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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.

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the expenditure cycle purchasing and cash disbursements

The Expenditure Cycle: Purchasing and Cash Disbursements

12

UAA – ACCT 316 – Fall 2002

Accounting Information Systems

Dr. Fred Barbee

Chapter

main objective
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.
key decisions
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?
key decisions7
Key Decisions
  • Where should inventories and supplies be held?
  • How can the organization consolidate purchases across units to obtain optimal prices?
key decisions8
Key Decisions
  • How can information technology be used to improve both the efficiency and accuracy of the inbound logistics function?
key decisions9
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?
defined
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.
slide12

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

business activities
Business Activities
  • Order Goods
  • Receive and Store Goods
  • Pay for Goods
slide17

1.0

Order Goods

order goods activity 1
Order Goods (Activity 1)
  • The first major business activity in the expenditure cycle involves ordering inventory or supplies.
order goods activity 119
Order Goods (Activity 1)
  • What to purchase?
  • When to purchase?
  • How much to purchase?
  • From what supplier?
order goods activity 120
Order Goods (Activity 1)
  • Inventory control methods:
    • EOQ
    • MRP
    • JIT
mrp systems
MRP Systems
  • Schedule production to meet estimated sales need, thereby creating a stock of finished goods inventory.
jit systems
JIT Systems
  • Schedule production to meet customer demands, thereby virtually eliminating finished goods inventory.
order goods
Order Goods
  • What is a key decision?
    • determine vendor
  • What factors should be considered?
    • price
    • quality of materials
    • dependability in making deliveries
slide28

2.0

Receive and Store Goods

receive and store goods
Receive and Store Goods
  • The receiving department has two major responsibilities:
    • Deciding whether to accept a delivery
    • Verifying quantity and quality
slide32

3.0

Pay for Goods

pay for goods
Pay for Goods
  • The objective of accounts payable is to authorize payment only for goods and services that were ordered and actually received.
the third function of a well designed ais is to provide useful information for decision making

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

key decisions38
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.
key decisions39
Key Decisions
  • Decide whether purchase discounts should be taken.
  • Monitor cash flow needs to pay outstanding obligations.
other information needed
Other Information Needed
  • Efficiency and effectiveness of the purchasing department
  • Analyses of vendor performance such as on-time delivery, quality, etc.
other information needed41
Other Information Needed
  • Time taken to move goods from the receiving dock into production
  • Percentage of purchase discounts taken
slide43

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

control objectives
Control Objectives
  • Transactions are properly authorized.
  • Recorded transactions are valid.
  • Valid, authorized transactions are recorded.
  • Transactions are recorded accurately.
control objectives45
Control Objectives
  • Assets (cash, inventory, and data) are safeguarded from loss or theft.
  • Business activities are performed efficiently and effectively.
threats
Threats
  • Stockouts
  • Purchasing too many or unnecessary goods
  • Purchasing goods at inflated prices
  • Purchasing goods of inferior quality
threats48
Threats
  • Purchasing from unauthorized vendors
  • Kickbacks
  • Receiving unordered goods
  • Errors in counting goods
threats49
Threats
  • Theft of inventory
  • Failure to take available purchasing discounts
  • Errors in recording and posting purchases and payments
  • Loss of data
exposures
Exposures
  • Production delays and lost sales
  • Increased inventory costs
  • Cost overruns
  • Inferior quality of purchased goods
  • Inflated prices
exposures52
Exposures
  • Violation of laws or import quotas
  • Payment for items not received
  • Inaccurate inventory records
  • loss of assets
exposures53
Exposures
  • Cash flow problems
  • Overstated expenses
  • Incorrect data for decision making
control procedures
Control Procedures
  • Inventory control system
  • Vendor performance analysis
  • Approved purchase requisitions
  • Restricted access to blank purchase requisitions
control procedures56
Control Procedures
  • Price list consultation
  • Budgetary controls
  • Use of approved vendor lists
  • Approval of purchase orders
  • Prenumbered purchase orders
control procedures57
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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