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. 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. 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. 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.
EXPENDITURE CYCLE TRANSACTIONS AND DOCUMENTS During the expenditure cycle the following transactions are routinely recorded. –Credit purchase –Purchase return –Cash disbursement
Purchase Returns When an organization returns the purchase items to the vendor it is called purchase returns. This transaction occurs because of the following reasons: –If the buyer receives un requested items. –If the buyer received excessive number of items then. –If the buyer receives low quality goods. The document, which is used to record the purchase returns, is called the Debit Memo.
EXPENDITURE CYCLE REPORTS During the expenditure cycle three types of reports are prepared which the following diagram can explain. OPEN INVOICES REPORT VOUCHER AGING REPORT CASH REQUIREMENT REPORT EXPENDITURE CYCLE REPORTS CONTROL REPORTS REGISTER SPECIAL PURPOSE REPORTS
CONTROL REPORTS The accountants use these reports to ensure that all the transactions have been recorded properly and no transaction has been omitted during processing and the amount entered against each transaction is correct. In a computerized system the control report shows cash totals and record counts in order to detect errors. These reports are used to monitor the accuracy of the data entry.
SPECIAL PURPOSE REPORT Special purpose reports in he expenditure cycle help managers schedule payments to vendors. It includes following reports. Open invoices report Voucher aging report Cash requirement report
OPEN INVOICES REPORT An open invoice report and lists unpaid vendor invoices as of the date of the report. It lists the invoices received from each vendor and the amounts owed on each invoice.
VOUCHER AGING REPORT A voucher aging report summarizes vouchers by how long they have existed. Vendor invoices that remain unpaid for an excessive length of time may damage a firm’s business relationship with the vendor. They may also harm the firm’s credit rating, making it difficult to purchase on credit. Frequently, old unpaid invoices are a result of disagreements with the vendor.
CASH REQUIREMENT REPORT It is that type of special purpose report which lists the vouchers which are to be paid on due date. It also shows that which of the invoices are to be paid immediately in order to get discounts. This report also shows the effect of paying these invoices on the cash balance.
REGISTERS That type of report, which shows the list of all the transactions of similar types during a processing period. A register in a manual system is equivalent to special journal. e.g. cheque register etc…
Receipts file Master File Requisition File Purchase order detail file Computer Files During Expenditure Cycle Transaction File Pending Invoice File Voucher file Open Purchase order file
MASTER FILE The vendor’s master file contains the record of approved suppliers. The primary key for this file is the vendor ID. This file also contains vendors name, discount terms, payment terms and the address of the vendors Some computerized master files of vendors also contain the history of the past transactions
TRANSACTION FILES During the expenditure cycle certain transactions files are also used to record and process the transactions. Some transactions files during the expenditure Cycle are the following: –Requisition File –Open Purchase order File –Purchase order detail File –Receipt File –Pending Invoices File –Voucher File
Continu….. a. REQUISITION FILE This transaction file contains the record of the items, which are requested to be purchased by some authorized person in an organization. This transaction files acts as an input to the purchasing department. b. OPEN PURCHASE ORDER FILE This transaction file contains the record of those purchase order, which has been mailed to the vendors. Here the primary key is the purchase Order Number.
Continu….. c. PURCHASE ORDER DETAIL FILE This transaction file contains the record of purchase order detail. It contains the record of all the items in the purchase orders. d. RECEIPT FILE This transaction file contains the record of all the items, which has been received from the vendors. It contains the record of each purchase order and the items, which have been ordered.
Continu….. e. PENDING INVOICE FILE That transaction file which contains the record of vendors provides before receiving the goods. f. VOUCHER FILE The transaction file, which contains the record of each unpaid vouchers. It also contains the record of purchase order, pending invoices and receipts records