Expenditure Cycle Lecture Notes

These flashcards cover key terms and concepts related to the expenditure cycle, focusing on processes, documents, and audit requirements.

What is the purpose of collecting requests for revenue expenditure regarding raw materials?

To determine the quantity of raw materials required by the conversion process for upcoming production periods.

What document is used to calculate raw material requirements in the production process?

Bill of Materials document.

What is the function of the bill of materials?

It shows how much of which materials are needed for the factory to produce goods for resale.

What data source is used to collect requests for goods for resale?

Warehouse.

What does the warehouse do in terms of inventory?

Identifies future or current demand for a product and requests additional inventory to meet that demand.

What types of items do all departments typically request for revenue expenditure?

Consumable items like stationery, lightbulbs, and telephones.

What types of services may departments require for their duties?

Basic services such as electricity and telecommunications, as well as specialist services like IT support.

Who identifies capital expenditure requirements for approved projects?

Heads of Department.

What key document is used for formal approval of fixed asset purchases?

Capital Investment Request.

What does a purchase requisition confirm?

It confirms the amount and specification of goods/services agreed to be purchased.

What is the importance of a quotation?

A quotation is an offer to supply goods or services to a firm at a specific price and time frame.

What does a purchase order signify in a purchase agreement?

It creates the acceptance part of the legal contract to buy goods/services.

What does the goods received note (GRN) document?

The receipt of goods entering the firm and triggers the need to record a liability for payment.

What is the role of accounts payable in relation to supplier invoices?

To link the invoice to the goods received note, ensure accuracy, and enter the invoice value in the purchase ledger.

What must accounts payable verify before approving an invoice for payment?

That the supplier invoice matches the purchase order and the goods received note.

What is recorded in the purchase ledger?

The individual records of how much is owed to each supplier.

What is an objective of the auditing cycle in relation to recorded purchases?

To ensure recorded purchases are for goods/services received, aligning with firm’s objectives.

What does the control test of completeness involve regarding purchase orders?

Ensures purchase orders are pre-numbered and accounted for correctly.

What is examined to verify the accuracy of purchase transactions?

The calculations of liabilities arising from purchases.

What is the objective related to payments in the auditing cycle?

Payments to suppliers are correctly allocated to the supplier’s account.

What is crucial about the classification of purchases?

Purchases and payments must be recorded under the correct account classifications.

What is important for the timing of purchase transactions?

Ensuring that purchases and payments are recorded on the correct dates.