Expenditure Cycle: Purchases and Cash Disbursement Procedures

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Questions and Answers

What is the primary purpose of a purchase requisition?

To track the delivery of ordered items

To formally order items from a vendor

To approve a purchase order

To request the purchase of inventory items (correct)

What is a key difference between a purchase requisition and a purchase order?

The date needed for the items

The terms of the purchase (correct)

The purchasing agent's signature

The vendor's name and number

Which department is responsible for preparing a purchase order?

Supplier's department

Accounting department

Purchasing department (correct)

Inventory management

What information is included in both a purchase requisition and a purchase order?

Date ordered, prepared by, approved by, total amount Signup and view all the answers

What is the primary difference between a purchase requisition and an internal document?

A purchase order is an external document, while a purchase requisition is internal Signup and view all the answers

What is the primary trigger for initiating a purchase requisition?

When inventories are depleted or raw materials are used for production Signup and view all the answers

What is the purpose of a valid vendor file?

To prevent fraudulent transactions Signup and view all the answers

What is the output of combining multiple purchase requisitions?

A purchase order Signup and view all the answers

What is the primary function of the inventory control department in the purchase system?

To generate purchase requisitions Signup and view all the answers

What is the purpose of the inventory subsidiary ledgers in the purchase system?

To prepare purchase requisitions Signup and view all the answers

What is the characteristic of a conceptual system in the context of purchases and cash disbursement?

It is technology-neutral and can be applied in both manual and automated systems Signup and view all the answers

What is the primary purpose of PRS and POs in an organization?

To segregate duties and authorize processing Signup and view all the answers

Who is typically the approver in the purchasing process?

The supervisor Signup and view all the answers

How many copies of a PO are typically created?

4 copies Signup and view all the answers

What is the purpose of a blind copy of a PO?

To force count Signup and view all the answers

When is the PO file closed?

When the goods are received Signup and view all the answers

Study Notes

Purchase Requisition and Purchase Order

A purchase requisition is a document that authorizes a purchase, generated by the inventory control department, and sent to the purchasing department.
It contains suggested vendor, date prepared and needed, part number, quantity, description, unit price, extended price, prepared by, approved by, total amount, and vendor account number.
Purchase requisitions are combined to create a single purchase order.

Purchase Order

A purchase order is a formal document prepared by the purchasing department, specifying items ordered from a vendor or supplier.
It contains vendor name, vendor number, date ordered and needed, part number, quantity, description, unit price, extended price, prepared by, approved by, total amount, purchasing agent, terms with the vendor, and purchase requisition number.
A purchase order is an external document, with multiple copies, including the original sent to the vendor, and internal copies sent to the accounts payable department, receiving department, and retained as an open or closed PO file.

Expenditure Cycle and Conceptual Purchases

The expenditure cycle involves purchases and cash disbursement procedures.
Conceptual purchases system is technology-neutral and can be applied in a manual or automated system.
The system focuses on what needs to be done, rather than how it is accomplished.
Documents may be physical or digital.

Monitoring Inventory Records

Monitoring inventory records starts when inventories are depleted, such as when goods are sold in a retail business or when raw materials are used for production in a manufacturing business.
Inventory subsidiary ledgers are used in the preparation of purchase requisitions for inventory levels.

Internal Control and Segregation of Duties

Purchase requisitions and purchase orders serve as a form of internal control, specifically segregation of duties, separating authorization for processing.
The preparer is the clerk, while the approver is the supervisor, ensuring inter-department SOD with the purchasing department and inventory control department.

Valid Vendor File and Transaction Authorization

A valid vendor file contains vendor mailing information and is a reference file that contains the list of valid and approved vendors.
The file serves as a form of transaction authorization control to avoid fraudulent transactions, such as conflict of interest, bribery, and billing schemes.

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Description

This quiz covers the conceptual overview of purchases and cash disbursement activities in an expenditure cycle, including the monitoring of inventory records and the system's technology-neutrality. It focuses on the necessary steps and processes involved, regardless of whether the system is manual or automated.