Chapter 5Expenditure Cycle Applications

Expenditure Documents

i. Purchase Requisitions

ii. Purchase Orders

iii. Receiving Report

iv. Voucher Systems

v. 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.

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

RequisitionFile Purchase

order detail file

Computer Files During Expenditure Cycle

Transaction File

PendingInvoice File

Voucher fileOpen 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

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