Cash disbursement voucher- Provide slip and receiving report) records that were

CHAPTER 5 improved control over cash disbursements closed upon receipt of goods.
and allow firms to consolidate several
KEY TERMS: Purchase order - Document based on a
payments to the same supplier on a single
voucher, thus reducing the number of purchase requisition that specifies items
Actual cost inventory ledger- A
checks written. ordered from a vendor or supplier.
document that tracks inventory transactions
that requires an additional financial Purchase requisition - Document that
Cash disbursements journal- Contains
information such as a copy of the supplier's authorizes a purchase transaction.
the voucher number authorizing each
invoice upon arrival.
check and provides an audit trail for
Purchase requisition file - File that
AP packet- A group of supporting verifying the authenticity of each check
contains a copy of purchase requisitions. It
documents, which are the purchase order, written.
is created during the sales activity when
receiving report, and invoice, prepared by inventories drop to their predetermined
Check register- Record of all cash
the AP clerk to be sent out to the cash reorder point.
disbursements.
disbursement department.
Closed AP file- Record of all accounts Receiving report - Report that lists
AP pending file- A group of accounts quantity and condition of the inventories
payable that have been discharged by
payable documents filed chronologically received.
making payment to the creditors.
under some future date when they require
further attention or action. Open AP file- file organized by payment Receiving report file - File in which a copy
due date and scanned daily to ensure that of the receiving report (stating the quantity
AP subsidiary ledger- An accounting and condition of the inventories) is placed.
debts are paid on the last possible date
ledger that shows the transaction history
without missing due dates and losing
and amounts owed for each supplier from Standard cost system - Organizations
discounts.
whom the business receives credit for that carry their inventories at a
purchases. Open Purchase order file- file that predetermined standard value regardless
contains the last copy of the multipart of the price actually paid to the vendor.
Blind copy- Contains no quantity or price
purchase order along with the purchase
information about the products being Supplier’s invoice - Bill sent from the
requisition.
received for the purpose of forcing the seller to the buyer showing unit costs, taxes,
receiving clerk to count and inspect Open Purchase requisition file- file that freight, and other charges.
inventories prior to completing the receiving contains a copy of purchase requisitions.
report. Valid vendor file - File containing vendor
Open/Closed Purchase Order file- file of mailing information.
purchase order(together with the packing
 Vendor’s invoice- Commercial document for the purpose of making an order to represents payment to one vendor.
issued by a vendor to a buyer, indicating the the supplier. Multiple invoices may be paid with one
products or services, quantities, and voucher. The voucher system allows
agreed prices for products or services that 2. What purpose does a purchasing better control over cash disbursement
the vendor has already provided to the department serve? because cash vouchers are assigned
buyer. An invoice indicates that payment is and tracked.
The main purpose of the purchase
due from the buyer to the vendor, according
department is to confirm that the 4. What are three logical steps of the
to the payment terms.
purchase is actually required in the first cash disbursement system?
Voucher register- Register that reflects a place. Only after the verification is done,
firm’s accounts payable liability. the purchase order is prepared. The three logical steps of cash
Purchasing department is able to disbursement system are:
Voucher payable file- Equivalent to the research the quality and pricing of
open AP file. various vendors. Their job is to monitor a. authorization of cash
various supply sources and choose the disbursements for payment.
Vouchers payable system- System under highest quality good for a given price b. preparation and distribution of
which the AP department uses cash which can be reliably delivered on checks, and
disbursement vouchers and maintains a [Link] purchasing department may c. preparation of summary
voucher register. also take advantage of quantity information by cash
discounts,especially when two or more disbursements and accounts
manufacturing facilities are involved. payable and sent to the general
ledger clerk.
REVIEW QUESTIONS:
3. Distinguish between an AP file and a
vouchers payable file 5. What general ledger journal entries
1. Differentiate between a purchase
does the purchases system trigger?
requisition and a purchase order.
An accounts payable file contains all From which department do these
Difference between purchase source documents, including invoices, journal entries arise?
requisition and purchase order is that organized by payment date. As the due
dates come close to the current date, A. AP account summary triggered
purchase requisition is made by the
the invoices are pulled from the file and form the AP department
warehouseman in order to tell the
purchasing department that they are paid. Under the voucher system, the
DR: Inventory Control
low on inventory and they need to buy accounts payable clerk prepares that
to continue operating. The purchase cash disbursements voucher upon CR: Accounts
order is made by the purchasing clerk receipt of all source documents. Each Payable
cash disbursements voucher
 B. Journal voucher triggers from damaged. A supervisor is necessary figures, the general ledger clerk verifies
the cash disbursement system to remove the packing slip which that:
contains quantity information and to
DR: Accounts payable make sure the receiving clerks 1. total obligations
actually inspect the goods. If the value recorded is EQUAL to
CR: Cash in the total inventories
of the inventory is listed, the employee
Bank received, and
may be tempted to steal some of the
2. total reductions in
6. What two types of risks can close inventory. Close supervision should
accounts payable is
supervision of the receiving deter employees from stealing. EQUAL to the total
department reduce? disbursements of cash.
7. What is a three-way match?
In the expenditure cycle, the 9. What is (are) the purpose(s) of
It is a procedure used by the AP
receiving department is the area that maintaining a valid vendor file?
Department to authenticate and verify
most benefits from supervision. Large
disbursal of payment to a creditor. This Inventories should only be
quantities of valuable assets flow
procedure is done by acquired from valid vendors. This
through this area on their way to the
reconciling/matching three documents control procedure helps to deter the
warehouse. Close supervision here
namely: invoice, purchase order (PO), purchasing agent from buying
reduces the chances of two types of
and the receiving report. Through this inventories at excessive costs and
exposure: (1) failure to properly inspect
matching, one can verify what was receiving kickbacks or from buying from
the assets and (2) the theft of assets.
ordered was received and is fairly an entity in which the purchasing agent
Supporting detail: Because the priced. The procedure is used to ensure has a relationship, such a relative or a
receiving clerks have access to many of that only authorized purchases are friend.
the firm's assets they are prone to those reimbursed, thereby preventing losses
2 exposure mentioned. Thus, the copy due to fraud and carelessness. 10. Some organizations do not use an
of the purchase order which they use AP subsidiary ledger or purchase
8. What steps of independent journal. How is this possible?
for this inspection should have the
verification does the general ledger
quantities and amounts covered so that
department perform? If they eliminate the receiving
they may not be read. If the quantity is
function in an advanced technology
printed on the receiving clerk's copy of The general ledger system where integrated purchase
the purchase order, he or she may be department receives journal vouchers system is implemented.
tempted to skip the physical inspection and summary reports from inventory
and the company may be paying for control, accounts payable, and cash 11. What is the purpose of the blind
inventory it did not receive or is disbursements. With these summary copy of a PO?
 The blind copy contains no supplier, quantity of items ordered and copy of the requisition is sent to the
quantity or price information about the expected cost of item. purchasing department, and one copy
products being received. The purpose is placed in the hard- copy open
of the blind copy is to force the • Receiving Report (RO): purchase requisition file. Note that to
receiving clerk to count and inspect provide proper authorization control,
Receiving report contains quantity and
inventories prior to completing the the inventory control department is
price of the items received from the
receiving report. segregated from the purchasing
vendor. It also documents the condition
department, which executes the
12. Give one advantage of using a of the goods received.
purchase transaction.
vouchers payable system.
• Invoice:
Vouchers provide improved
Invoice contains items in details with its
control over cash disbursements and 3. Discuss the importance of
quantity and agreed price of item.
allow firms to consolidate several supervision controls in the receiving
payments to the same supplier on a This AP Packet is marched in Open AP department and the reasons behind
single voucher, thus reducing the File by the AP Clerk. Only after the AP blind fields on the receiving report.
number of checks written. packet is formed the liability is recorded
Supervision is key because in
and payment can be made. This is
DISCUSSION QUESTIONS: the receiving department, that is the
called a three way match. It verifies that
easiest time to compromise the
1. What documents constitute the AP what was ordered, what was received
company's financial standing in some
packet? What evidence does each and if it was fairly priced.
way
document provide?
2. In the basic technology system, the
Receiving clerks need to
Documents that constitute the AP inventory control clerk reviews the
adequately count and confirm the items
Packet purchase requisition file to identify
flowing into the company before signing
inventory needs. Explain how this
the bill of lading - when given the blind
The AP Clerk prepares an AP Packet file is created.
copy
which consist the three following
supporting documents: The process begins when the inventory
Cash disbursements and
control clerk prints purchase
accounts payable are then set up,
• Purchase Order (PO): requisitions from his PC by accessing
which are also on the basis of correct
the purchase requisition file. Recall that
A typical PO contains ordering information and receipts
this file was created during the sales
information like name and address of activity when the inventories dropped to Placing inventory and recording
their predetermined reorder point. One at correct levels is extremely important,
 any fabrication can impact the financial purchase order and receiving report Trading partners have a lot of
standing of the business entirely. records, using the PO number as a access, which gives them a lot of
common attribute. The application then freedom to accounting records, which
4. The level of day-to-day department reconciles the supporting documents, may be a serious issue if the trading
activity in advanced technology using programmed criteria for
partner is unreliable or misuses that
systems is significantly lower than assessing discrepancies. Items that fall
within limits are automatically approved privilege.
that of basic technology systems.
and paid on their due date.
Are these departments no longer Discrepancies in excess of the 8. What purpose does multilevel
necessary? threshold are submitted to security control play in an integrated
management for review and manual purchases/cash disbursements
Absolutely: for separation of approval. Through the virtual AP packet system?
duty reasons, it is critical that screen, management may view the
companies keep the necessary areas supporting documents and exercise an Separating the roles of
of business override of the system controls to force purchasing, receiving, accounts
payment. The override should be payable, cash disbursement and
Even if a three way match is performed only by authorized general ledger access are completely
done automatically, those updating the management and should be fully
independent, which avoids serious
necessary information need to be documented in management reports.
internal control flaws.
independent of one another in order for 6. What is central to a successful EDI
the integrity of the match to be intact implementation? 9. You are conducting an end-of-year
audit. Assume that the terms of
5. Discuss the following statement: The use of a standard format for trade between a buyer and a seller
even in advanced technology messaging between dissimilar systems are free on board (FOB) destination.
systems, the AP clerk must perform is central to a successful EDI What document provides evidence
a three-way match to approve all implementation. that a liability exists and may be
vendor invoices for payment. unrecorded?
7. Discuss the objective of eliminating
In the advanced technology the receiving function. What The receiving report is
system, the three way match is evidence that the items have been
automated. When the AP clerk receives accounting/audit problems need to
be resolved? received and a liability has been
the supplier’s invoice, the clerk
accesses the system and adds a record realized. If the invoice did not come in
to the vendor invoice file. This act In the absence of explicit by the end of the year, then the liability
prompts the system to automatically authorization, we have to make sure may not have been recognized in the
create a virtual AP packet by linking the that only valid transactions are period under review.
vendor invoice to the associated processed
10. How does the general control area of Multiple Choice Questions 3. Accounts payable is responsible for
systems development and program paying invoices.
change impact day-to-day
transaction processing? 4. Cash disbursements maintains the
1. Which of the following statements is check register.
correct?
General controls are those that
5. Accounts payable maintains the AP
control the design, security, and use of 13. The cash disbursement function is part subsidiary ledger.
computer programs and the security of of accounts payable.
data files in general throughout the 6. Accounts payable is responsible for
organization. On the whole, general 14. Cash disbursement is a treasury authorizing payment of invoices.
controls apply to all computerized function.
applications and consist of a 15. Cash disbursement is an independent
combination of system software and accounting function. 3. Which document typically triggers the
manual procedures that create an three-way match?
overall control environment. 16. The cash disbursement function is part
of the general ledger department. d. Purchase requisition
Whereas general controls do
not control specific transactions, they e. Supplier’s invoice
have an effect on transaction integrity. B. Cash disbursement system is responsible for f. Purchase order
For example, consider an organization processing the payment of obligations which
with poor database security controls. In are created in the purchases system. Cash g. Receiving report
such a situation, even data processed disbursement system ensures that the payment
by systems with adequate built-in is made only to the valid creditors and the
application controls may be at risk. An payment amount is timely and accurate. B. Supplier’s invoice triggers the process of
individual who is able to circumvent recording the liability because till that point of
database security (either directly or via For each disbursement, the cash disbursement time no financial event has occurred.
a malicious program) may then change, clerk prepares a check such that this check
steal, or corrupt stored transaction data. may require additional verification by cash
Thus, general controls are needed to disbursement departmental manager or
4. Which one of the following departments
support the functioning of application treasure.
does not use a copy of the receiving report?
controls, and both are needed to
ensure accurate financial reporting. a. The warehouse
2. Which of the following represents
b. Accounts payable
incompatible tasks?
 c. General ledger 8. Which of the following tasks should the
cash disbursements clerk NOT perform?
d. The purchasing department 6. Which of the following expenditure cycle
tasks should not be separated? a. Approve the liability
1. Purchasing inventory items and b. Review the supporting documents for
Justification: One copy of the receiving report updating inventory subsidiary ledger completeness and accuracy
accompanies the physical inventories either the
raw materials storeroom or finished goods 2. Storing inventory in the warehouse and c. Prepare checks
warehouse for safekeeping. Another copy is updating inventory subsidiary ledger
sent to the purchasing department, where the d. Mark supporting documents paid
purchasing clerk reconciles it with the open PO. 3. Updating accounts payable records
And another copy is sent to the AP Department and posting to the cash
to be filed in the AP pending file. disbursements journal Justification: AP function reviews the open AP
4. All of the above should be separated file ( or vouchers payable file) for such items
and sends payment approval in the form of a
5. Which control helps to ensure that the 5. None of the above need to be voucher packet to the cash disbursements
inventory items received are the correct separated department.
type and the correct amount, and are in
good condition?
7. Which of the following describe 9. Which ledger can be updated solely from
C. Reconciliation with the packing slip incompatible duties? the receiving report?
D. The way match 11. Authorizing payment and writing a. General ledger
E. Preparation of a shipping notice checks
b. Standard cost inventory ledger
F. Issuance of a blind copy of purchase 12. Matching purchase orders, receiving
reports and invoices, and authorizing c. Actual cost inventory subsidiary ledger
order
payment d. Accounts payable subsidiary ledger
13. Authorizing payment and
Justification: Three-way match verifies that maintaining the accounts payable
what was ordered was received and is fairly subsidiary ledger Justification: Posting to a standard cost
priced. This is where the AP clerk reconciles inventory ledger requires only information
the financial information of the invoice with the 14. All the above are incompatible tasks about the quantities received. Because the
receiving report and PO in the pending file. receiving report contains quantity information,
it serves this purpose.
10. Which of the following documents
would most likely provide audit evidence of
an unrecorded liability?
a. Invoices
b. Receiving reports
c. Purchase orders

d. Purchase requisition