Question

what is purchase and payment cycle?

Answer 1

The Purchase and payment cycle is about how an organisation purchases the raw materials and services needed to do business. The activities within the cycle are as follows-

• Requisition order placed- Requisition orders are a request for goods or services. In case item can be defined in advance, most requisitions are defined and built in to the procurement plan.
• Vendor Selection- For new orders, the vendor selection process will be initiated. The procurement department sends a request for proposal (RFP) which will outline the requirements. Suppliers return a bid on the job, price, and pertinent material specifications.
• PO Issued- Once the requisition order is approved, a detailed order form with amounts and delivery requirements is submitted. A vendor is required to fulfil the PO.
• Goods Received Note- A GRN is a note which specifies the quantity received from the vendor on a particular date.
• Invoice Received- The vendor submits an invoice for the goods delivered which is then entered into the system.
• Invoice reconciliation- A three way match is performed to ensure the rate in PO ties back to rate in invoice and quantity in Goods received note ties back to the invoice quantity.
• Accounts Payable- Invoices approved for payment are routed to Accounts Payable. Payments are made and the accounting system is updated with the journal entry.