Chapter 4-1 The Islamic University of Gaza Accounting Information System The Expenditure Cycle : Purchases and Cash Disbursements Procedures Dr. Hisham Madi

Chapter 4-2 Computer-Based Purchases and Cash Disbursements Applications  CBAS technology can be viewed as a continuum with two extremes:  automation - use technology to improve efficiency and effectiveness  reengineering – use technology to restructure business processes and firm organization

Chapter 4-3 Computer-Based Purchases and Cash Disbursements Applications Automating Purchases Procedures Using Batch Processing Technology Data Processing Department: Step 1  The purchasing process begins in the data processing department, where the inventory control function is performed.  When inventories are reduced the system determines if the affected items in the inventory subsidiary file have fallen to their reorder points.

Chapter 4-4 Computer-Based Purchases and Cash Disbursements Applications Purchasing Department Alternative one  System automatically prepares the PO documents and sends them to the purchasing department for review and signing.  The purchasing agent then mails the approved POs to the vendors and distributes copies to other internal users. Alternative two  Distributing the POs directly to the vendors and internal users, thus bypassing the purchasing department completely

Chapter 4-5 Computer-Based Purchases and Cash Disbursements Applications Alternative three Electronic Data Interchange  The computer systems of both the buying and selling companies are connected via a dedicated telecommunications link.

Chapter 4-6 Computer-Based Purchases and Cash Disbursements Applications Data Processing Department: Step 2  a copy of the PO is sent to data processing and used to create a record in the open PO file. Receiving Department  When the goods arrive from vendors, the receiving clerk prepares a receiving report and sends copies to the stores (with the goods), purchasing, AP, and data processing Data Processing Department: Step 3  The data processing department creates the receiving report file from data provided by the receiving report documents.

Chapter 4-7 Computer-Based Purchases and Cash Disbursements Applications Data Processing Department: Step 3  Then a batch program updates the inventory subsidiary file from the receiving report file.  The program removes the ‘‘On Order’’ flag from the updated inventory records and calculates batch totals of inventory receipts Accounts Payable  When the AP clerk receives the supplier’s invoice, he or she reconciles it with the supporting documents that were previously placed in the AP pending file  The clerk then prepares a voucher, files it in the open voucher file, and sends a copy of the voucher to data processing.

Chapter 4-8 Computer-Based Purchases and Cash Disbursements Applications Data Processing Department: Step 4  The voucher file is created from the voucher documents. A batch program validates the voucher records against the valid vendor file and adds them to the voucher register

Chapter 4-9 Computer-Based Cash Disbursements Data Processing Department  the system scans for vouchers currently due  Checks are printed for these items, and each check is recorded in the check register  Records these checks in the check register  Batch totals of closed AP and cash disbursements are prepared for the general ledger update procedure.

Chapter 4-10 Computer-Based Cash Disbursements Cash Disbursements Department  The cash disbursements clerk reconciles the checks with the transaction listing and submits the negotiable portion of the checks to management for signing.  The checks are then mailed to the suppliers. One copy of each check is sent to AP Accounts Payable Department  Upon receipt of the check copies, the AP clerk matches them with open vouchers

Chapter 4-11 REENGINEERING THE PURCHASES/CASH DISBURSEMENTS SYSTEM Data Processing The following tasks are performed automatically.  The inventory file is searched for items that have fallen to their reorder points.  A record is entered in the purchase requisition file for each item to be replenished  Requisitions are consolidated according to vendor number.  Vendor mailing information is retrieved from the valid vendor file.  Purchase orders are prepared and added to the open PO file.  A transaction listing of purchase orders is sent to the purchasing department for review.

Chapter 4-12 REENGINEERING THE PURCHASES/CASH DISBURSEMENTS SYSTEM Receiving Department  the receiving clerk accesses the open PO file in real time by entering the PO number taken from the packing slip. Data Processing  Quantities of items received are matched against the open PO record, and a Y value is placed in a logical field to indicate the receipt of inventories.  A record is added to the receiving report file.  The inventory subsidiary records are updated to reflect the receipt of the inventory items.

Chapter 4-13 REENGINEERING THE PURCHASES/CASH DISBURSEMENTS SYSTEM  The general ledger inventory control account is updated.  The record is removed from the open PO file and added to the open AP file, and a due date for payment is established.

Chapter 4-14 REENGINEERING THE PURCHASES/CASH DISBURSEMENTS SYSTEM  Each day, the DUE DATE fields of the AP records are scanned for items due to be paid  Checks are automatically printed, signed, and distributed to the mail room for mailing to vendor  vendors receive payment by electronic funds transfer  The payments are recorded in the check register file.

Chapter 4-15 REENGINEERING THE PURCHASES/CASH DISBURSEMENTS SYSTEM  Items paid are transferred from the open AP file to the closed AP file.  The general ledger AP and cash accounts are updated.  Reports detailing these transactions are transmitted via terminal to the AP and cash disbursements departments for management review and filing.

Chapter 4-16 The Automated System  Improving ability to manage inventory needs.  Inventory requirements are detected as they arise and are processed automatically.  As a result, the risks of accumulating excessive inventory or of running out of stock are reduced  With this advantage, however, comes a control concern.  Program errors or flawed inventory models can cause firms to find themselves suddenly inundated with inventories or desperately short of stock.

Chapter 4-17 The Automated System Better Cash Management  The automated system promotes effective cash management by scanning the voucher file daily for items due, thus avoiding early payments and missed due dates.  By writing checks automatically, the firm reduces labor cost, saves processing time, and promotes accuracy

Chapter 4-18 The Automated System To control against unauthorized payments  voucher file should be validated by comparing the vendor number on the voucher against the valid vendor file. Time Lag.  A lag exists between the arrival of goods in the receiving department and recording inventory receipts in the inventory file  When sales clerks do not know the current status of inventory, sales may be lost

Chapter 4-19 The Automated System Excessive Paper Documents  All operations departments create documents, which are sent to data processing, and which data processing must then convert to magnetic media.  Paper documents add costs because they must be purchased, stored, prepared, handled by internal mail carriers, and converted by data processing personnel

Chapter 4-20  it uses real-time procedures and direct access files to shorten the lag time in record keeping.  It achieves a significant reduction in paper documents by using digital communications between departments and by digitally storing records The Reengineered System

Chapter 4-21 Control Implications  This system removes the physical separation between authorization and transaction processing.  Computer programs authorize and process POs as well as authorize and issue checks to vendors.  The system provides management with detailed transaction listings and summary reports The Reengineered System

Chapter 4-22 Accounting Records And Access Controls.  Advanced systems maintain accounting records on digital storage media, with little or no hard-copy backup.  Sarbanes-Oxley legislation requires organization management to implement adequate control security measures to protect accounting records from unauthorized access and destruction The Reengineered System