Expenditure

Cycle
Purchasing and Disbursement
WHAT IS PURCHASING?

PURCHASING is the act of obtaining goods or services, typically for business

purposes. The purchasing processes can require a substantial portion of a
company’s resources to manage. Purchasing budgets typically provide
managers with a specific value they can spend to procure the goods or
services they need. The process of purchasing is often a key part of a
company's strategy because the ability to purchase certain materials or
services can determine if operations will be profitable.
WHAT IS
DISBURSEMENT?

DISBURSEMENT is the act of paying out or disbursing money. It is the

actual delivery of funds from a bank account or other funds. It is a
payment made by a company in cash or cash equivalents during a set
time period, such as a quarter or year. A bookkeeper records the
transactions and posts them to ledgers, such as the general ledger and
accounts payable ledger.
 Common Source Documents
and Functions

Requisition Order form Consignment

form is a document buyers use note
to request merchandise
issued by departments, is a contract of carriage and
from a wholesaler, includes the instructions given
operations or warehouse
manufacturer or retailer. to the carrier. It is issued by
to purchasing
It is issued by purchasing supplier to purchasing
department.
department to supplier department at warehouse
 Common Source Documents
and Functions

Receiving Invoice or Check

report Statement is a document that orders a
bank to pay a specific
is an important record of is a commercial
amount of money from an
the merchandise that a document that itemizes
account to the person in
retailer has actually and records a transaction
whose name the check has
received from a supplier. between a buyer and a
been issued.
seller.
 ACCOUNTS IN THE
PURCHASING AND
DISBURSEMENT CYCLE

PURCHASES PURCHASES OF OTHER ASSETS CASH

Is a temporary account that is used to SUCH AS EQUIPMENT SHOULD The cash account is credited during
accumulate the total cost of BE RECORDED IN THE disbursement or payment of purchases
merchandise purchased during an APPROPRIATE ASSET
account period ACCOUNTS

PURCHASE DISCOUNTS PURCHASE RETURNS AND ACCOUNTS PAYABLE

is a deduction that a company may ALLOWANCES Accounts payable are amounts due to
receive if the supplier offers it and the This account contains deductions from vendors or suppliers for goods or
company pays the supplier's invoice purchases for items returned to suppliers, services received that have not yet been
within a specified period of time. as well as deductions allowed by suppliers paid for.
for goods that are not returned.t returned.
 Steps
in
Expenditure Cycle
1. Preparing purchase request
Once the operating department identifies that there is a need to update the
inventory or stock and have already specified how much and when they want the
products or services delivered, then it is time write the purchase order or
requisition order.

2. Check budget availability.

Before the order can be placed, it usually requires authority for its purchase. At
this point, the department will likewise, check the availability of funds.

3. Selecting suppliers.
Repetitive orders usually have set suppliers, although it does no harm to review
the options sometimes. Other orders will either need to go out to tender or there
will be a choice of suppliers.

4. Issuing a purchase order.

At this stage in the purchasing cycle, the order is placed and this becomes a
contract between the business and the supplier.

5. Order Received and Inspected

The goods are delivered, checked in the warehouse and entered into
the inventory. Shortages and breakages are reported to the supplier for the
appropriate credits to be supplied.
6. Invoice verified and processed
Once the order is received, the amount to be paid along with the details of the
order, is provided by the vendor in the form of a document that is known as
the invoice. Before paying to the vendor, we need to verify the invoice.

7. Cash availability is verified.

Funds are again checked and processed for payment

8. Cash disbursement.
When a company receives shipments and gets charged, the payment will be
submitted for approval. After getting approval, the accounting department will
issue a payment so that cash can be disbursed.
 SIMPLIFIED
ORDERING Ordering
•Identify what, when, and how much to purchase
•Choose a supplier

RECEIVING Receiving
•Verify goods ordered against the purchase order (what, how much,
quality)

Approval of invoice
APPROVAL OF INVOICES •Match the supplier invoice to:
▫Purchase order
▫Receiving report
•Approve supplier invoice for payment

CASH DISBURSEMENT Cash Disbursement

Payment of Cash
INTERNAL
CONTROL
 Ordering
THREATS CONTROLS
 Receiving
THREATS CONTROLS
 Approval of Invoice
THREATS CONTROLS
 Cash Disbursement
THREATS CONTROLS
ADEQUATE INDEPENDENT CHECKS ON
DOCUMENTS AND PERFORMANCE
RECORDS This ensures that the information used for accounting and
Source documents must be pre- operational purposes is accurate and reliable. Authorized
numbered & properly designed. personnel should ensure that: all receiving reports must be
These include purchase orders, accounted for so that all the accounts payable have been
invoices, and other documents recorded, there is comparison of prices paid to market
that create a paper-trail for prices, the addition in journals and records is checked,
organizational activities. These reconciliation of the control accounts to the related
documents provide evidence that subsidiary ledgers is made, and a monthly bank
financial statements accurately reconciliation is prepared.
reflect company performance.
 AUTHORIZATION OF
SEPARATION OF THE CUSTODY OF
TRANSACTIONS BY
ASSETS FROM ACCOUNTING INITIALING
This prohibits the assignment of responsibility to one person DOCUMENTS
for the acquisition of assets, their custody, and the related
Strictly authorizing transactions
record keeping. For example, one person can place an order to
minimizes the ability for
buy an asset, but a different person must record the
employees to be creative in
transaction in the accounting records. By separating duties, it
absconding with company
is much more difficult to commit fraud, since at least two
resources.  This includes
people must work together to do so - which is far less likely
authorization to order (quantity,
than if one person is responsible for all aspects of an
price and terms) , to receive
accounting transaction.
goods, and to pay.
THANK
YOU!