Expenditure Cycle: Purchases and Cash Disbursement Procedures

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.