case study 4-5 Pages + charts

Mbab4

romney_ais14_inppt_13.pptx

Home >Business & Finance homework help >Accounting homework help >case study 4-5 Pages + charts

Accounting Information Systems

Fourteenth Edition

Chapter 13

The Expenditure Cycle: Purchasing to Cash Disbursements

Chapter 13: The Expenditure Cycle: Purchasing to Cash Disbursements

Slide 1 - ‹#›

If this PowerPoint presentation contains mathematical equations, you may need to check that your computer has the following installed:

1) MathType Plugin

2) Math Player (free versions available)

3) NVDA Reader (free versions available)

Learning Objectives (1 of 2)

Discuss the basic business activities and related information processing operations in the expenditure cycle, explain the general threats to those activities, and describe the controls that can mitigate those threats.

Explain the process and key decisions involved in ordering goods and services, identify the threats to those activities, and describe the controls that can mitigate those threats.

Explain the process and key decisions involved in receiving goods and services, identify the threats to those activities, and describe the controls that can mitigate those threats.

Chapter 13: The Expenditure Cycle: Purchasing to Cash Disbursements

Slide 1 - ‹#›

Learning Objectives (2 of 2)

Explain the process and key decisions involved in approving supplier invoices, identify the threats to those activities, and describe the controls that can mitigate those threats.

Explain the process and key decisions involved in cash disbursements to suppliers, identify the threats to those activities, and describe the controls that can mitigate those threats.

Chapter 13: The Expenditure Cycle: Purchasing to Cash Disbursements

Slide 1 - ‹#›

Basic Expenditure Cycle Activities

Order materials, supplies, and services

Receive materials, supplies, and services

Approve supplier (vendor) invoice

Cash disbursement

Chapter 13: The Expenditure Cycle: Purchasing to Cash Disbursements

Slide 1 - ‹#›

At each of these cycle activity levels, accounting information may be affected as well as general ledger account information.

The expenditure cycle is concerned with transacting business between the organization and its suppliers (vendors) for goods and services.

Sometimes students can get confused in understanding if they are answering questions about the revenue or the expenditure cycle. Table 13-1 in the book is a good reference as it shows the comparison between the two cycles.

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

Key decisions

What is the optimal level of inventory?

Which suppliers provide the best quality at the best price?

How can IT be used to improve efficiency and accuracy of logistics?

How can we take advantage of vendor discounts?

How can we maximize cash flow?

Chapter 13: The Expenditure Cycle: Purchasing to Cash Disbursements

Slide 1 - ‹#›

Overall key decisions related to the expenditure cycle involve getting the inventory needed at a good price when the organization needs it.

Basically, the organization does not want to tie up too much money in inventory that will take a long time to use up, this is why logistics is so important and why IT can leverage this for companies to save money by not overbuying inventory, purchasing inventory of poor quality, or paying too much for inventory.

The Expenditure Cycle

13-6

Chapter 13: The Expenditure Cycle: Purchasing to Cash Disbursements

Slide 1 - ‹#›

The Expenditure Cycle

Activities and information processing related to:

Purchasing and payment of

Goods and services

Primary objective:

Minimize the total cost of acquiring and maintaining inventories, supplies, and the various services the organization needs to function

The Expenditure cycle has a symmetrical interdependence with the Revenue cycle (i.e. what is an expenditure for the company is a revenue to the vendor) E.g. Walmart requires suppliers to transmit invoices using EDI

13-7

Chapter 13: The Expenditure Cycle: Purchasing to Cash Disbursements

Slide 1 - ‹#›

Expenditure Cycle Organization

CEO

President

Vice President Finance

Controller

Accounts Payable (recording function)

Payroll

Cashier (cash handling function)

Vice President Manufacturing

Purchasing (authorization function)

Plant Manager

Receiving

Inventory Control

Shipping

13-8

Chapter 13: The Expenditure Cycle: Purchasing to Cash Disbursements

Slide 1 - ‹#›

General Threats and Controls

Threats

Control

Inaccurate or invalid master data

Unauthorized disclosure of sensitive information

Loss or destruction of data

Poor performance

1 a. Data processing integrity controls

1 b. Restriction of access to master data

1 c. Review of all changes to master data

2 a. Access controls

b. Encryption

3 a. Backup and disaster recovery procedures

4 a. Managerial reports

Chapter 13: The Expenditure Cycle: Purchasing to Cash Disbursements

Slide 1 - ‹#›

Expenditure Cycle Activities

Ordering materials, supplies, and services: PR, PO

Receiving materials, supplies, and services: Receiving report

Approving supplier invoices

Match of PO, Invoice, and receiving report

Voucher system

Cash disbursements

Payment discounts

EDI

Duplicate payments

13-10

Chapter 13: The Expenditure Cycle: Purchasing to Cash Disbursements

Slide 1 - ‹#›

Order Goods (Materials/Supplies) or Services Processing Steps

Identify what, when, and how much to purchase

Source document: purchase requisition

Choose a supplier

Source document: purchase order

Chapter 13: The Expenditure Cycle: Purchasing to Cash Disbursements

Slide 1 - ‹#›

At this activity stage of the expenditure cycle, the key objective is to identify exactly what to order, how much do you need, and when do you need it. It is essential in managing a supply chain that raw materials are accurately ordered and received in time; otherwise, these will cause issues and added expenses in the supply chain. There are three approaches to ordering:

Economic quantity ordered (EOQ) is used to minimize costs and stockouts. For example, stores may identify certain inventory items that are sold frequently and may have an EOQ that is different than an inventory item that is not sold as frequently.

Materials requirements planning (MRP) is based on forecast sales.

Just-in-time inventory (JIT) responds to actual sales (demand).

The key objective is to make sure that the purchase is authorized and that you receive what you ordered when you wanted it and that the goods are of good quality.

Ordering Goods/Services (1 of 2)

Threats

Controls

Stockouts and excess inventory

Purchasing items not needed

Purchasing items at inflated prices

Purchasing goods of poor quality

1 a. Perpetual inventory system

b. Bar-coding, RFID

c. Periodic physical counts

2 a. Perpetual inventory systems

b. Review and approval of purchase requisitions

c. Centralized purchasing

3 a. Price lists

b. Competitive bids

c. Review purchase orders

4 a. Use approved suppliers

b. review and approve purchases from new suppliers

c. Monitor product quality by supplier

d. hold purchasing managers responsible for rework and scrap cost

Chapter 13: The Expenditure Cycle: Purchasing to Cash Disbursements

Slide 1 - ‹#›

Ordering Goods/Services (2 of 2)

Threats

Controls

Unreliable suppliers

Purchasing from unauthorized suppliers

Kickbacks

5 a. Monitor supplier performance

b. Require quality certification

6 a. Purchase from approved suppliers

b. Review approval from purchases of new suppliers

c. EDI specific controls

7 a. Supplier audits

b. Prohibit gifts

c. Job rotation & mandatory vacations

d. Required disclosure of financial and personal interests in suppliers

Chapter 13: The Expenditure Cycle: Purchasing to Cash Disbursements

Slide 1 - ‹#›

Receiving Process

Goods arrive

Verify goods ordered against the purchase order (what, how much, quality)

Source document: receiving report

Chapter 13: The Expenditure Cycle: Purchasing to Cash Disbursements

Slide 1 - ‹#›

At this stage, when the goods are received into the warehouse, the company has a legal obligation to pay the vendor. That is why it is so important to make sure that:

The goods were authorized (check against a Purchase Order).

The goods received are what was ordered and in the correct quantity.

The goods are of good quality.

If there are problems in step 2, then there may be a back-order situation. For example, if five items were ordered but only three are received, then there is a backorder of two items. You would only want to pay the vendor for the items received. So if there is a back-order situation, the warehouse would need to make sure that this is documented for the accounting department (this would be shown on the packing slip of the quantity received as well as the receiving report normally).

If there is a problem with step 3, the goods are of poor quality, the merchandise should not be received and the vendor should be contacted to return the items.

At this stage, you would see an increase in the inventory general ledger account and the obligation (accounts payable) increase.

Receiving Goods or Services

Threats

Controls

Accepting unordered items

Mistakes in counting

Verifying receipt of services

Inventory theft

1 a. Authorized purchase orders needed before receiving goods

2 a. Bar codes or RFID

b. Receiving employees sign receiving report

c. Do not inform receiving of quantity ordered

3 a. Budget controls and audits

4 a. Restrict physical access to inventory

b. Document all inventory transfers

c. Segregate custody vs. receiving of inventory

Chapter 13: The Expenditure Cycle: Purchasing to Cash Disbursements

Slide 1 - ‹#›

Approve Supplier Invoice and Cash Disbursements

Match the supplier invoice to:

Purchase order

Receiving report

supplier invoice + purchase order + receiving report = voucher

Approve supplier invoice for payment

Source document: disbursement voucher

Pay vendor

Chapter 13: The Expenditure Cycle: Purchasing to Cash Disbursements

Slide 1 - ‹#›

Approve Supplier Invoice

Threats

Control

Errors in supplier invoice

Mistakes in posting to accounts payable

1 a. Verify invoice accuracy

b. Require detailed receipts for p-cards

c. Restrict access to supplier master data

2 a. Data entry edit controls

b. Reconcile detailed accounts payable records to the general ledger accounts payable account

Chapter 13: The Expenditure Cycle: Purchasing to Cash Disbursements

Slide 1 - ‹#›

P-cards are procurement cards that departments will sometimes use

Cash Disbursements

Threats

Controls

Failure to take discounts

Pay for items not received

Duplicate payments

Theft of cash

Check alteration

Cash flow problems

1 a. File invoices by due date to take advantage of discounts

2 a. Match supplier invoice to supporting documents (purchase order, receiving report)

3 a. Pay only original invoices

b. Cancel supporting document when payment is made

4 a. Physical security of checks

b. Separation of duties

c. Reconcile bank accounts

5 a. Check Protection machines

b. special inks / papers

6 a. Cash flow budget

Chapter 13: The Expenditure Cycle: Purchasing to Cash Disbursements

Slide 1 - ‹#›

Key Terms

Expenditure cycle

Economic order quantity (EOQ)

Reorder point

Materials requirement planning (MRP)

Just-in-time (JIT) inventory system

Purchase requisition

Purchase order

Blanket purchase order/blanket order

Vendor-managed inventory (VMI)

Kickbacks

Receiving report

Debit memo

Voucher package

Nonvoucher system

Voucher system

Disbursement voucher

Evaluated receipt settlement (ERS)

Procurement card

Imprest fund

Chapter 13: The Expenditure Cycle: Purchasing to Cash Disbursements

Slide 1 - ‹#›

Chapter 13: The Expenditure Cycle: Purchasing to Cash Disbursements

Slide 1 - ‹#›