The Expenditure Cycle: Purchasing to Cash Disbursements - Chapter 15

Expenditure Cycle Activites

1. Order materials, supplies, and services

2. Receive materials, supplies, and services

3. Approve supplier invoice

4. Cash disbursement

Inventory Control Methods

1. Economic Order Quantity (EOQ) = square root of (2 x D x S)/H

2. Materials Requirements Planning (MRP)

3. Just in Time Inventory (JIT)

Ordering Goods/Services Threats and Controls

1. Excess inventory > perpetual inventory system and physical counts

2. Purchase items not needed > centralized purchasing

3. Purchasing goods of poor quality > use approved suppliers and monitor product quality

4. Purchasing goods at inflated costs > price lists and budgets

Receiving Goods/Services Threats and Controls

1. mistakes in counting > ERP configuration

2. Verifying receipt of services > budget controls and audits

3. inventory theft > restrict access and document inventory transfers

Approving Supplier Invoice Threats and Controls

1. errors in invoice > verify accuracy and restrict access

2. mistakes in posting to AP > reconcile AP to GL

Cash Disbursements Threats and Controls

1. failure to take discounts > file invoice by due date

2. pay for items not received > budgets and require receipts for travel

3. duplicate payments > pay only original invoices

4. theft of cash > access controls and segregation of duties