The Expenditure Cycle

Part 1: Purchases and Cash Disbursement Procedures

 CONCEPTUAL SYSTEM
Purchases Processing Procedures

• Monitor Inventory Records

• Prepare Purchase Orders

• Receiving Goods

• Update Inventory Records

• Set Up Accounts Payable

 VOUCHERS PAYABLE SYSTEM

• Post to General Ledgers

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The Cash Disbursements System

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The Cash Disbursements System
• Identify Liablities Due
-identify items that have come due
-sends payment approval in the form of a voucher packet

• Prepare Cash Disbursement

-prepares a check and record in the check register (cash disbursement journal)

• Update AP Record
-removes the liability by debiting the AP subsidiary account
-account summary is prepared and sent to general ledger function

• Post to General Ledger

-receives the journal voucher
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Expenditure Cycle Controls

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 Computer-Based Purchases and
Cash Disbursements Applications
 DATA PROCESSING: STEP 1
• Open purchase requisition file

• Inventory subsidiary record, which is then flagged “ON ORDER”

• System sorts open purchased requisition file by vendor and consolidate it to single requisition

Purchasing Department
-send copies of PO to:
• Vendor
• AP
• Data processing
• Purchasing debt file
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 3 Alternatives
Authorizing & Ordering
Inventories
-Automatically prepare PO documents and send it to purchasing dept for review & signing
-Purchasing agent now mails approved POS to vendor and to other internal users
• Directing POS to vendor & internal users
• This does not go to purchasing dept, system produces transaction list of items ordered to be reviewed by
purchasing agent
• Electronic data interchange
• This produces NO PHYSICAL POS; thus, computer now does the buying & selling via
telecommunications link
• No human intervention is happening in this alternative
STEP 2
PO sent to data processing
open PO file -> PO requisition file

Receiving department
-upon arrival of goods,
receiving clerk
-prepares receiving report
-send a copy to
• store (w/ goods)
• purchasing
• data processing
Step 3
The batch program updates inventory subsidiary file
• remove “on order flag”
• calculate total of inventory receipts-used in general ledger update
procedure
• open PO file -> closed PO file
Accounts payable Department
AP clerk
• reconciles w/ supporting document-previously placed in AP pending file
• prepares voucher file and sent it to data processing
STEP 4
Voucher file (from voucher documents)
• validates voucher records against valid vendor file and adds
them to voucher register
• Batch totals posted to AP control account in general ledger
Cash Disbursement
Procedures
Cash Disbursement Procedures
• Data Processing Department

• Cash Disbursment Department

• Accounts Payable Department

Control Implications
AUTOMATED SYSTEM
• Improved Inventory Control
• Better Cash Management
• Time Lag
• Purchasing Bottleneck
• Excessive Paper Documents
REENGINEERED
SYSTEM
• Segregation of Duties
• Accounting Records
and Access Controls