Page 246 - Accounting Information Systems

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chapter

The Expenditure Cycle

Part I: Purchases and Cash

Disbursements Procedures

he objective of the expenditure cycle is to convert
the organization’s cash into the physical materials
T and the human resources it needs to conduct busi- Learning Objectives
ness. In this chapter we concentrate on systems and proce-
dures for acquiring raw materials and finished goods from After studying this chapter, you should:
suppliers. We examine payroll and fixed asset systems in Recognize the fundamental tasks
the next chapter. that constitute the purchases and
Most business entities operate on a credit basis and do cash disbursements process.
not pay for resources until after acquiring them. The time
Be able to identify the functional
lag between these events splits the procurement process into
areas involved in purchases and cash
two phases: (1) the physical phase, involving the acquisition
disbursements activities and trace
of the resource, and (2) the financial phase, involving the
the flow of these transactions
disbursement of cash. As a practical matter, these are treated
through the organization.
as independent transactions that are processed through sepa-
Be able to specify the documents,
rate subsystems.
journals, and accounts that provide
This chapter examines the principal features of the two
audit trails, promote the mainte-
major subsystems that constitute the expenditure cycle:
nance of historical records, and sup-
(1) the purchases processing subsystem and (2) the cash dis-
port internal decision making and
bursements subsystem. The chapter is organized into two
financial reporting.
main sections. The first section provides an overview of the
conceptual system, including the logical tasks, the key enti- Understand the exposures associ-
ties, the sources and uses of information, and the flow of ated with purchases and cash dis-
key documents through an organization. The second section bursements activities and recognize
deals with the physical system. We first use a manual sys- the controls that reduce these risks.
tem to reinforce the reader’s understanding of key concepts. Be aware of the operational features
We then examine several computer-based systems, focusing and the control implications of tech-
on the operational and control implications of alternative nology used in purchases and cash
data processing methods. disbursements systems.