ACC 3530 Chapter 15: The Expenditure Cycle

Basic Expenditure Cycle Activities

• there are several categories of processes involved in the revenue cycle…

  • order materials, supplies, and services

  • receive materials, supplies, and services

  • approved supplier/vendor invoices

  • cash disbursements

Key Management Decisions for Expenditure Cycle

• what’s the optimal level of inventory and supplies to carry

• which suppliers provide the require quality at the best prices

• how can the organization consolidate purchases across units to obtain optimal prices

• how can IT be used to improve both the efficiency and accuracy of the inbound logistics function

• how can the organization maintain sufficient cash to take advantage of discounts suppliers offer

• how can payments to vendors be managed to optimize cash management

General Threats to Expenditure Cycle

• inaccurate/invalid master data

• unauthorized disclosure of sensitive info

• loss/destruction of data

• poor performance

Order Goods and Services Process

• identify what, when, and how much to purchase

  • key source document → purchase requisition

• choose a supplier

  • key source document → purchase order

Threats to Ordering Goods and Services Process

• stockouts and excess inventory

• purchasing items not needed

• purchasing items at inflated prices

• purchasing goods of poor quality

• unreliable suppliers

• purchasing from unauthorized suppliers

• kickbacks

Receiving Process

• goods arrive

  • verify goods ordered against the purchase order

  • key source document → receiving report

• transfer goods to inventory stores or departments

Threats to Receiving Process

• accepting unordered items

• mistakes in counting

• not verifying receipt of services

• theft of inventory

Approve Supplier Invoice and Cash Disbursements

• match the supplier invoice to…

  • purchase order

  • receiving report

• approve supplier invoice for payment

• pay vendor

Threats to Approving Supplier Invoices and Cash Disbursements

• errors in supplier invoice

• mistakes in posting to accounts payable

• failure to take advantage of discounts for prompt payments

• paying for items not received

• duplicate payments

• theft of cash

• cheque alteration

• cash flow problems

• paying the wrong account because a scammer convinced you to update banking information for a supplier