Expenditure Cycle: Purchasing to Cash Disbursements

Introduction

• Expenditure Cycle: A recurring set of business activities and information processing operations associated with purchasing and paying for goods and services.
• Primary Objective: Minimize total costs of acquiring and maintaining inventories, supplies, and services needed for the organization to function.

Four Basic Expenditure Cycle Activities

1. Ordering
2. Receiving
3. Approving Supplier Invoices
4. Cash Disbursements

Mnemonic Device

• Remember: "Order Reeses for Approval and Cash"
• Represents the four activities of the expenditure cycle.

Example of Expenditure Cycle

• Scenario: Jay Dogs (JG's) ordering buns from a bakery.
  1. JG's places an order with the bakery.
  2. Order is processed and buns are received.
  3. Bakery sends an invoice at the end of the month.
  4. Invoice must be approved before payment.
  5. Payment is dispersed to the bakery.

General Threats in the Expenditure Cycle

• Inaccurate or invalid master data.
• Unauthorized disclosure of sensitive information.
• Loss or destruction of valuable data.
• Poor performance in processes.

Specific Threats to Jay Dog's Expenditure Cycle

• Ordering from suppliers with lower quality products (potential kickbacks).
• Accepting items that were never ordered.
• Making duplicate payments for the same order.

Conclusion

• Review of threats and controls related to each activity (Ordering, Receiving, Approving Invoices, Cash Disbursements) will be covered in following videos.

Reminder

• Mnemonic: "Order Reeses for Approval and Cash" to remember the cycle activities.