AIS Ch 15 pt. 1

Expenditure Cycle Defined

  • Definition: A recurring set of business activities and information processing operations related to the purchase and payment for goods and services.

    • Primary Objective: Minimize the total cost of acquiring and maintaining inventories, supplies, and services necessary for operational functions.

External Interactions in the Expenditure Cycle

  • Entities:

    • Vendors (Suppliers)

    • Revenue Cycle

    • Carriers

    • Production Cycle

    • Banks

    • General Ledger and Reporting System

  • Purpose of Interactions: Ensures seamless transactions between organizations and their suppliers.

Overview of Basic Expenditure Cycle Activities

  • Four Key Activities:

    1. Ordering materials, supplies, and services

    2. Receiving materials, supplies, and services

    3. Approving supplier invoices

    4. Cash disbursements

  • Each activity can be subdivided into further sub-activities, essential for detailed process comprehension.

Involvement of Internal Entities

  • Involved Departments:

    • User Departments (initiating requests)

    • Purchasing (ordering materials)

    • Accounts Payable (invoice approval)

    • Cashier (disbursing payments)

Ordering Materials, Supplies, and Services

  • Initiation: Typically begins with a formal purchase requisition from the requesting user department.

    • Starts an audit trail for tracking expenditures.

Purchase Requisition and Order Creation

  • Key Relationships:

    • Each requisition leads to the creation of purchase orders by the Purchasing Department.

    • A blanket purchase order allows for multiple orders for the same items over time.

  • Database Relationships:

    • A single purchase requisition may generate multiple purchase orders, leading to a many-to-many relationship in the database.

Documentation of the Purchase Process

  • Copies of Purchase Order:

    • Sent to the Vendor, User Department, Receiving, Accounts Payable, and Purchasing to establish accountability and tracking.

Receiving Goods and Services

  • Receiving Report: Created upon receipt of goods, not for services. Requires supervisory approval in the user department for service receipts.

  • Comparison Data: Involves matching received items against packing slips and purchase orders.

Handling Issues with Received Goods

  • A debit memo may be issued for any discrepancies like damaged or unordered items, guiding inventory adjustments.

Roles of Various Documents in the Cycle

  • Packing slips, bills of lading, and invoices serve crucial roles in tracking and verifying transactions throughout the purchasing process.

    • Invoice Verification: Involves three-way matching of the vendor's invoice, purchase order, and receiving report to authorize payment.

Cash Disbursement Procedures

  • Cashier processes payments based on the approved voucher packages, which include multiple invoices to streamline payments to vendors.

  • Importance of Documentation: Each step needs careful documentation to maintain transparency and accuracy in financial accounting.