The expenditure cycle is defined as the set of activities associated
with the acquisition and payment for goods and services. These
activities include determining what needs to be purchased,
purchasing activities, receipt of goods, and payment to suppliers.
Most of the inputs to the spend cycle come from the sales cycle,
where purchasing demand is driven by the number and type of
customer orders (AccountingTool). The article that I chose for this
topic is “Business Activities That are Preformed in the Expenditure
Cycle”. a This article focuses on the entire process of the expenditure
cycle and the detailed information. The article indicates that the
expenditure cycle can cover up to four parts of the business activity.
First part would be the ordering. a Different individuals or
departments in a company keep track of their consumables and
create a purchase request when goods are running low. a Most
companies require purchasers to buy from a list of approved
suppliers, which limits unnecessary spending. a After an order is
placed, a company needs to receive and store its purchases. There is
always the possibility of physical goods being stolen, so the company
will track and estimate the arrival of packages to make sure they have
enough staff to handle them. In the third step, the company needs to
complete the approval of the invoice. The accounting department
compares the supplier invoices, receiving reports and original orders
to ensure that all goods they receive are in good condition. Cash
disbursement is the final step. To prevent the possibility of theft,
companies often have different departments or different employees
pay cash for vendor invoices. No matter who pays the cash, they have
a significant responsibility to research and mark the supporting
documentation for the payment (Garcia).
Because of the high potential for fraud and embezzlement
throughout the whole process, it is essential to have a well-developed
system in place. Doing so will help the company to make the
expenditure cycle more standardized and accessible. a The company
can have better control over the entire process. a Companies can rely
on an accounting information system to support and maximize the
efficiency of their expenditure cycle. a Throughout the expenditure
cycle, a well-designed AIS should provide sufficient controls to
ensure that the following objectives are achieved. a First, all
transactions are properly authorized and that all recorded
transactions are valid. a Second, all valid and authorized transactions
are accurately recorded. Third, assets are protected from loss or
theft. Fourth, all operations are executed effectively.
Reference:
Romney, M. B., Steinbart, P. J., Summers, S. L., & Wood, D. A. (2020).
Accounting Information Systems (15th ed.). Pearson Education (US).
Accounting Tools. a May 09, 2022. Expenditure Cycle Definition.
https://www.accountingtools.com/articles/expenditure-cycle
Garcia, Madison. a Business Activities That Are Preformed in the
Expenditure Cycle
https://smallbusiness.chron.com/business-activities-preformed-
expenditure-cycle-78018.html
