What are the steps in the expenditure cycle?
The three basic activities performed in the expenditure cycle are: (1) ordering goods, supplies, and services; (2) receiving and storing these items; and (3) paying for these items.
What is the example of expenditure cycle?
Assume that your company periodically buys office supplies. Your expenditure cycle would be creating purchase orders from various employee requests for more paper, pencils and print cartridges, and calling the office supply store to place the order using the purchase order.
What are the two phases of expenditure cycle?
This chapter examines the principal features of the two major subsystems that constitute the expenditure cycle: (1) the pur- chases processing subsystem and (2) the cash disbursements subsystem.
Is an expenditure cycle document?
request. The purpose of the purchase requisition is to request authorization to purchase goods/services and as such, to ensure that orders are properly authorized before orders are placed.
What is the first step in the expenditure cycle?
The first step in the expenditure cycle is to order materials, supplies and services for the company. Different individuals or departments in the company track their consumables and create a purchase requisition when they’re low on goods.
What are the subsystems of the expenditure cycle?
Expenditure Cycle subsystems: Purchasing/Accounts Payable, Cash disbursements, Payroll, and Fixed assets.
What are the subsystems of expenditure cycle?
Name the major subsystems of the expenditure cycle. Cash Disbursements, Payroll, and Fixed Assets.
What are the source documents in expenditure cycle?
The expenditure cycle employs the following accounting records: AP subsidiary ledger, voucher register, check register, and general ledger.
What are the control objective of expenditure cycle activities?
Expenditure Cycle Control Objectives: All transactions are authorized. All recorded transactions are valid. All valid, authorized transactions are recorded.
What are the 3 transaction cycles?
Three transaction cycles process most of the firm’s economic activity: the expenditure cycle, the conversion cycle, and the revenue cycle. These cycles exist in all types of businesses— both profit-seeking and not-for-profit.
What are the major threats in the expenditure cycle?
Terms in this set (17)
- Preventing Stockouts and/or excess inventory.
- Ordering unnecessary items.
- purchasing goods at inflated prices.
- purchasing goods of inferior quality.
- purchasing from unauthorized suppliers.
- receiving unordered goods.
- making errors in counting goods received.
What are the accounts affected by the expenditure cycle?
Expenditure cycle affects financial statement accounts. It impacts all current assets, except marketable securities and accounts recievable, all plant and intangible assets and many current liabilities.
What is the relation between expenditure cycle and financing cycle?
The expenditure cycle gets funds from the financing cycle; provides raw materials to the production cycle; and provides data to the general ledger and reporting system.
Why is there a need to segregate key functions in the expenditure cycle?
Segregation of duties serves two key purposes: It ensures that there is oversight and review to catch errors. It helps to prevent fraud or theft because it requires two people to collude in order to hide a transaction.
Why is the expenditure cycle important?
Using quarterly expenditure cycles helps manufacturers maintain sufficient inventory to meet their expected orders without spending money on excess inventory they won’t need. This is especially important for companies with regular seasonal peaks and valleys, explains AccountingTools.
What is the primary objective of expenditure cycle?
The primary objective of the expenditure cycle is to minimize the total cost of acquiring and maintaining inventory, supplies, and services.