Question

Please, Complete the following information, with short answers: -

• Expenditure Cycle: -
  • What is its Purpose?
  • What are its Resources?
  • What are its Documents?
  • What are its Reports?
  • What is its Information?
  • What are its Activities?
  • What are its Sub-Processes?
  • Diagram the Process with the Input & Outputs?

Answer 1

Expenditure Cycle:

What is its purpose?

The purpose of expenditure cycle is to establish a set of repetitive process in making purchases or procurements in an organization. It involves all the steps from creating a purchase requisition to, making a purchase order, receiving the material or services, approving the invoices for these and making the payments for these invoices.  

By establishing a process, the purchase procedure can be controlled and wasteful or duplicate expenditures can be avoided. Besides, authorities can be delegated as to who can approve purchases of what limits thereby speeding up the process. The process also involves approving the vendors so as to ensure that right vendors are selected and quality of material that is brought is ensured. It helps strengthen the financial infrastructure and accounting of a company.

What are its resources?

The main resources in an expenditure cycle are the sourcing team, the purchase team, the receiving team, the payables team and the disbursement team. The indenter raises a request. The sourcing team identifies a suitable vendor based on quality requirements, the purchase team raises the PO at the approved prices, the inward stores team receives the material subject to quality compliance and issues the material, the payables team accounts for the invoices and the cash team makes the payment.

What are its documents?

   The main documents in an expenditure cycle are :

a) Purchase Requisition- internal request to the purchasing department to order goods and services

b) Purchase Order- Order on vendor for goods and services

c) Goods Receipt Note or GRN- anote certifying the quality and quantity of the ordered goods received.

d) Vendor Invoice and  packing slip- This is for the payables department

e) Cheque- a payment of the vendor invoice

What are its reports?

The main reports in an expenditure cycle are

1) Open PR or purchase requests that is PRs for which POs have not been raised

2) Purchase register showing open POs that is PO for which material has not been received

3) GRN note showing discrepant materials received

4) Accounts Payable Ledger showing payments that are due

5) Cheque disbursement register showing payments already made.