Accounting Information System 3

Topics: Procurement, Inventory, Computer program Pages: 9 (1497 words) Published: January 13, 2011
Chapter 5 The Expenditure Cycle Part 1: Purchases and Cash Disbursements Procedures Accounting Information Systems, 5th edition James A. Hall

COPYRIGHT © 2007 Thomson South-Western, a part of The Thomson Corporation. Thomson, the Star logo, and South-Western are trademarks used herein under license

Objectives for Chapter 5
• Tasks performed during purchases and cash disbursement processes • Departments involved in purchases and cash disbursement activities and the flow of these transactions through the organization • Documents, journals, and accounts that provide audit trails, promote the maintenance of records, and support decision making and financial reporting • Risks associated with purchase and cash disbursements activities and the controls that reduce these risks • Operational features and the control implications of technology used in purchases and cash disbursement systems

Purchase Requisition 1


Cash Disbursements 5

Receiving/ Inspection 3

Accounts Payable 4


Goals of the Expenditure Cycle
• The goal of providing needed resources to organization can be broken down into several objectives: – – – – – – – purchase from reliable vendors purchase high quality items obtain best possible price purchase only items that are properly authorized have resources available when they are needed receive only those items ordered ensure items are not lost, stolen, or broken – pay for the items in a timely manner

DFD of Purchases System

A Manual Purchases System
• Begins in Inventory Control when inventory levels drop to reorder levels • A purchase requisition (PR) is prepared and copies to sent to Purchasing and Accounts Payable (A/P) • Purchasing prepares a purchase order (PO) for each vendor and sends copies to Inventory Control, A/P, and Receiving


A Manual Purchases System
• Upon receipt, Receiving counts and inspects the goods.
– A blind copy of the PO is used to force workers to count the goods.

• A receiving report is prepared and copies sent to the raw materials storeroom, Purchasing, Inventory Control, and A/P.

A Manual Purchases System
• A/P eventually receives copies of the PR, PO, receiving report, and the supplier’s invoice. • A/P reconciles these documents, posts to the purchases journal, and records the liability in the accounts payable subsidiary ledger.

A Manual Purchases System
• A/P periodically summarizes the entries in the purchases journal as a journal voucher which is sent to the General Ledger (G/L) department.

Inv-Control or Purchases


Accts Payable-Control CR • A/P also prepares a cash disbursements voucher and posts it in the voucher register.


A Manual Purchases System
• G/L department: – posts from the accounts payable journal voucher to the general ledger – reconciles the inventory amount with the account summary received from inventory control

Manual Purchases Flowchart

DFD of Cash Disbursements System


Manual Cash Disbursements System
• Periodically, A/P searches the open vouchers payable file for items with payments due: – A/P sends the voucher and supporting documents to Cash Disbursements – A/P updates the accounts payable subsidiary ledger

Manual Cash Disbursements System
• Cash Disbursements:
– prepares the check – records the information in a check register (cash disbursements journal) – returns paid vouchers to accounts payable, mails the check to the supplier – sends a journal voucher to G/L: Accounts Payable DR Cash CR

Manual Cash Disbursements System
• G/L department receives:
– the journal voucher from cash disbursements – a summary of the accounts payable subsidiary ledger from A/P

• The journal voucher is used to update the general ledger. • The accounts payable control account is reconciled with the subsidiary summary.


Cash Disbursements System

Computer-Based Accounting Systems
• CBAS technology can be viewed as a continuum with...
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