I. Expenditure Cycle Concepts A.Purchase Requisitions B.Purchase Orders C.Receiving Reports D.Voucher Systems E.Invoice Verification
A. Purchase Requisitions A purchase requisition is an internal document created to request the procurement of something. They originate in stores or other departments within an organization. We better order these!
B. Purchase Orders Purchasing selects a vendor, then prepares a purchase order for the requisitioned goods. The purchase order identifies the vendor, confirms the goods ordered, quantity, price, delivery date, and payment terms. We will get these from Acme, Co.
C. Receiving Reports Purchase orders authorize the receiving department to accept delivery from a vendor. Blind counts help ensure that receiving actually count the goods received. A receiving report summarizes the goods received and accompanies them to stores.
D. Voucher Systems The real control over disbursements is a final review of documents evidencing the entire transaction prior to authorization of payment. In a strict voucher payable system, individual accounts for creditors need not be kept. Several vouchers may relate to the same creditor, as opposed to a single account in an accounts payable system. A voucher shows, among other things, the name and address of the vendor, a description of the invoice, total or net amount due, and accounts to be charged (distribution). Built-up voucher systems accumulate several invoices from the same vendor and pay these invoices with a single check.
E. Invoice Verification Invoices must be checked against receiving reports and original purchase orders prior to payment. Payment should only be approved when the above documents match, or the invoice has been satisfactorily reconciled to the other documents.
II. The Expenditure Cycle A.Requisitioning in Stores B.Order Processing in Purchasing C.Receiving D.Delivery Acknowledgement in Stores E.Invoice Verification in Purchasing F.Accounts Payable Prepares the Voucher Package G.Cash Disbursements H.General Ledger I.Internal Audit
A. Requisitioning in Stores Requests for purchases originate outside the purchasing department. Purchase requisitions arise in stores or other departments. Requisitions should be approved in the originating department. Purchasing has access to the requisition thru the purchase database. Prepare Requisition Processing Purchase Database
B. Order Processing in Purchasing Purchase requisitions may be overridden due to a lack of funds, improper authorization by the requesting department, etc. Purchasing selects a vendor using an approved vendor list or a bidding process. Accounts payable, the requesting department, and receiving all have access to the purchase order through the purchase database. Prepare Order Purchase Requisition Select Vendor Order Processing Purchase Order To Vendor Purchase Database Retrieve Purchase Requisition
C. Receiving Receiving accesses the purchase order and matches it with the vendor delivery. Receiving only accepts deliveries for which there is an existing purchase order. Blind counts are often used to force counters to actually count the items received. A receiving supervisor later verifies the quantity against the purchase order. Stores has access to this report thru the purchase database. Purchase Database Retrieve Purchase Order Purchase Order From Vendor Delivery Match to Purchase Order Processing Blind Count Enter Receipt Delivery To Stores
D. Delivery Acknowledgement in Stores The stores department acknowledges receipt of the delivery on the receiving report in the purchase database. Purchasing and accounts payable have access to the acknowledged report thru the purchase database. Purchase Database Retrieve Receiving Report Receiving Report Match to Delivery From Receiving Delivery Goods Receipt Processing
E. Invoice Verification in Purchasing Purchasing uses the purchase database to compare the purchase order, acknowledged receiving report, and vendor invoice for any discrepancies. Purchasing authorizes the invoice for payment once they are satisfied that the invoice is correct per the order and what was received. From Vendor Vendor Invoice Verification Purchase Database Vendor Invoice To Accounts Payable
F. Accounts Payable Prepares the Voucher Package The purchase requisition, purchase order, acknowledged receiving report, and approved vendor invoice provide the support for the preparation of a voucher. The voucher serves to summarize the purchase for entry on the records as a liability. From Purchasing Vendor Invoice Purchase Database Retrieve Documents Purchase Requisition Purchase Order Receiving Report Prepare Voucher Processing Accounts Payable or Voucher Register Voucher Check VoucherJournal Voucher To Cash Disbursements To General Ledger
G. Cash Disbursements Cash disbursements received the voucher package and check for signing. Cash disbursements maintains a check register and forwards a journal entry to general ledger. From Accounts Payable Voucher Check Sign Checks Voucher Check Cancel Voucher after Signing Check Post Check Register Voucher Check Control Total Forward to Payee To General Ledger
H. General Ledger General ledger receives the journal entry from accounts payable (Debit – Accounts payable and Credit – Cash) and compares it to the control total for cash disbursements. The journal entry is then posted into the general ledger. From Cash Disbursements Control Total From Accounts Payable Journal Voucher Compare Post General Ledger Processing General Ledger Control Total Journal Voucher
I. Internal Audit An independent reconciliation of the bank account is performed by internal audit. Bank Reconciliation Bank Statement Cancelled Checks From Bank Bank Reconciliation Check Register Bank Statement Cancelled Checks
III. Payroll Concepts A.Personnel B.Timekeeping C.Payroll D.Other Payroll Features E.Tax Forms
A. Personnel Personnel is responsible for placing people on the payroll, specifying rates of pay, authorizing deductions, and any changes payroll items. The personnel function is distinct from timekeeping and payroll preparation.
B. Timekeeping Timekeeping is responsible for the preparation and control of time reports and job time tickets. Timekeeping reconciles employee hours to job time summary reports received from production.
C. Payroll The payroll department is responsible for the actual computation and preparation of payroll. It should be noted that payroll is independent of timekeeping and personnel.
D. Other Payroll Features Separate imprest payroll account to facilitate reconciliations. Independent reconciliation of payroll bank account. Independent paymaster distributes checks (i.e. independent of personnel, timekeeping, and payroll).
E. Tax Forms a)Form 941 – Quarterly filing summarizing federal withholding, social security, and medicare taxes. b)Form W-2 – On or before Jan 31 an employee must provide employees with this wage and tax statement. c)Form W-3 – Summary form that accompanies copies of Forms W-2 sent to the federal government on or before Feb. 28. d)Form 1099 Misc – Documents contract services over a certain amount in a given year. e)Earnings statement – Statement summarizing payroll computations for an employees pay check.
IV. The Payroll Application System A.The Role of Personnel B.Payroll Processing C.Internal Audit and the Bank Reconciliation
A. The Role of Personnel PersonnelPayroll Authorization and Notification Authorization and Notification The authorization for placing people on the payroll should be separated from the record keeping that payroll performs.
2 Cash Disbursement Timekeeping Cost Distribution Payroll Accounts Payable General Ledger Job Time Summary From Production Job Time Summary Payroll Distribution Journal Voucher Employee Time Cards Reconcile Employee Time Cards Payroll Register Payroll Register Check Journal Voucher 1 Voucher 2 Voucher Check 1 Voucher Check is signed and deposited in imprest payroll bank account Compare B. Payroll Processing
C. Internal Audit and the Bank Reconciliation Internal audit received information directly from the bank and performs an independent reconciliation of the payroll bank account. BankInternal Audit Deposit Slips and Checks Deposit Slips and Checks Bank Statement Bank Statement
Summary Forms used in the expenditure cycle Steps of the expenditure cycle Payroll duties Possible Payroll Features Payroll Forms Steps in the payroll cycle