WEEK 4 – LECTURE#1

Expenditures Processes and

Controls-Purchases

1
OUTLINE
OUTLINE

• Purchases

• Purchasing Process Terminology

• Discounts & Credit Limits

• Cash Disbursement Process

• MYOB Controls

• MST Details
2
Introduction
Introduction to
to Expenditure
Expenditure Processes
Processes

When a purchase occurs, the information

resulting from that purchase must flow into
 the purchase recording systems,
 the accounts payable and cash
disbursement systems, and
 the inventory tracking systems.

3
SO 1 An introduction to expenditure processes
 Introduction
Introductionto
to
Expenditure
ExpenditureProcesses
Processes

Exhibit 9-1
Expenditures Processes within
the Overall System

4
SO 1 An introduction to expenditure processes
 Accounting
AccountingImpact
Impactof
ofPurchases
Purchases

Dr. Inventory
Dr. GST Paid
Cr. Accounts Payable
(To record purchase of goods)

Dr. Accounts Payable

Cr. Cash
(To record payment of accounts payable)
5
Introduction
Introduction to
to Expenditure
Expenditure Processes
Processes
Common expenditures processes include:
Prepare a purchase requisition and/or purchase order.
Notify vendor (supplier) of goods or services needed.
Receive goods or services.
Record the payable.
Paying invoice.
Updating records.

6
SO 1 An introduction to expenditure processes
Purchasing
Purchasing Processes
Processes
Terminology  Packing Slip
 Purchase Requisition
 Receiving Report
 Purchase Order
 Receiving Log
 Purchases Journal
 Cutoff
 Blind Purchase Order
 Accounts Payable
 Bill of Lading Subsidiary Ledger

7
SO 2 Purchasing processes and the related risks and controls
Purchase
Purchase Requisition
Requisition

• Purchase Requisition or Purchase

Request is a precise document generated
by an internal or external organization to
notify the purchasing department of items
it needs to order, their quantity, and the
time frame that will be given in the future.
It may also contain the authorization to
proceed with the purchase. It is also called
Purchase Order Request.
8
Purchase
Purchase Order
Order
• A purchase order (PO) is a commercial
document and first official offer issued by a
buyer to a seller, indicating types, quantities,
and agreed prices for products or services.
• Acceptance of a purchase order by a seller
forms a contract between the buyer and seller,
so no contract exists until the purchase order is
accepted. It is used to control the purchasing of
products and services from external suppliers.

9
 Purchase
Purchase Order
Order
• Companies use purchase orders for several reasons:
• Purchase orders allow buyers to clearly and explicitly
communicate their intentions to sellers
• Sellers are protected in case of a buyer's refusal to
pay for goods or services
• Purchase orders help a purchasing agent to manage
incoming orders and pending orders
• Purchase orders provide economies in that they
streamline the purchasing process to a standard
procedure

10
 Receiving
Receiving Report
Report
• A document used to record the amount
and type of finished goods or raw materials
when a shipment has been accepted. A
receiving report is an important record of
the merchandise that a retailer has actually
received from a supplier because it
documents what is owed to the supplier in
terms of payment for the goods received or
the return of the goods, in some cases.
11
MYOB

12
 PURCHASES
 

13
 MYOB
• You can enter a quote to keep a record of an estimate or quote you received
from one of your suppliers. A quote has no impact on your inventory levels and
can be changed to an order or a bill when you are ready to purchase.
• An order is a purchase where no service or item has been received. While
orders do not affect your financial figures, they do affect your inventory levels.
Orders don’t create transactions unless you have paid a deposit to the supplier.
An order can be changed to a bill but not a quote.
• You can use a receive item purchase to record the receipt of items you have
ordered but have not yet been billed for. When you record items received, the
item is added to your inventory and the cost of the item is added to an accrual
account for inventory items until you record a purchase for it.
• An accounts payable transaction is not recorded at this time. You can only
record a received items transaction in the item layout, and only against an order.
• A bill is usually created when you receive the items or services you ordered and
are required to pay the supplier. Recording a bill will update the appropriate
accounts, including the account for tracking payables. Bills can be open
(unpaid), closed (paid) or debit (negative purchase). A bill cannot be changed to
a quote or an order.

14
Purchasing
Purchasing Processes
Processes

Exhibit 9-2
Purchasing Process Map

15
SO 2 Purchasing processes and the related risks and controls
Purchase
Purchase Returns
Returns Processes
Processes
Reasons for Returns:
1. Goods received are unacceptable:
 Quantity or quality discrepancies
 Damage or defects
 Errors in the type of goods delivered or ordered
 Discrepancies in the terms of the purchase
 Timing issues

2. Changes in the company’s needs.

16
SO 3 Purchase return processes and the related risks and controls
Accounting
Accounting Impact
Impact of
of Purchase
Purchase Returns
Returns

Dr. Accounts Payable

Cr. Inventory
Cr. GST Paid
(To record Purchase Returns)

17
Purchase
Purchase Returns
Returns Processes
Processes

Exhibit 9-9
Purchase Returns Process Map

18
SO 3 Purchase return processes and the related risks and controls
 Cash
Cash Disbursement
Disbursement Processes
Processes
Cash disbursements process must be designed to ensure that the
company appropriately processes payments to satisfy its accounts
payable when they are due.

Terminology:

 Cash management
 Remittance advice
 Cash disbursements journal

19
SO 4 Cash disbursement processes and the related risks and controls
 Discounts
Discounts

• Discounts

• To encourage customers to pay early

• MYOB has a number of options

20
 Applying
Applying Discounts
Discounts

• Discounts are set within the Default

Terms of your company file and these
terms flow through to all customers and
suppliers. Different terms can be set
against individual customer and supplier
cards, thus overriding the default terms.
Different terms can also be specified at the
time of recording Invoices and Bills.
 Credit Terms
Credit Terms
Credit Terms

• C.O.D – Cash on delivery

• Prepaid – Paid in advance before goods are
received /delivered
• In a Given # of Days – to be paid in a certain number
of days from the ‘invoice date’
• On a Day of the Month – to be paid on a particular
‘Day’ of the month each month
• # of Days after EOM – means to be paid in a certain
number of days after the ‘End of the Month’ of
Sale/Purchase
• Day of Month after EOM – to be paid on a ‘Specific
Day’ after the End of the Month Sale/Purchase
 Payment
Payment Information
Payment Information
Information
• Discount Days/Date: Enter the number of days or the date within
which payment must be made for the customer/supplier to be eligible
for a discount. If payment is recorded on the Discount Date or earlier,
the discount is calculated on the invoice value.
• Balance Due Days/Date: Enter the number of days or date within
which payment must be made, calculated from the date of sale.
• % Discount for Early Payment: If you give a discount for early
payment, enter the discount percentage as a whole number and not
as a decimal. For example, enter 2% as '2' not '0.02'. The discount is
only calculated if the total of the invoice/bill is paid within the discount
period.
• % Monthly Charge for Late Payment: If you charge for late
payment, enter the monthly charge percentage as a whole number
and not as a decimal. For example, enter 2% as '2' not '0.02'.
 Credit Limit
Credit Limit
Credit Limit

• A credit limit is the maximum amount of credit

that a company will extend to a debtor for a
particular line of credit (sometimes called a
credit line, line of credit, or a trade line).
• This limit is based on a variety of factors
ranging from an individual's ability to make
interest payments, an organization's cash
flow and/or ability to repay the credit card
debt and is an obligation of the consumer to
pay just like all other parts of the balance.
Credit
Credit Limit
Limit

25
 Exhibit 9-14
Cash
Cash Disbursement
Disbursement Processes
Processes Cash Disbursement
Process Map

26
SO 4 Cash disbursement processes and the related risks and controls
 IT
IT Systems
Systems of
of Expenditure
Expenditure and
and Cash
Cash
Disbursement
Disbursement Processes
Processes

Three-Way Match - matching of a purchase order

to the related receiving report and invoice.
 Time consuming and expensive.

 IT systems include:
 Computer-based matching and checking of
purchasing documents
 Evaluated receipt settlement (ERS)
 Electronic forms of purchase and payment

SO 5 An overview of IT systems of expenditure and cash disbursement

27
processes that enhance the efficiency of expenditures processes
 IT
IT Systems
Systems of
of Expenditure
Expenditure and
and Cash
Cash Exhibit 9-19
Disbursement
Disbursement Processes
Processes Document Matching to
Approve and Pay for
Purchases

Exhibit 8-17 is a
system flowchart
of a generic
version of revenue
system with
some paper
documents.

SO 5 An overview of IT systems of expenditure and cash disbursement

28
processes that enhance the efficiency of expenditures processes
MYOB Controls

29
 Next Lecture
• How Setup the Purchases Module in MYOB?

• How to enter Purchases in MYOB?

• How to record Purchase Returns in MYOB?

• How to make payments other than Purchases in

MYOB?

30