is an imprest fund? what are its 2 characteristics?

a cash account

1. it is set at a fixed amount (such as $100)

2. vouchers/receipts are required for every purchase. the sum of cash + vouchers should equal the present fund balance

does the imprest fund follow segregation of duties? how?

no it does not. (the same person who has custody of the cash also authorizes the disbursements from the fund and maintains the fund balance)

but it is very convenient to leave miscellaneous expenses out of the normal expenditure cycle.

if the discontinued item is already sold then it needs _______ + ________

if held for sale, then _______ + _______

already sold: take out rev/exp put in discontinued section + GAIN/LOSS on sale of asset

if held for sale: take out rev/exp put in discontinued section + impairment loss