The expenditure cycle is the process of creating purchase orders and ordering goods and services, receiving these items, approving the invoices for these items and services, and paying the invoices
What are the basic expenditure cycle activities?
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 basic purpose of the expenditure cycle?
The primary objective of the expenditure cycle is to minimize the total cost of acquiring and maintaining inventory, supplies, and services The production cycle is a recurring set of business activities and related data processing operations associated with the manufacture of products
What is the expense cycle in accounting?
The expenditure cycle is a recurring set of business activities and related information processing operations associated with the purchase of and payment for goods and services This focuses on the acquisition of raw materials, finished goods, supplies and services
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 is expenditure cycle controls?
Some controls usually found in the expenditure cycle: Purchases based on approved requisition Purchasing agents review requisitions for proper approval and budgets Purchases made from approved vendors Compare goods received to purchase order
What are the subsystems of the 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 The chapter is organized into two main sections
What is the expense cycle and why is it more complex than the revenue cycle?
An expense cycle is a set of purchasing decisions The process repeats itself by creating purchased products and receiving the goods and services that are approved and paid through invoices Expense cycle is more complex than the revenue cycle since it operates on a wide range of business sphere
What is a PO in procurement?
A purchase order (also known as a PO) is the official document sent by a buyer to a vendor with the intention to track and control the purchasing process Purchase orders outline the list of items (goods and services) a buyer would like to purchase, order quantities, and agreed-upon prices
What is revenue cycle AIS?
There are 3 basic functions of the AIS in the revenue cycle: (1) capturing and processing data about business activities, (2) storing and organizing that data to support decision making, (3) providing controls: ensure reliability of data & safeguard resources
Is Accounts Payable part of expenditure cycle?
Payables Balance As part of a company’s expenditure cycle, its accounts payable balance may continue to grow as it spends more money to acquire inventory and services Each month, the company makes payments to reduce the balance of accounts payable, or its money owed to vendors
What is meant by cash conversion cycle?
The cash conversion cycle (CCC) is a metric that expresses the length of time (in days) that it takes for a company to convert its investments in inventory and other resources into cash flows from sales
How do you do an expenditure cycle?
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 Once the items were delivered, accounting would approve the invoice for payment and cut the check
What is the major difference between the revenue and expenditure cycle?
In the revenue cycle, cash is received; in the expenditure cycle cash is paid out
What are the 5 major transaction cycles?
The basic exchanges can be grouped into five major transaction cycles Revenue cycle—Interactions with customers Expenditure cycle—Interactions with suppliers Production cycle—Give labor and raw materials; get finished product Human resources/payroll cycle—Give cash; get labor Financing cycle—Give cash; get cash
What are the primary functions that should be segregated in the acquisition and expenditure cycle?
The functions that should be separated to maintain internal control in a purchasing system include (a) custody of the goods (receiving and stores departments), (b) authority to initiate a transaction (purchasing department), (c) bookkeeping (accounts payable department, inventory record keeping department), and (d)
What is a disbursement cycle?
The cash disbursement cycle is the process by which a business buys items, from parts for a manufacturing process to goods for commercial sale, with cash resources This process relies heavily on the decisions and approval of the accounting department of a company
What is physical systems expenditure cycle?
The expenditure cycle is the set of activities related to the acquisition of and payment for goods and services These activities include the determination of what needs to be purchased, purchasing activities, the receipt of goods, and payments to suppliers
What are three transaction cycles?
Three transaction cycles process most of the firm’s economic activity: the expenditure cycle, the conversion cycle, and the revenue cycle
Which sub system is not part of the expenditure cycle?
Cards Term Which of the following is a business resource? Definition Raw Material, Labor, Information Term Accountants play many roles relating to the accounting information system except Definition system converters Term Which system is not part of the expenditure cycle? Definition production planning/control
What are examples of expense accounts?
Examples of expense accounts are Costs of Sales, Cost of Goods Sold, Costs of services, Operating expense, Finance Expenses, Non-operating expenses, Prepaid expenses, Accrued expenses and many others
What is the difference between cash accounting and accrual accounting?
The main difference between accrual and cash basis accounting lies in the timing of when revenue and expenses are recognized The cash method is a more immediate recognition of revenue and expenses, while the accrual method focuses on anticipated revenue and expenses
Why is accrual accounting better than cash?
Accrual accounting gives a better indication of business performance because it shows when income and expenses occurred If you want to see if a particular month was profitable, accrual will tell you Some businesses like to also use cash basis accounting for certain tax purposes, and to keep tabs on their cash flow