Hall SM-CH05
Hall SM-CH05
Hall SM-CH05
DISBURSEMENTS PROCEDURES
REVIEW QUESTIONS
1. A purchase requisition is completed by the inventory control department when a
need for inventory items is detected. Purchase requisitions for office supplies and
various departments have requisitioned the same item, the purchasing department
may consolidate all requests into one order so that any quantity discounts and
lower freight charges may be taken. In any case, the purchasing department
prepares the purchase order, which is sent to the vendor, accounts payable
vendors. Their job is to monitor various supply sources and choose the highest
quality good for a given price that can be reliably delivered on-time. The
3. An open accounts payable file contains all source documents, including invoices,
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organized by payment date. As the due dates become close to the current date,
the invoices are pulled from the file and paid. Under the voucher system, the
accounts payable clerk prepares a cash disbursements voucher upon receipt of all
vendor. Multiple invoices may be covered by one voucher. The voucher system
thus allows fewer checks to be written and provides better control over cash
5. Accounts Payable:
Cash Disbursements:
Cash Credit
6. The receiving clerk’s responsibility is to inspect the quantity and condition of the
goods received. The two exposures that are reduced by close supervision are: 1.
failing to properly inspect the assets 2. pilfering or stealing the inventory. Thus, the
copy of the purchase order which he/she uses for this inspection should not
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Chapter 5 page 135
contain quantities or prices. If the quantity is printed on the receiving clerk’s copy of
the purchase order, he/she may be tempted to skip the physical inspection and the
company may be paying for inventory it did not receive or that is damaged. A
information and to make sure the receiving clerks actually inspect the goods. If the
value of the inventory is listed, the employee may be tempted to steal some of the
established that the item was ordered), the Receiving Report (which showed that it
was received), and the Invoice (which contains prices and other charges) is called
8. The general ledger department receives journal vouchers from inventory control,
accounts payable, and cash disbursements. With these summary figures, the
9. Inventories should only be acquired from valid vendors. This control procedure
helps to deter the purchasing agent from buying inventories at excessive costs and
receiving kickbacks, or from buying from an entity in which the purchasing agent
has a relationship, such as a relative or a friend. A valid vendor file also provides
for a more efficient purchasing process when dealing with routine purchases.
accounts payable subsidiary ledger. The invoices in the file provide a chronological
record of total purchases for the period (equivalent to the purchases journal), and
the unpaid invoices at any point in time constitute the organization’s accounts
payable.
11. The blind copy contains no quantity or price information about the products being
received. The purpose of the blind copy is to force the receiving clerk to count and
12. Vouchers provide improved control over cash disbursement, and they allow firms
DISCUSSION QUESTIONS
1. The three documents of the AP packet are the purchase requisition, purchase
order, and receiving report (in addition to the invoice itself). The purchase
requirements. The purchase order originates from the purchasing department and
represents an order placed. The receiving report originates from the receiving
department and represents the quantity and types of goods received. Thus, the
accounts payable must determine 1. that the goods ordered were requested by a
the goods from a valid vendor, 3. that the goods were actually received in good
condition, and 4. that the invoice price is correct. If all conditions are met, then the
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Chapter 5 page 137
invoice should be paid.
2. The purchase requisition file is created during the sales activity when the
3. The receiving clerks have access to many of the firm’s assets: their inventory. Two
exposures potentially exist: 1. the clerk failing to perform his/her duty and 2. the
clerk pilfering or stealing the inventory. Thus, the copy of the purchase order used
for this inspection should have the quantities and amounts covered so that they
may not be read. If the quantity is printed on the receiving clerk’s copy of the
purchase order, he or she may be tempted to skip the physical inspection and the
company may be paying for inventory it did not receive or that is damaged. A
information, and to make sure the receiving clerks actually inspect the goods. If the
value of the inventory is listed, the employee may be tempted to steal some of the
4. These functions are often automated because of their importance. Automation can
automatically monitors the levels and flags items that need reordering. Thus, the
vendor invoice amounts and checks written in payment. Entries for the general
ledger are automatically created by the system, thus errors are reduced since
transcription from summary reports into the general ledger is not necessary.
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Chapter 5 page 138
5. In the advanced technology system, the three way match is automated. When the
AP clerk receives the supplier’s invoice, the clerk accesses the system and adds a
record to the vendor invoice file. This act prompts the system to automatically
create a virtual AP packet by linking the vendor invoice to the associated purchase
order and receiving report records, using the PO number as a common attribute.
criteria for assessing discrepancies. Items that fall within limits are automatically
approved and paid on their due date. Discrepancies in excess of the threshold are
submitted to management for review and manual approval. Through the virtual AP
packet screen, management may view the supporting documents and exercise an
management reports.
resolve.
receiving function entirely. The objective of this is to send goods directly to the
production department and thus bypass the receiving area and avoid
receipts when there is no receiving function and no receiving report. One way
of dealing with this is to calculate the number of parts received based on the
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Chapter 5 page 139
products produced in which the parts are components. Supplier payments are
distributed based on production (part usage), and by having only one supplier
problem to deal with is accounting for scrap in the production process. Since
scrap does not end up in finished production, it will not be counted, and
vendors will not be paid for materials that were scrapped. Separate accounting
common central application. Two methods for achieving multilevel security are the
access control list (ACL) and role-based access control (RBAC). Through these
general ledger personnel are limited in their access based on the privileges
assigned to them
9. The Receiving Report is evidence that the items have been received and a liability
has been realized. If the Invoice did not come in by end-of-year, then the liability
10. An undetected program error may affect thousands or even millions of transactions
that computer applications do what they are intended to do when they are placed
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Chapter 5 page 140
MULTIPLE CHOICE
1. B
2. A
3. C
4. B
5. D
6. C
7. D
8. D
9. C
10. C
PROBLEMS
1. a. A purchase requisition is created when an item of inventory is needed (e.g.,
fallen below the reorder point) and authorizes its purchase. A purchase order
is created from requisitions to the same vendor. Thus, one purchase order
distributing the purchase orders directly to the vendors and internal users, thus
between recognizing the need for inventory and mailing the PO to the vendor.
c. Alternative one provides additional control over the ordering process. For
example, the purchasing agent could manually detect unusual order quantities or
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Chapter 5 page 141
frequency caused by a computer error. Managers whose systems lack reliable
verification, may prefer this alternative. The price of this added control is
Solution to Problem 2
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Chapter 5 page 142
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Chapter 5 page 143
completed.
Freight-In 6.00
Cash 99.79
3. The purchase requisition should originate from the inventory control department
after someone has reviewed the records to determine if and how much of an
purchase requisitions, they might be tempted to buy items not needed in order to
reap benefits and/or kickbacks from the vendor. The purchase order that is sent to
receiving is not indicated as a “blind copy,” and this might cause employees to
either shirk their responsibilities and not count the inventory or to steal some units
since they know their value. Further, receiving should retain a copy of the receiving
report in their files along with the purchase order and packing slip. The inventory
control department should not prepare a journal voucher to send to the general
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Chapter 5 page 144
ledger department; rather, they should prepare summary information that the
general ledger department can use to reconcile the inventory control account with
the liability to the accounts payable subsidiary ledger. The subsidiary accounts
payable ledger will not balance with the control account in the general ledger if
5. First, the Inventory Master file is searched to determine if the Quantity on Hand is
less than or equal to the Reorder point, which is a predetermined point at which
the firm orders more inventory. If it is less than or equal to the reorder point and the
quantity on order is not flagged as true, then the EOQ (a predetermined optimal
order amount) is used to order the Inventory Number item, which is an assigned
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Chapter 5 page 145
number and described by the Description field. The item is ordered from a
specified Vendor in the Vendor file, and this information is stored in the Inventory
vendor number, and unit standard cost are recorded. The vendor address,
terms of trade, and lead time are obtained from the vendor file. If the lead time is
too long, a different vendor may need to be chosen, or the price paid may be
higher than the predetermined standard cost for the item. At this point, the date
The Purchasing Department then completes a purchase order and places it into
the open purchase order file until the order is completed. First, the purchasing
clerk assigns a purchase order number and fills in the corresponding purchase
order number. The following information is also copied to the purchase order file
price by the quantity ordered. At this point, the date of last order field in the
When the inventory is received, the inventory master file is updated: the quantity
on hand is increased by the number of units received and the total inventory
cost is updated. In the open purchase order file, the field Rec flag is checked to
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Chapter 5 page 146
When the vendor’s invoice is received, the invoice flag field in the purchase
order file is checked to indicate that the invoice has been received. Further, the
voucher register. This voucher is assigned a voucher number, and the following
amount. The invoice due date is also noted so that the disbursement may be
made as close to the due date as possible without missing any discounts offered.
6. IT application controls:
decides when to purchase, what to purchase, and from which vendor. The
key attributes needed to execute this logic come from the purchase
requisition file and the valid vendor file. The objective is to prevent
clerk receives the supplier’s invoice, the clerk accesses the system and
adds a record to the vendor invoice file. This act prompts the system to
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Chapter 5 page 147
management for review and manual approval.
achieving multilevel security are the access control list (ACL) and role-
them.
eliminating the human element from accounting activities, the potential for
errors and opportunities for fraud are significantly reduced. Also, since
efficiency of operations.
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Chapter 5 page 148
Accounting Records. The Accounts Payable Subsidiary ledger is updated
Register in use.
prepares the Receiving Report directly from the Packing Slip. A blind copy of the
supervisor should take possession of the packing slip that contains relevant data
Control, Cash Disbursements, and Accounts Payable. These are used to keep
the General Ledger Control accounts current and to verify the overall accounting
decides when to purchase, what to purchase, and from which vendor. The
key attributes needed to execute this logic come from the purchase
requisition file and the valid vendor file. The objective is to prevent
© 2013 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from
the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
Chapter 5 page 149
clerk receives the supplier’s invoice, the clerk accesses the system and
adds a record to the vendor invoice file. This act prompts the system to
eliminating the human element from accounting activities, the potential for
errors and opportunities for fraud are significantly reduced. Also, since
efficiency of operations.
9. Solution to Part A:
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Chapter 5 page 150
Inventory Control Receiving Account Payable
Purchase Reconcile
Orders And Post
Vendor
Reconcile
Receiving Create Rec Rp
Report Voucher
Invoice
AP Sub
Ledger
Open
Purchases AP
Journal
Reviews
and
Cash Prepares
Checks
Vendor
Check
Solution to Part B:
Transaction Authorization
Supervision
Accounting Records
Segregation of Duties
Access Control
All users of the networked system have full access to all database records. This
b. purchase requisition
e. a bill of lading
a. Yes
b. The best evidence is provided by the Purchase Order and Bill of Lading
Purchase Order—is evidence that the item was ordered, but does not indicate
Bill of Lading—reviewed post-period; will indicate when the goods were shipped
c. June 15
d. July 10
e. No
f. N/A
g. July 5
h. July 15
© 2013 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from
the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
© 2013 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from
the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.