EXPENDITU

RE CYCLE

Prepared by: Christianne Nicole Ramos

Expenditure
Cycle

a recurring set of business activities and related

data processing operations associated with the
purchase of and payment for goods and services.
its objective is to convert the organizations cash
into the physical materials and the human
resources it needs to function

Subsystems
a
b
c

Purchases processing

Cash disbursement
s
Payroll processing

Fixed asset

PURCHASES PROCESSING
SUBSYSTEM

DFD for purchases

processing

CASH DISBURSEMENTS
SUBSYSTEM

DFD for cash

disbursements

Expenditure
cycle
controls
Transactions
authorization
a

Segregation of duties

Supervision

Accounting records

Access controls

Independent verification

Transaction
authorization
Purchases processing

Inventory control is
responsible for inventory
replenishment through
purchase requisition

Cash disbursements

AP function authorizes
cash disbursements via
cash disbursements
voucher

Segregation of
duties
Segregation of inventory control from
the warehouse

Segregation of the general ledger

from the cash disbursements

Supervision

Failure to properly inspect the assets

Theft of assets

Accounting
records
Its objective is to maintain an audit trail

adequate for tracing a transaction from its

source document to the financial
statements
AP Subsidiary Ledger
Voucher register
Check register
General ledger

Accounting
records
Expenditure cycle must be designed to
provide supporting information
Purchase requisition file
Purchase order file
Receiving report file

Access controls
Direct access

Control access to
physical access

Locks
Alarms
Registered access to
areas that contain
inventories and cash

Indirect access

Limit access

Independent
verification
By Accounts Payable By GL Department
PO should reconcile with
PR
Receiving report should
reconcile with PO
AP clerk verifies the
prices on the invoice are
reasonable compared to
the expected prices on
the PO

General ledger
function must verify
that:

total obligations
recorded = total
inventories received
Total reductions in AP
= total cash
disbursements

Manual
purchases
processing

Purchase
System
Begins in Inventory
Control when inventory
levels drop to reorder
levels

A purchase requisition (PR)

is prepared and copies
sent to Purchasing and
Accounts Payable (A/P)

Purchasing prepares a
purchase order (PO) for
each vendor and sends
copies to Inventory Control,
A/P, and Receiving

Purchase
UponSystem
receipt, Receiving
counts and inspects the
goods.

A blind copy of the PO is

used to force workers to
count the goods.

A receiving report is
prepared and copies sent
to the raw materials
storeroom, Purchasing,
Inventory Control, and
A/P.

Purchase
System
A/P eventually receives

copies of the PR, PO,

receiving report, and the
suppliers invoice.

A/P reconciles these

documents, posts to the
purchases journal, and
records the liability in the
accounts payable
subsidiary ledger.

Purchase
System
A/P periodically
summarizes the entries in

the purchases journal as a

journal voucher which is
sent to the General Ledger
(G/L) department.
Inv-Control or Purchases DR
Accts Payable-Control CR

A/P also prepares a cash

disbursements voucher
and posts it in the voucher
register.

Purchase
G/LSystem
department:

posts from the

accounts payable
journal voucher to the
general ledger
reconciles the
inventory amount with
the account summary
received from
inventory control