4838 Wilkinson Apps pp 203-241 8/9/99 10:04 AM Page 233
APPENDIX13.1
ers the deposit to the bank intact. A cash receipts clerk
then enters the total amount of receipts in the cash
receipts journal. The clerk prepares a journal voucher,
which is sent to the general ledger department for
posting.
The internal audit department receives an authenticated copy of the deposit slip, which has been stamped
and initialed by a bank teller and delivered direct by the
bank. This deposit slip is compared to the remittance
list, as well as to the deposit slip in the cashier’s office
and to the general ledger posting.
3. Posting of cash amounts in accounts receivable
accounts
As noted earlier, the mail room clerk forwards the remittance advices to the accounts receivable department
for posting. Upon receipt, an accounts receivable clerk
posts the payment amounts to the customers’ accounts.
•
CD–233
As in the case of sales postings, another clerk verifies the
accuracy and obtains a total of the amounts posted. The
batch total is then forwarded to the general ledger department.
4. Posting to general ledger accounts
In the general ledger department, a clerk compares the
total posted to the accounts receivable ledger to the precomputed batch total amount, as shown on a summary
journal voucher received from the cashier. If they agree,
the clerk posts the totals to the general ledger accounts.
If they disagree, the clerk locates discrepancies, corrects
the errors, notifies the accounts receivable clerk of posting errors, and then completes the general ledger postings. The posting to reflect cash receipts is as follows:
Dr. Cash
XXX
Cr. Accounts Receivable
XXX
APPENDIX 13.1
MANUAL PROCESSING WITHIN THE EXPENDITURE CYCLE
This appendix provides a survey of manual processing
procedures relating to purchases, payables, and cash
disbursements. Narrative descriptions of the procedures
are accompanied by document system flowcharts, which
are keyed to the narrative by circled numbers. These
numbers designate key control points within the purchases, payables, and cash disbursements procedures.
The application controls described in the chapter are
particularly needed at these points. The accounting entries pertaining to the expenditure cycle are included at
appropriate places in the narrative descriptions.
Purchases Procedure
Figure A13.1-1 depicts a document flowchart of the manual procedure involving the purchases of goods on
credit. As just mentioned, numbers designate the control points within the purchases procedure—that is, the
determination that goods are needed, the preparation of
a purchase order, the receipt of ordered goods, and the
receipt of the supplier’s invoice.
1. Determination of the need for goods
In the inventory control department, a clerk examines inventory records to locate those items whose on-hand
quantities are below a preestablished reorder point.
Those items that need to be reordered are listed on a
prenumbered and well-designed purchase requisition
form. For each item, the clerk specifies a precomputed
economic order quantity. Upon approval of the requisition, perhaps by the inventory manager, copies are sent
to the purchasing department and receiving department.
2. Preparation of the purchase order
When the purchase requisition is received in the purchasing department, a buyer is assigned by the purchasing manager to handle the purchase transaction. If the
goods or circumstances are nonroutine, competitive
bids are obtained. If the needed goods are routine (or after bids have been evaluated), the buyer selects the
most suitable supplier from an approved supplier file
and prepares a prenumbered purchase order. When the
purchase order has been checked for prices and terms
and signed by an authorized person, such as the purchasing manager, the copies are distributed. Two copies
are mailed to the supplier. Other copies are forwarded to
the inventory control, receiving, and accounts payable
departments. The copy sent to inventory control (which
may actually be an amended copy of the requisition) is
used to post ordered quantities to the inventory records.
The copy for the receiving department (which has the
quantities blacked out, i.e., is “blind”) is used later to verify the authenticity of the received goods. The copy sent
to accounts payable is to provide prior notification that
an invoice is soon to be received. Also, the last copy is
filed in the open purchase order file to await the arrival
of the invoice.
4838 Wilkinson Apps pp 203-241 8/9/99 3:03 PM Page 234
Inventory control
Purchasing
Initiation
of purchase
Purchase
requisition
Review
inventory
records
1
Inventory
ledger
1
When quantity
on hand reaches
reorder point
Purchase
requisition
Prepare
purchase
requisition
Purchase
requisition
1
2
Supplier
file
Obtain competitive
bids if required or
desirable; then
prepare purchase
order
1
To supplier
1
Purchase
order
2
3
4
5
6
2
3
Open pur.
order
Pull upon
arrival of
receiving
report
N
Purchase
req.
Purchase
order
N
6
1
Purchase req.
B
5
Match documents;
post to
inventory
records
Inventory
ledger
Purchase
requisition
Purchase
order
File receiving report
together with purchase
order and purchase
requisition; pull upon
arrival of supplier’s
invoice
5
Open pur.
order
N
Purchase
req.
N
Purchase
order
A
6
From supplier
1
1
Purchase req.
Inventory
ledger
3
Match documents;
post to
inventory
records
Purchase
requisition
Receiving report
Receiving
report
Review invoice for
overall accuracy
and completeness,
and initial
as approved
3
5
Purchase order
3
Receiving report
Purchase
order
1
1
Receiving report
N
1
Supplier’s invoice
A document flowchart of a manual purchases transaction processing procedure.
CD–234
Supplier’s
invoice
6
Purchase req.
Purchase
req.
FIGURE A13.1-1
1
3
Purchase order
File together when
matched; pull upon
arrival of receiving
report
Receiving
report
Post receipt to
open purchase
order
Closed pur.
order
N
1
2
4838 Wilkinson Apps pp 203-241 8/9/99 3:03 PM Page 235
Receiving
Stores
Accounts payable
2
Purchase
requisition
Pending
Pull upon
arrival of
purchase
order
3
Purchase
order
4
Purchase order
(“Blind copy”)
Match documents
and file
together
Purchase
order
N
File until arrival
of ordered
goods
From supplier
Pending
Pull upon
arrival of
receiving
report
3
Packing slip
(accompanying
ordered goods)
Purchase
order
N
N
Pull purchase order ;
count quantities of
goods received and
inspect goods for
damage; prepare
receiving report
4
Receiving
report
1
2
Receiving
report
3
2
Sign to
acknowledge
receipt of
goods
2
Receiving
report
Match documents
and file
together
4
Packing slip
B
Pull upon
arrival of
supplier’s
invoice
A
Rec.
report
N
Pending
N
4
Supplier’s
invoice
2
Match documents
and check
accuracy
To payables
processing
FIGURE A13.1-1
(continued)
CD–235
4838 Wilkinson Apps pp 203-241 8/9/99 10:04 AM Page 236
CD–236
•
APPENDIX 13.1
3. Receipt of ordered goods
When the ordered goods arrive at the receiving dock,
the “blind” copy of the purchase order is matched to
the packing slip in order to verify that the goods were
ordered. Next the receiving clerk inspects the goods
for damage and counts the quantities received. Then
he or she prepares a prenumbered receiving report on
which the findings are recorded. The original copy of
this report accompanies the goods to stores, where
the storeskeeper or warehouse worker signs the copy
(to acknowledge receipt) and forwards it to accounts
payable. Other copies of the receiving report are sent to
the purchasing department (to update the open purchase order) and to the inventory control department (to
update the inventory records).
4. Receipt of the supplier’s invoice
When the supplier’s invoice arrives soon after the ordered goods, it may first be routed to the purchasing department for comparisons with the documents relating
to the purchase. If found to be proper and complete, the
invoice is forwarded to the accounts payable department
for more extensive processing. (Invoices pertaining to
services are first routed to the using departments, where
they are approved for payment by the managers responsible for incurring the expenditures. Then they are forwarded to accounts payable.)
Accounts Payable Procedure
Since accounts payable is an accounting department not
directly involved in purchasing and receiving goods, it is
the most suitable department to examine the supplier’s
invoice and to trace its contents to the supporting documents. As noted earlier, this examination process is
called vouching.
Figure A13.1-2 presents the vouching step and the
processing steps that follow. Upon receiving an invoice
in the accounts payable department, a clerk pulls the
supporting documents from a file and performs the various comparisons and checks that constitute vouching. These verifications are intended to determine that
(1) the purchase has been authorized, (2) the goods or
services listed in the invoice have been duly ordered,
(3) the goods or services have been received in full,
(4) the unit prices are in conformity with the purchase
order or are satisfactory to the purchasing department,
(5) the terms and other specifications are in agreement
with the purchase order, and (6) all computations are
correct. After finishing, the clerk initials an audit box (either stamped on the invoice or on another document
such as a voucher) to acknowledge that the verifications
have been performed and the supplier’s invoice is approved for payment. Any differences must be settled,
however, before a supplier’s invoice can be approved for
payment. For instance, if only part of the order is received, the purchase order should be so marked and returned to the file.
Assuming that the voucher system is used, a disbursement voucher is prepared on the basis of one or
more approved suppliers’ invoices. Then the voucher is
entered in a voucher register. Batch control totals are
computed from the columns in the voucher register, including the total amount of payables, the total merchandise cost, the total selling expense, and so on. A
journal voucher is prepared from these totals. Figure
A13.1-3 shows a disbursement voucher with key accounting records used in a voucher system.
A clerk posts the vouchers to the suppliers’ accounts in the accounts payable subsidiary ledger. Batch
totals of the posted credits are computed. Also, copies
of the vouchers are forwarded to accounting departments that maintain the ledgers relating to the various
expenditures (labeled in the flowchart as inventory/expense control). Clerks in these departments post debits to inventory, supplies, fixed assets, selling expense,
and administrative expense ledgers. Batch totals of the
posted debits are computed. Then the batch totals of
the posted debits and credits are compared to the journal voucher previously prepared. If all amounts agree,
the entry is posted to the accounts in the general
ledger.
Finally, the originals of the vouchers, together with
the supporting documents, are filed in a “tickler” file,
which is a file arranged by payment due dates. There the
unpaid vouchers remain until they are ready for use in
cash disbursements processing.
Posting to General Ledger Accounts
The form of the entry concerning the purchases of merchandise depends on the inventory method employed.
In the case of the periodic inventory method, the entry
involves the following accounts:
Dr. Purchases
XXX
Cr. Accounts Payable
XXX
In the case of the perpetual inventory method, the
entry involves the following accounts:
Dr. Merchandise Inventory (or Raw Materials) XXX
Cr. Accounts Payable
XXX
Returns and allowances for purchased merchandise
may be entered from debit memoranda onto journal
vouchers. An entry would be as follows, assuming that
the periodic inventory method is used:
Dr. Accounts Payable
XXX
Cr. Purchases Returns and Allowances
XXX
4838 Wilkinson Apps pp 203-241 8/9/99 3:04 PM Page 237
Accounts payable
Inventory/expense control
From purchases
processing
Purchase
order
N
Supplier’s
invoice
Purchase
requisition
General ledger
Purchase order
Receiving report
Inventory
ledger
Compare
documents;
vouch and
prepare
voucher
Post and
total;
file
Expense
ledgers
Batch
control
totals
General
ledger
Voucher
N
Purchase
requisition
Supplier’s
invoice
Purchase order
Receiving report
Disbursement 1
2
voucher
(in batches)
Compare and
post
total
owed;
file
Enter all expenditures in
voucher register; sort
and post invoices for
purchased goods
to suppliers’
accounts; total
Unpaid
vouchers
C
To cash
disbursements
Voucher
register
Accounts
payable
subsidiary
ledger
FIGURE A13.1-2
JV
N
Batch
control
total
Batch totals often
entered on journal
vouchers before
comparison step;
these JV’s are
then filed
Batch
control
total
A document flowchart of a manual payables processing procedure.
CD–237
4838 Wilkinson Apps pp 203-241 8/9/99 3:05 PM Page 238
Supplier’s
invoices
Amount due
Typical Merchandising Company
Disbursement Voucher
No.
Date
Disburse check to:
Invoice
number
Invoice
date
Prepared by:
Account to
debit
Invoice
amount
Approved by:
Discount
Total amount due:
VOUCHER REGISTER
Date Voucher
No.
Paid
Voucher
Check
Payable
No. Date (Credit)
Net
amount
Selling
Merchandise Supplies Expense
(Debit)
(Debit)
(Debit)
Page
Administrative
Expense
(Debit)
Fixed
Assets
(Debit)
Misc. Debits
Acct.
No. Amount
Totals
General
ledger
FIGURE A13.1-3
Subsidiary
ledgers
A disbursement voucher, together with key accounting records used in the voucher system.
CD–238
4838 Wilkinson Apps pp 203-241 8/12/99 8:50 AM Page 239
APPENDIX 13.1
When the periodic inventory method is used, the following adjusting entry must also be made at the end of
each accounting period:
Dr. Merchandise Inventory, Ending
XXX
Dr. Cost of Goods Sold
XXX
Cr. Purchases
XXX
Cr. Merchandise Inventory, Beginning
XXX
•
CD–239
Detailed Inventory Posting Procedure
Figure A13.1-4 presents a data-flow diagram of the activities relating to the merchandise inventory. It summarizes all of the postings to the merchandise inventory
records, as follows: (1) when orders are placed, the
quantities ordered are added to the Ordered column and
the On Order balance is increased; (2) when ordered
Supplier data
Inventory
control
department
Purchase order
header info
Purchase
requisition
Purchase
order
1.0
Acquire
merchandise
Inventory
item info
Supplier
(vendor)
Packing slip
(with goods)
Purchase
order
Quantities
ordered
2.0
Receive
and store
merchandise
Purchase
return
Quantities
received
and stored
Merchandise inventory records
Quantities
shipped
Shipping
notice
3.0
Ship
merchandise
Customer
Quantities
returned
from sale
Quantities
returned
from purchase
4.0
Adjust
merchandise
values
Quantities
based on
adjustments
Accounting
manager
Inventory cost
or quantity
adjustment re
obsolescence, etc.
Sales
return
Journal voucher
to adjust
inventory values
General ledger records
FIGURE A13.1-4 A data-flow diagram pertaining to merchandise inventory activity.
4838 Wilkinson Apps pp 203-241 8/9/99 3:05 PM Page 240
Accounts payable
Cash disbursements (cashier)
From payables
processing
Disbursement
voucher
(in batches)
Hold until due
date for payment;
process in batches
Unpaid
vouchers
General ledger
Treasurer
Supplier
1
Supplier’s invoice
C
Purchase req.
Purchase order
Disbursement
voucher
(in batches)
1
Receiving report
Supplier’s invoice
2
Purchase req.
1
Prepare
check
Disbursement
voucher
Purchase order
1
Supplier
A
Check
(in batches)
Purchase req.
2
Receiving report
Check copy
4
Batch
control
total
Enter check
data and
compute
total
Enter
in
batches
1
Disbursement
voucher
Purchase order
1
A
A
5
Journal
voucher (using
batch total)
Compare and
post total
paid; file
2
Voucher
register
Check copy
Check
Check
Check
register
Purchase req.
Receiving report
1
Review, sign
check, and
mail
3
Supplier’s invoice
Enter check
number and
file with
voucher
Purchase order
3
Check copy
Compute totals of
amounts due to be paid;
sort and post
debits to suppliers’
accounts; total
amounts posted
Accounts
payable
subsidiary
ledger
Supplier’s invoice
1
Receiving report
3
Check copy
General
ledger
Check
JV
N
N
FIGURE A13.1-5 A document flowchart of a manual cash disbursements transaction processing procedure.
CD–240
4838 Wilkinson Apps pp 203-241 8/9/99 10:04 AM Page 241
APPENDIX13.1
quantities are received, the quantities are added to the
Receipts column, the On Hand balance; is increased,
and the On Order balance is decreased; (3) when sales
are made, the quantities sold are added to the Sales column and deducted from the On Hand balance, and (4)
when purchases are returned, the quantities returned
are deducted from the On Hand balance.
Inventory ledger records can include the dollar
value of inventory items in addition to the quantities.
However, it is necessary to determine the unit costs
that will be used to calculate the dollar values of transactions. Actual unit costs based on suppliers’ invoices
have customarily been used, but they can vary from
purchase to purchase and can also require adjustment
to allow for freight and sales taxes. Thus many firms
use standard unit costs that are held constant for a
year or more.
Cash Disbursements Procedure
Figure A13.1-5 flowcharts a procedure involving the disbursements of each related to purchases on credit. The
principal control points involve assembly of the unpaid
vouchers, preparation of the checks, signing of the
checks, processing of the cash disbursement records,
and posting of cash amounts.
1. Assembly of the unpaid vouchers
The cash disbursements procedure begins in the accounts payable department with the unpaid voucher file.
Each day (or at specified periods) a clerk extracts the unpaid vouchers due to be paid that day. She or he reviews
each voucher “package” to see that it contains all of the
supporting documents, including the invoices. After
computing the total amount to be paid and posting the
payment amounts from the vouchers to the appropriate
suppliers’ accounts, the clerk forwards the vouchers and
supporting documents to the cash disbursements department.
2. Preparation of the checks
A cash disbursements clerk inspects each voucher for
completeness and authenticity and then prepares a
prenumbered check. When done, the clerk forwards the
original checks to an authorized check signer, together
•
CD–241
with the supporting documents. Then the check copies
are entered into the records.
3. Signing of the checks
In many firms the authorized check signer is the treasurer, although the cashier may be authorized to sign
checks below a designated amount. The signer first reviews the supporting documents. Then he or she signs
each check that is properly supported and routes the
checks directly to the mail room. From the mail room the
checks are delivered to the post office.
4. Processing of the cash disbursement records
The amounts and other key data concerning the checks
are entered in a check register, and the total of the paid
amounts is computed. One copy of the check (with
voucher) is filed in the cash disbursements department
numerically. The other copy of the check (with voucher)
is stapled to the supporting documents, which are
stamped as paid, and the package is returned to the accounts payable department. There the number of each
check and the date are entered in the voucher register,
and the package is filed alphabetically by supplier.
Firms that process large volumes of invoices often
find that the bulky voucher packages consume much
storage space and are awkward to retrieve. Thus they
may decide to microfilm the documents after processing
and then to destroy the documents. The microfilm images may be arranged by voucher numbers and crossreferenced to supplier names.
5. Posting of cash amounts
A journal voucher is prepared on the basis of the total of
prepared checks and sent to the general ledger department. If the amount in the journal voucher agrees with
the total debits posted to the accounts payable ledger,
the entry is posted to the accounts in the general ledger
as follows (assuming that the gross method of recording
purchases is used):
Dr. Accounts Payable
XXX
Cr. Cash
XXX
Cr. Purchase Discounts
XXX