Purchases and Payments Cycle – PART 4 DOCUMENTS

Auditing and Internal Control 2023

Semester 2 – Learning Unit 2

Learning Outcomes

You will be assessed on:

• Understanding of the functions, personnel and
documents relating to the Purchases and Payments
Cycle
• Understanding of the Risks in the cycle

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Documents in the Cycle
Documents in the Cycle

Purchase Requisitions: completed by any

department that wishes to instruct the buying
department to acquire goods / services on its behalf.
 Raw materials warehouse will most likely place
more requests. They will closely monitor stock
re-order levels and production schedules to
know the correct times to initiate requisitions.

Purchase-order Forms: completed by the buying

department; indicates the description, prices and
quantities of goods that the supplier is requested to
provide. Must be signed by Chief Buyer.

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Documents in the Cycle

Supplier delivery note: proof that the supplier has

delivered the goods ordered. Two copies signed on
acceptance of delivered goods.

Goods received note: completed by the purchasing

company when delivered goods are received. Cross-
referenced to supplier delivery note/

Purchase invoice: supplier sends invoice to indicate

the amount due for goods that were delivered

Credit note: prepared by the supplier; applies where

balance owed is reduced due to goods returned,
overcharging by the supplier, etc

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Documents in the Cycle
Creditors statement: received from the supplier on a
monthly basis; indicates the transactions between the
company and the supplier for the month (invoices for
purchases, credit notes where applicable, payments,
discounts for early payment, outstanding balance).

Cheque requisition: Completed by the creditors

department requesting that a cheque be made for a
particular supplier that needs to be paid.

Remittance advice: inform the supplier which invoices

are covered by the payment being made.

Receipt: acknowledgement from the supplier that a

payment was received

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Documents in the Cycle

Other: Logs, variance reports, Purchases Journal,

Creditors Ledger, General Ledger, etc.
Recommended additional reading: Chapter 7,
sections 7.3.2 and 7.3.3

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Sample of Documents in the Cycle

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Sample of Documents in the Cycle

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Sample of Documents in the Cycle

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Sample of Documents in the Cycle

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Sample of Documents in the Cycle

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Sample of Documents in the Cycle

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Sample of Documents in the Cycle

Do not forget the accounting

records:

- Journals
- Ledgers

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Documents in the Cycle – Summary
(Purple Textbook & Appendix)

1. Requisition 2. Ordering 3. Receiving 4. Recording

Purchase & Raising
 Purchase Requisition  Master File Amendment  Supplier Deliver Note Creditor
Form  Goods Received Note  Supplier’s invoice
 Quotation  Price list master file
 Purchase Order  Purchases journal
 Creditor’s ledger
 Inventory Master File

5. Payment 6. Paying Supplier 7. Recording of 8. Returns & Corrections

Preparation payment to creditor  Debit Note
 Remittance advice  Purchases Returns
 Cheque Requisition  Bank deposit slip  Bank deposit slip Journal
 Proof of Payment  Cash payments journal  General Ledger
 Receipt  Creditor’s ledger/  Creditor’s Ledger
Masterfile  Creditor’s Masterfile
 Bank statement  Inventory Masterfile

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Services – General Considerations & Differences

Purchase is made or an intangible product (cannot physically touch the service) – Therefore
the following will not apply in relation to services:
- Physical receipt of goods at a receiving bay (Document consideration – No Goods received note)
- Warehousing and transfers to inventory (Both physically and in accounting records)
- Returning goods and making purchase adjustments – unless adjustments relate to correcting
errors

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Risks in the Cycle