Purchases: Expenditures Processes and Controls

Topics: Invoice, Accounts receivable, Accounts payable Pages: 32 (10156 words) Published: October 19, 2014

CHAPTER 9: Expenditures Processes and Controls – Purchases


1.When the company is a vendor, goods flow into the company and cash is paid out.

2.Companies in the same line of business are not likely to have many differences in their purchasing habits.

3.The purchasing process starts when the purchase invoice is submitted by the vendor.

4.A purchase order is essentially an internal document, one that does not go outside the company, whereas a purchase requisition is an external document, which will be presented to an entity outside the company.

5.A purchase requisition is essentially an internal document, one that does not go outside the company, whereas a purchase order is an external document, which will be presented to an entity outside the company.

6.The use of a blind purchase order forces the receiving clerk to perform an independent check of the quantity and quality of the delivery.

7.A company is not obligated to pay for goods until 30 days after the goods are received.

8.Even though a company has an obligation to pay for goods as soon as the goods are received, it is common to not record the actual liability until the invoice is received.

9.It is necessary for the purchasing department to set up the proper procedures to avoid problems related to cutoff issues.

10.The accounts payable department keeps copies of purchase orders and receiving reports, that will be compared to the related invoice, to be sure that the invoices represent goods that were ordered and received.

11.The accounting department is responsible for implementing internal controls over each business process.

12.Independent reconciliation of the accounts payable subsidiary ledger to the general ledger control account will help to assure that all inventories has been properly recorded.

13.Independent reconciliation of the periodic inventory counts and the inventory ledger and the general ledger will help to assure that inventory is being properly accounted for.

14.For a number of different reasons, a company may find it necessary to reject goods received which will start the purchase returns process.

15.The cash disbursement process must be designed to ensure that the company appropriately records all accounts payable transactions.

16.Most companies conduct business transactions with checks so that a written record is established for cash disbursements.
17.Copies of invoices should be filed in the account in alphabetic order by name of the vendors.

18.When an invoice is paid, it should be canceled to indicate that it has been paid.

19.When preparing the cash disbursement journals, it is important that the records have the actual date of cash disbursement, as is shown on the check.

20.Cash should be periodically verified by comparing the balance in the check book with the balance in the cash account in the general ledger.

21.Cash should be periodically verified by comparing the cash balance with the bank statement.

22.Only the purchasing department should authorize the processing of a cash disbursement transaction.

23.The authorization of a cash disbursement occurs when the accounts payable department matches the purchase order, receiving report, and the invoice, and then forwards the matched documents to the cash disbursements department.

24.Designated members of management should be given the responsibility for authorizing the actual payments and sign their signatures on the face of the check.

25.If the purchasing, receiving, accounts payable, and cash disbursements processes are completed by the same individuals, the internal controls will be stronger because someone in the company will have an overall view of company activities.

26.In order to institute an automated matching system, all of the relevant...
Continue Reading

Please join StudyMode to read the full document

You May Also Find These Documents Helpful

  • Essay on Threats and Controls in the Expenditure Cycle
  • control Essay
  • Capital Expenditure and Revenue Expenditure Essay
  • Essay about Unix Processes & Job Control
  • Expenditure Cyle Essay
  • Essay about Processes
  • internal control Essay

Become a StudyMode Member

Sign Up - It's Free