The expenditure cycle for companies is important in order to maintain
sufficient inventory for the demand of the company. There are four
components to the expenditure cycle which include the ordering of
goods and services, receiving said orders, approving the invoices and
paying the invoices (Milano, 2020). This cycle should be integrated
with the AIS for the company to ensure that the expenditure cycle is
being done correctly. Without certain controls in place, there is a
possibility for material misstatement in this cycle. Since companies
purchase a large amount of goods and services, the tracking of those
goods, as well as the invoices for those goods is incredibly important
when looking at the accounting system for a company. The third and
fourth step of this cycle is the approving and paying of invoices.
Without the use of AIS, there is a possibility for either the approval to
be missed, or for the incorrect amount to be paid. For instance:
imagine a company orders a large pallet of generators and records the
purchase for the original quoted amount of the generators. Once the
generators arrive, the warehouse discovers that two of the ordered
generators have not arrived. From here the warehouse
employee/manager should check the invoice, approve it ONLY for
the amount received and then turn it in for payment, with a note as to
why the approved invoice amount is less than the original purchase
amount. If this is not done, the entirety of the invoice could be paid
without having received all the product.
Milano, S. (2020, December 1). What is an expenditure cycle? Small
Business - Chron.com. https://smallbusiness.chron.com/expenditure-
cycle-48093.html
