Chapter 13

The Accounts Payable/

Cash Disbursement (AP/CD)
Process

Accounting Information Systems 7e

Ulric J. Gelinas and Richard Dull

Copyright © 2008 Thomson Southwestern, a part of The Thomson Corporation. Thomson, the Star logo, and
South-Western are trademarks used herein under license.

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 Learning Objectives
• Describe the relationship between the AP/CD
process and its business environment.
• Summarize how various technologies, including e-
invoicing and e-payments can improve the
effectiveness of the AP/CD process.
• Depict the logical and physical characteristics of a
typical AP/CD process.
• Prepare a control matrix for a typical AP/CD process
including explanation of how business process
control plans can accomplish operations and
information process control goals.
 Process Definitions and Functions

• The accounts payable/cash disbursements (AP/CD)

process is an interacting structure of people,
equipment, methods, and controls that is designed
to accomplish the following primary functions:
1. Handle the repetitive work routines of the accounts
payable department and the cashier
2. Support the decision needs of those who manage
the accounts payable department and cashier
3. Assist in the preparation of internal and external
reports

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 AP/CD Horizontal
Perspective
Vendor VP finance

Controller Treasurer 1. Invoice

1. Invoice
3a. Payment
request
Received
(voucher)

Accounts payable from vendor

Cashier
4b. Payment
notice

3b. Payment
request notice

2. Accounts
4c. Payment
payable notice
notice

General ledger

5
4a. Payment

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 AP/CD Horizontal
Perspective
Vendor VP finance

Controller Treasurer 2. Invoice

1. Invoice
3a. Payment
request
notice sent
(voucher)

Accounts payable to general

Cashier
4b. Payment
notice
ledger
3b. Payment
request notice

2. Accounts
4c. Payment
payable notice
notice

General ledger

5
4a. Payment

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 AP/CD Horizontal
Perspective
Vendor VP finance

Controller Treasurer 3. Approved

1. Invoice
3a. Payment
request
voucher
(voucher)

Accounts payable (payment

Cashier
4b. Payment
notice
request) sent
to cashier
3b. Payment
request notice
(3a) and to
2. Accounts
general
4c. Payment
payable notice

General ledger
notice
ledger (3b).

5
4a. Payment

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 AP/CD Horizontal
Perspective
4. Payment
Vendor VP finance (e.g., check)
Controller Treasurer sent to vendor
1. Invoice
3a. Payment
request
by cashier (4a),
(voucher)

Accounts payable
paid voucher
4b. Payment
Cashier
(payment
notice
notice) returned
3b. Payment
request notice
to the accounts
payable
2. Accounts
4c. Payment
department
payable notice

General ledger
notice
(4b), payment
notice to the
4a. Payment
5 general ledger
(4c) 7
Vertical perspective-
AP/CD

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The AP/CD Process: Level 0 Diagram

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AP/CD Process Diagram 1:
Establish Payable

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AP/CD Process Diagram 2
Make Payment

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 Processing Non-Invoiced
Disbursements
• In some cases disbursements are not
invoiced, e.g., freight bills, rent, payroll,
etc.
• The handling of non-invoiced
disbursements depends on whether or not
a voucher system is used
• A voucher system prepares a voucher for
every expenditure from payroll to
purchases of raw materials
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 AP/CD Level 0 Data Flow Diagram
Processing Non-Invoiced Disbursements

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 Logical Data Descriptions for the
AP/CD Process
• Accounts payable master data. This data store is a repository of all
unpaid vendor invoices
– The data design should consider how the data will be processed
when the cash manager is deciding what payments to make
– For example, the manager may want to merge vendor invoices so
that the total amount due each vendor can be accumulated
– Alternatively, the manager might want to select specific invoices for
payment
• Cash disbursements data. The purpose of this data is to show, in
chronological sequence, the details of each cash payment made.
– Each record in this data normally shows the date the payment is
recorded, vendor identification, disbursement voucher number (if a
voucher process is used), vendor invoice number and gross invoice
amount, cash discount taken on each invoice, net invoice amount,
check amount, and check number.

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 Entity-
Relationship
(E-R)
Diagram
(Partial) for
the AP/CD
Process

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Technology Trends and Developments
• E-invoicing - the processing of invoices in
electronic form
– Scan documents
– Use purchasing cards (p-cards)
– Invoices can be submitted electronically
• E-payments - the electronic submission of
payments
– EDI and XML-based technologies
– Settled through the ACH network, wire
transfer, or credit card

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AP/CD Process: Systems Flowchart

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 AP/CD Control Matrix
Control Goals of the AP/CD Business Process

Control Goals of the Operations Process Control Goals of the Information Process

Ensure effectiveness of Ensure Ensure For vendor invoice inputs, For accounts For payment inputs, For accounts
operations: efficient security of ensure: payable master ensure: payable master
employ-ment resources data, ensure: data, ensure:
of resourc-es (cash,
(people, accounts
computers) payable
master data)

Recommended control plans A B IV IC IA UC UA IV IC IA UC UA

Present Controls

P-1: Independent validation of vendor P-1 P-1

invoices

P-2: Match invoice , purchase order, and P-2 P-2

receiving report

P-3: Tickler file of payments due P-3 P-3 P-3

P-4: Independent authorization to make P-4 P-4

payment

P-5: Agreement of run-to-run totals P-5 P-5 P-5 P-5

(reconcile input-output batch totals)

P-6: Digital signatures P-6 P-6 P-6 P-6

Missing controls

M-1 Tickler file of open purchase orders M-1 M-1

and receiving reports

M-2: Reconcile input-output batch totals M-2 M-2 M-2 M-2

M-3: Cash planning report M-3

M-4: Reconcile bank account M-4 M-4 M-4

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 Purchase Returns and
Allowances
• In some cases defective goods may be
returned or an allowance made for non-
conforming items
– This exception routine usually begins at the
point of inspecting and counting the goods or
at the point of validating vendor invoices
– Purchaser transmits a debit memo to the
vendor requesting the account adjustment
– The vendor responds with a credit memo
indicating the authorized account adjustment

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 AP/CD Fraud
• AP fraud usually • CD fraud is less
involve fictitious sophisticated
vendors and false – Usually involves check
fraud
invoices – Check fraud takes
– A dishonest employee many forms from
who has access to the stealing and passing
vendor file and stolen checks to
authorizes payment changing amounts on
legitimate checks or
– May embezzle amounts check forgery
refunded by vendors – CD fraud is becoming
– Human error is still a easier and more
leading cause of loss common with computer
duplication technology

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 Exposure to Loss and
Destruction of Resources
• Although the subject of fraud and
embezzlement is seductively interesting,
resource losses due to unintentional mistakes
and inadvertent errors are as costly as, or more
costly than those caused by intentional acts of
malfeasance
– Making payments for incorrect or larger amounts
– Paying the wrong vendor
– Paying the same invoice twice

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 Summary
• A/P is nearly identical in all
organizations – e.g. three-way match
• One area of attempted fraud
• Electronic invoicing/payment is
becoming more commonplace
• One area that can be outsourced to
foreign countries

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