The Expense Cycle: Purchasing to Cash Payments

Transcript:The Expense Cycle: Purchasing to Cash Payments:
The Expense Cycle: Purchasing to Cash Payments Chapter 11 1 FOSTER School of Business Acctg.320 Questions Addressed What are the basic business activities and data processing operations that are performed in the expenditure cycle? What decisions need to be made in the expenditure cycle, and what information is needed to make these decisions? What are the major threats in the expenditure cycle and the controls related to those threats? FOSTER School of Business Acctg.320 2 Introduction The expense cycle is a recurring set of business activities and related information processing operations associated with the purchase of and or payment for good and services. Primary external exchange of information is with suppliers. FOSTER School of Business Acctg.320 3 Expense Cycle Objective The expense cycle’s primary objective is to minimize the total cost of acquiring and maintaining inventories, supplies, and the various services the organization needs to function To accomplish that objective, management must make many key decisions: FOSTER School of Business Acctg.320 4 Key Decisions: Expense Cycle What is the optimal level of inventory and supplies to carry? Which suppliers provide the best quality and service at the best prices? Where should inventories and supplies be held? How can the organization consolidate purchases across units to obtain optimal prices? How can IT be used to improve both the efficiency and accuracy of the inbound logistics function? Is sufficient cash available to take advantage of any discounts suppliers offer? How can payments to vendors be managed to maximize cash flow? FOSTER School of Business Acctg.320 5 AIS basic functions There are 3 basic functions of the AIS in the expense cycle: (same for all cycles) (1) capturing and processing data about business activities, (2) storing and organizing that data to support decision making, (3) providing controls: ensure reliability of data & safeguard resources. FOSTER School of Business Acctg.320 6 Expense Cycle Business Activities Three basic business activities performed in the expense cycle: Ordering goods, supplies and services; Receiving and storing goods, supplies and services; Paying for goods, supplies and services. FOSTER School of Business Acctg.320 7 Order Goods The first major business activity in the expenditure cycle is ordering inventory or supplies. Key decisions in this process involve identifying what, when, and how much to purchase and from whom. Weaknesses in inventory control can create significant problems with this process. inaccurate inventory records and inventory shorts resulting in production delays caused by