Ateneo de Zamboanga University

SCHO O L O F MANAGE ME NT AND ACCOUNTANCY

ACCOUNTANCY DEPARTMENT
S.Y. 2020 – 2021 ● 1 st Semester ● 2 nd Session

DOCUMENT ACCIST1 – Accounting Information System Learning Packet

COVERAGE Transaction Cycles: Expenditures Cycle
WEEKS COVERED Week 4
PREPARED BY Romel W. Delosa, C.P.A.

INTENDED LEARNING OUTCOME - At the end of these learning units, the learners shall:
1. Explain the essential tasks performed in the expenditure cycle, regardless of the technology in
place.
2. Identify the functional departments involved in expenditure cycle activities and trace the flow of
revenue transactions through the organization.
3. Explain the risks associated with the expenditure cycle and identify controls that reduce those
risks.
4. Explain the operational and control implications of technology used to automate and re-engineer
the expenditure cycle
LEARNING CONTENT
1. Overview of Expenditure Cycle
2. Key Activities under Revenue Cycle
a. Purchase Procedures
b. Cash Disbursement Procedures
3. Risks and Controls
4. Payroll and Fixed Asset Systems

CHAPTER 1

Overview of the Expenditure Cycle

Business activities begin with the acquisition of materials, property, and labor in exchange
for cash. Most expenditure transactions are based on a credit relationship between the
trading parties. The actual disbursement of cash takes place at some point after the receipt
of the goods or services. Days or even weeks may pass between these two events. Thus,
from a systems perspective, this transaction has two parts: a physical component (the
acquisition of the goods) and a financial component (the cash disbursement to the
supplier). A separate subsystem of the cycle processes each component.

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Zamboanga University. The reproduction and circulation of which without the entity’s written consent is strictly prohibited.
 Ateneo de Zamboanga University
SCHO O L O F MANAGE ME NT AND ACCOUNTANCY
ACCOUNTANCY DEPARTMENT
S.Y. 2020 – 2021 ● 1 st Semester ● 2 nd Session

CHAPTER 2

Key Activities under the Expenditure Cycle

PURCHASE CASH DISBURSEMENT

Include the tasks involved in identifying Processes the payment of
inventory needs, placing the order, obligations created in the
receiving the inventory, and purchases system.
recognizing the liability

1. Purchase Procedures

Purchases procedures include the tasks involved in identifying inventory needs, placing
the order, receiving the inventory, and recognizing the liability
Records and The receiving clerk Update Inventory
Receive Goods
Prepare Purchase Order

Update Records
monitors inventory prepares a receiving Records
When inventories report after the Set up Accounts
drop to a physical count and Payable
predetermined inspection of the
inventories, stating Set up General
reorder point, a Ledger Balances
purchase requisition the quantity and
is prepared condition of the
inventories.
The purchase order
is prepared for each A blind copy is used
vendor. to record goods
received

2. Cash Disbursement Procedures

The cash disbursements system processes the payment of obligations created in the
purchases system. The principal objective of this system is to ensure that only valid
creditors receive payment and that amounts paid are timely and correct.
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All rights reserved. The use of this document as a whole or in part is restricted. This document has been prepared by the Accountancy Department of the Ateneo de
Zamboanga University. The reproduction and circulation of which without the entity’s written consent is strictly prohibited.
 Ateneo de Zamboanga University
SCHO O L O F MANAGE ME NT AND ACCOUNTANCY
ACCOUNTANCY DEPARTMENT
S.Y. 2020 – 2021 ● 1 st Semester ● 2 nd Session

AP department Disbursement clerk Update AP Record -

Identify liabilities due

Prepare Cash Disbursement

Update Records
identifies items that prepares a check and AP records payment
have come due. records pertinent and updates liability
AP reviews open AP data in the check records
files and sends register Post General Ledger -
payment approval in The check may some payment
the form of a require additional vouchers already
voucher packet to approval by the cash include the entries to
the cash disbursements be made.
disbursements department manager
department. or treasurer,
depending on
treshhold set by
company

CHAPTER 3
Risks and Controls

Risks:
1. Purchase Procedures
Requisition/PO Creation
▪ Purchased services or goods are fictitious.
▪ Coding of purchases to the General Ledger is not accurate.
▪ Purchased services or goods are not authorized in accordance with policy.
▪ Functional and/or system segregation of duties and access controls are not in
place.
Goods/Service Receipts
▪ Good receipts do not match what was ordered.
▪ Vendor returns are not identified on a timely basis.
▪ Good receipts are not recorded accurately or in the correct period.
▪ Fictitious or duplicate receipts are recorded.
▪ Functional and/or system segregation of duties and access controls are not in
place.
Invoice Processing
▪ Liabilities are not recorded accurately or in the correct period.
▪ Vendor invoices are inaccurate (price, quantity, terms) or do not match what was
ordered.
▪ Fictitious or duplicate invoices are recorded.
▪ Coding of purchases to the GL is not accurate.
▪ Debit memos are inaccurate or not authorized according to policy.

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All rights reserved. The use of this document as a whole or in part is restricted. This document has been prepared by the Accountancy Department of the Ateneo de
Zamboanga University. The reproduction and circulation of which without the entity’s written consent is strictly prohibited.
 Ateneo de Zamboanga University
SCHO O L O F MANAGE ME NT AND ACCOUNTANCY
ACCOUNTANCY DEPARTMENT
S.Y. 2020 – 2021 ● 1 st Semester ● 2 nd Session

▪ Functional and/or system segregation of duties and access controls are not in
place.
2. Cash Disbursement Procedures
• Payments are not recorded accurately or in the correct period.
• Payments are inaccurate or not authorized according to policy.
• Fictitious or duplicate payments are recorded.
• Functional and/or system segregation of duties and access controls are not in place.

Controls:
Transactions authorization ▪ The inventory control function
continually monitors inventory
levels. As inventory levels drop to
their predetermined reorder points,
inventory control formally
authorizes replenishment with a
purchase requisition.
▪ The AP function authorizes cash
disbursements via the cash
disbursement voucher. To provide
effective control over the flow of
cash from the firm, the cash
disbursements function should not
write checks without this explicit
authorization
Segregation of duties (CARE)/Supervision ▪ Segregation of Inventory Control
from the Warehouse.
▪ Segregation of the General Ledger
and Accounts Payable from Cash
Disbursements.
▪ Supervision
Accounting records ▪ AP subsidiary ledger
▪ General ledger,
▪ Purchases journal
▪ Cash disbursements journal,

Access Restricting physical access to

▪ Inventory
▪ Accounting records above
Independent verification ▪ The AP function plays a vital role in
the verification of the work others
in this system have done.

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All rights reserved. The use of this document as a whole or in part is restricted. This document has been prepared by the Accountancy Department of the Ateneo de
Zamboanga University. The reproduction and circulation of which without the entity’s written consent is strictly prohibited.
 Ateneo de Zamboanga University
SCHO O L O F MANAGE ME NT AND ACCOUNTANCY
ACCOUNTANCY DEPARTMENT
S.Y. 2020 – 2021 ● 1 st Semester ● 2 nd Session

▪ The general ledger function

provides an important independent
verification in the system. It
receives journal vouchers and
summary reports from inventory
control, AP, and cash disbursements

Key Terms

Purchase requisition - is a document used when an employee needs to make

a purchase or an order request on behalf of their company.
Purchase order - commercial document and first official offer issued by a buyer to a seller
indicating types, quantities, and agreed prices for products or services
Blind purchase order - , purchase order that contains no quantity or price information
about the products being received.
Receiving report - A document that indicates the quantity and condition of
goods received.
Supplier’s invoice - Sales invoices and bills issued by supplying vendor and received by
the buying customer. Also called vendor’s invoice
AP subsidiary ledger - Accounting ledger that shows the transaction history and amounts
owed to each supplier and vendor
Cash disbursement vouchers - A form used to have a check made to pay an individual or
an organization for merchandise sold or services rendered.

Voucher register - Is a journal that records all vouchers once they are approved.
Check register - document on which is stated the payment dates, check numbers, payment
amounts, and payee names for all check payments
Cash disbursement journal - is a special journal used to record all payments of cash

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All rights reserved. The use of this document as a whole or in part is restricted. This document has been prepared by the Accountancy Department of the Ateneo de
Zamboanga University. The reproduction and circulation of which without the entity’s written consent is strictly prohibited.
 Ateneo de Zamboanga University
SCHO O L O F MANAGE ME NT AND ACCOUNTANCY
ACCOUNTANCY DEPARTMENT
S.Y. 2020 – 2021 ● 1 st Semester ● 2 nd Session

CHAPTER 4 – Pa yroll a nd F ixed Asse t S ys te ms

1. Payroll Procedures

The payroll system collects labor usage data for each employee, computes the payroll,
and disburses paychecks to the employees. Conceptually, payroll is a special-case
purchases and cash disbursements system. Because of accounting complexities
associated with payroll, most firms have a separate system for payroll processing.
Department

Update Records
Personnel and Productiom

Prepare Payroll
Personnel Prepares the payroll Distribute Paycheck
Department register (showing Prepare Cash
Authorizes Payroll by gross pay, Disbursement
sending personnel deductions, overtime voucher
action forms to pay, and net pay.
personnel Update General
Enters the above Ledger
department information into the
Production employee payroll
employees prepare records
two types of time Prepares employee
records: job tickets paychecks
and time cards
Sends paychecks to
Update WIP records Cash Disbursement

Key Terms

Job tickets - capture the time that individual workers spend on each production job. Cost
accounting uses these documents to allocate direct labor charges to work-in-process
(WIP) accounts.
Timecards - capture the time the employee is at work
Personnel Action forms - These documents identify employees authorized to receive a
paycheck and are used to reflect changes in hourly pay rates, payroll deductions, and job
classification.
Payroll register - is the record for a pay period that lists employee hours worked, gross
pay, net pay, deductions, and payroll date
Paycheck - paper document issued by an employer to pay an employee for services
rendered.

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All rights reserved. The use of this document as a whole or in part is restricted. This document has been prepared by the Accountancy Department of the Ateneo de
Zamboanga University. The reproduction and circulation of which without the entity’s written consent is strictly prohibited.
 Ateneo de Zamboanga University
SCHO O L O F MANAGE ME NT AND ACCOUNTANCY
ACCOUNTANCY DEPARTMENT
S.Y. 2020 – 2021 ● 1 st Semester ● 2 nd Session

2. Fixed Asset System Procedures

A firm’s fixed asset system processes transactions pertaining to the acquisition,

maintenance, and disposal of its fixed assets. These are relatively permanent items that
collectively often represent the organization’s largest financial investment.

The fixed asset system shares some characteristics with the expenditure cycle presented
in, but two important differences distinguish these systems.

First, the fixed asset system processes non-routine transactions for a wider group of
users in the organization. Because fixed asset transactions are unique,
they require specific management approval and explicit authorization procedures. I

The second difference between these systems is that they capitalize fixed assets that yield
benefits for multiple periods. Therefore, fixed asset accounting systems include cost
allocation and matching procedures that are not part of routine expenditure systems.

Three major tasks in fixed asset system

1.) Asset acquisition usually begins with the departmental manager (user) recognizing
the need to obtain a new asset or replace an existing one. Once the request is approved and
a supplier is selected, the fixed asset acquisition task is similar to the expenditure cycle
procedures described

2.) Asset maintenance involves adjusting the fixed asset subsidiary account balances as
the assets (excluding land) depreciate over time or with usage. Common depreciation
methods in use are straight line, sum-of-the-years’ digits, double-declining balance, and
units of production

3.) Asset Disposal

When an asset has reached the end of its useful life or when management decides to
dispose of it, the asset must be removed from the fixed asset subsidiary ledger. It begins
when the responsible manager issues a request to dispose of the asset.

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All rights reserved. The use of this document as a whole or in part is restricted. This document has been prepared by the Accountancy Department of the Ateneo de
Zamboanga University. The reproduction and circulation of which without the entity’s written consent is strictly prohibited.