Page 250 - Accounting Information Systems

C H A P TER 5 The Expenditure Cycle Part I: Purchases and Cash Disbursements Procedures 221

good control permits is desirable in all organizations. The valid vendor file contributes to both control
and efficiency by listing only those vendors approved to do business with the organization. This reference
helps to reduce certain vendor fraud schemes discussed in Chapter 3.

RECEIVE GOODS. Most firms encounter a time lag (sometimes a significant one) between placing the
order and receiving the inventory. During this time, the copies of the PO reside in temporary files in various
departments. Note that no economic event has yet occurred. At this point, the firm has received no inventories
and incurred no financial obligation. Hence, there is no basis for making a formal entry into any accounting
record. However, firms often make memo entries of pending inventory receipts and associated obligations.
The next event in the expenditure cycle is the receipt of the inventory. Goods arriving from the vendor
are reconciled with the blind copy of the PO. The blind copy, illustrated in Figure 5-4, contains no quan-
tity or price information about the products being received. The purpose of the blind copy is to force the
receiving clerk to count and inspect inventories prior to completing the receiving report. At times, receiv-
ing docks are very busy and receiving staff are under pressure to unload the delivery trucks and sign the
bills of lading so the truck drivers can go on their way. If receiving clerks are only provided quantity in-
formation, they may be tempted to accept deliveries on the basis of this information alone, rather than
verify the quantity and condition of the goods. Shipments that are short or contain damaged or incorrect
items must be detected before the firm accepts and places the goods in inventory. The blind copy is an
important device in reducing this exposure.
Upon completion of the physical count and inspection, the receiving clerk prepares a receiving report
stating the quantity and condition of the inventories. Figure 5-5 contains an example of a receiving report.
One copy of the receiving report accompanies the physical inventories to either the raw materials store-
room or finished goods warehouse for safekeeping. Another copy is filed in the open/closed PO file to
close out the PO. A third copy of the receiving report is sent to the AP department, where it is filed in the
AP pending file. A fourth copy of the receiving report is sent to inventory control for updating the inven-
tory records. Finally, a copy of the receiving report is placed in the receiving report file.

FI G U R E
5-4 BLIND COPY PURCHASE ORDER

Hampshire Supply Co. No. 23591
Purchase Order
Please show the
To : Jones and Harper Co. above number on all
1620 North Main St. shipping documents
and invoices.
Bethlehem PA 18017

Vendor Date Date Purchasing Terms
Number Ordered Needed Agent
4001 8/15/09 9/1/09 J. Buell 2/10, n/30
Purchase Part No. Quantity Description Unit Price Extended Price
Req. No.

89631 86329 Engine Block Core Plug
89834 20671 Brake Shoes
89851 45218 Spring Compressors

Prepared Approved RMS Total
By : BKG By : Amount