Page 259 - Accounting Information Systems

230 PART II Transaction Cycles and Business Processes

Independent Verification
INDEPENDENT VERIFICATION BY ACCOUNTS PAYABLE. The AP function plays a vital role
in the verification of the work others in this system have done. Copies of key source documents flow into
this department for review and comparison. Each document contains unique facts about the purchase trans-
action, which the AP clerk must reconcile before the firm recognizes an obligation. These include:
1. The PO, which shows that the purchasing agent ordered only the needed inventories from a valid
3
vendor. This document should reconcile with the purchase requisition.
2. The receiving report, which is evidence of the physical receipt of the goods, their condition, and the
quantities received. The reconciliation of this document with the PO signifies that the organization
has a legitimate obligation.
3. The supplier’s invoice, which provides the financial information needed to record the obligation as
an account payable. The AP clerk verifies that the prices on the invoice are reasonable compared
with the expected prices on the PO.

INDEPENDENT VERIFICATION BY THE GENERAL LEDGER DEPARTMENT. The general
ledger function provides an important independent verification in the system. It receives journal vouchers
and summary reports from inventory control, AP, and cash disbursements. From these sources, the gen-
eral ledger function verifies that the total obligations recorded equal the total inventories received and that
the total reductions in AP equal the total disbursements of cash.

Physical Systems

In this section we examine the physical system. This begins with a review of manual procedures and then
moves on to deal with several forms of computer-based systems. As mentioned in the previous chapter,
manual systems are covered here as a visual training aid to promote a better understanding of the concepts
presented in the previous section. From this point, therefore, the reader may continue with the review of
manual systems or, without loss of technical content, bypass this material and go directly to computer-
based purchases and cash disbursements applications located on page 234.

A MANUAL SYSTEM
The purpose of this section is to support the conceptual treatment of systems presented in the previous
section. This should help you envision the relationships between organizational units, the segregation of
duties, and the information flows essential to operations and effective internal control. In addition, we
will highlight inefficiencies intrinsic to manual systems, which gave rise to improved technologies and
techniques used by modern systems. The following discussion is based on Figure 5-12, which presents a
flowchart of a manual purchases system.

Inventory Control
When inventories drop to a predetermined reorder point, the clerk prepares a purchase requisition. One
copy of the requisition is sent to the purchasing department, and one copy is placed in the open purchase
requisition file. Note that to provide proper authorization control, the inventory control department is seg-
regated from the purchasing department, which executes the transaction.

Purchasing Department
The purchasing department receives the purchase requisitions, sorts them by vendor, and prepares a mul-
tipart PO for each vendor. Two copies of the PO are sent to the vendor. One copy of the PO is sent to

3 Firms often establish a list of valid vendors with whom they do regular business. Purchasing agents must acquire inventories only
from valid vendors. This technique deters certain types of fraud, such as an agent buying from suppliers with whom he or she has a
relationship (a relative or friend) or buying at excessive prices from vendors in exchange for a kickback or bribe.