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The Expenditure Cycle: Purchasing and Cash Disbursements






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The Expenditure Cycle: Purchasing and Cash Disbursements. 12. UAA – ACCT 316 – Fall 2002 Accounting Information Systems Dr. Fred Barbee. Chapter. The Primary Objective. Main Objective.
The Expenditure Cycle: Purchasing and Cash Disbursements

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Slide 1

The Expenditure Cycle: Purchasing and Cash Disbursements

12

UAA – ACCT 316 – Fall 2002

Accounting Information Systems

Dr. Fred Barbee

Chapter

Slide 3

The Primary Objective

Slide 4

Main Objective

  • The primary objective of the expenditure cycle is to minimize the total cost of acquiring and maintaining inventories, supplies, and the various services necessary for the organization to function.

Slide 5

Key Decisions of the Cycle

Slide 6

Key Decisions

  • What is the optimal level of inventory and supplies to carry?

  • Which suppliers provide the best quality and service at the best prices?

Slide 7

Key Decisions

  • Where should inventories and supplies be held?

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

Slide 8

Key Decisions

  • How can information technology be used to improve both the efficiency and accuracy of the inbound logistics function?

Slide 9

Key Decisions

  • Is sufficient cash available to take advantage of any discounts suppliers offer?

  • How can payments to vendors be managed to maximize cash flow?

Slide 10

The Expenditure Cycle – Defined

Slide 11

Defined

  • The expenditure cycle is a recurring set of business and related information processing operations associated with the purchase of and payment for goods and services.

Slide 12

The first function of a well-designed AIS is to support the effective performance of the organization’s business activities.

Slide 13

The Expenditure Cycle – Business Activities

Slide 15

Business Activities

  • Order Goods

  • Receive and Store Goods

  • Pay for Goods

Slide 16

Business Activities – Up Close and Personal

Slide 17

1.0

Order Goods

Slide 18

Order Goods (Activity 1)

  • The first major business activity in the expenditure cycle involves ordering inventory or supplies.

Slide 19

Order Goods (Activity 1)

  • What to purchase?

  • When to purchase?

  • How much to purchase?

  • From what supplier?

Slide 20

Order Goods (Activity 1)

  • Inventory control methods:

    • EOQ

    • MRP

    • JIT

Slide 21

What is the major difference between MRP and JIT?

Slide 22

MRP Systems

  • Schedule production to meet estimated sales need, thereby creating a stock of finished goods inventory.

Slide 23

JIT Systems

  • Schedule production to meet customer demands, thereby virtually eliminating finished goods inventory.

Slide 24

Documents and Procedures

Slide 26

Order Goods

  • What is a key decision?

    • determine vendor

  • What factors should be considered?

    • price

    • quality of materials

    • dependability in making deliveries

Slide 28

2.0

Receive and Store Goods

Slide 30

Receive and Store Goods

  • The receiving department has two major responsibilities:

    • Deciding whether to accept a delivery

    • Verifying quantity and quality

Slide 32

3.0

Pay for Goods

Slide 34

Pay for Goods

  • The objective of accounts payable is to authorize payment only for goods and services that were ordered and actually received.

Slide 36

Key Decisions and Information Needs

Slide 37

The third function of a well-designed AIS is to provide useful information for decision making.

Slide 38

Key Decisions

  • Determine when and how much additional inventory to order.

  • Select the appropriate vendors from whom to order.

  • Verify the accuracy of vendor invoices.

Slide 39

Key Decisions

  • Decide whether purchase discounts should be taken.

  • Monitor cash flow needs to pay outstanding obligations.

Slide 40

Other Information Needed

  • Efficiency and effectiveness of the purchasing department

  • Analyses of vendor performance such as on-time delivery, quality, etc.

Slide 41

Other Information Needed

  • Time taken to move goods from the receiving dock into production

  • Percentage of purchase discounts taken

Slide 42

Control Objectives, Threats, and Procedures

Slide 43

The second function of a well-designed AIS is to provide adequate controls to ensure the firm meets its objectives.

Slide 44

Control Objectives

  • Transactions are properly authorized.

  • Recorded transactions are valid.

  • Valid, authorized transactions are recorded.

  • Transactions are recorded accurately.

Slide 45

Control Objectives

  • Assets (cash, inventory, and data) are safeguarded from loss or theft.

  • Business activities are performed efficiently and effectively.

Slide 46

Threats to the Expenditure Cycle

Slide 47

Threats

  • Stockouts

  • Purchasing too many or unnecessary goods

  • Purchasing goods at inflated prices

  • Purchasing goods of inferior quality

Slide 48

Threats

  • Purchasing from unauthorized vendors

  • Kickbacks

  • Receiving unordered goods

  • Errors in counting goods

Slide 49

Threats

  • Theft of inventory

  • Failure to take available purchasing discounts

  • Errors in recording and posting purchases and payments

  • Loss of data

Slide 50

Expenditure Cycle Exposures

Slide 51

Exposures

  • Production delays and lost sales

  • Increased inventory costs

  • Cost overruns

  • Inferior quality of purchased goods

  • Inflated prices

Slide 52

Exposures

  • Violation of laws or import quotas

  • Payment for items not received

  • Inaccurate inventory records

  • loss of assets

Slide 53

Exposures

  • Cash flow problems

  • Overstated expenses

  • Incorrect data for decision making

Slide 54

Expenditure Cycle Control Procedures

Slide 55

Control Procedures

  • Inventory control system

  • Vendor performance analysis

  • Approved purchase requisitions

  • Restricted access to blank purchase requisitions

Slide 56

Control Procedures

  • Price list consultation

  • Budgetary controls

  • Use of approved vendor lists

  • Approval of purchase orders

  • Prenumbered purchase orders

Slide 57

Control Procedures

  • Prohibition of gifts from vendors

  • Incentives to count all deliveries

  • Physical access control

  • Recheck of invoice accuracy

  • Cancellation of voucher package


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