The Islamic University of Gaza
Accounting Information System
The Expenditure Cycle :
Purchases and Cash Disbursements Procedures
Dr. Hisham Madi
Chapter
4-1
Computer-Based Purchases and
Cash Disbursements Applications
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CBAS technology can be viewed as a
continuum with two extremes:
 automation - use technology to improve
efficiency and effectiveness
 reengineering – use technology to
restructure business processes and firm
organization
Chapter
4-2
Computer-Based Purchases and
Cash Disbursements Applications
Automating Purchases Procedures Using Batch Processing
Technology
Data Processing Department: Step 1
The purchasing process begins in the data processing department,
where the inventory control function is performed.
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When inventories are reduced the system determines if the
affected items in the inventory subsidiary file have fallen to their
reorder points.
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Chapter
4-3
Computer-Based Purchases and
Cash Disbursements Applications
Purchasing Department
Alternative one
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System automatically prepares the PO documents and sends
them to the purchasing department for review and signing.
The purchasing agent then mails the approved POs to the
vendors and distributes copies to other internal users.
Alternative two
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Distributing the POs directly to the vendors and internal users,
thus bypassing the purchasing department completely
Chapter
4-4
Computer-Based Purchases and
Cash Disbursements Applications
Alternative three
Electronic Data Interchange
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The computer systems of both the buying and selling companies
are connected via a dedicated telecommunications link.
Chapter
4-5
Computer-Based Purchases and
Cash Disbursements Applications
Data Processing Department: Step 2
 a copy of the PO is sent to data processing and used to create a
record in the open PO file.
Receiving Department
 When the goods arrive from vendors, the receiving clerk
prepares a receiving report and sends copies to the stores (with
the goods), purchasing, AP, and data processing
Data Processing Department: Step 3
 The data processing department creates the receiving report file
from data provided by the receiving report documents.
Chapter
4-6
Computer-Based Purchases and
Cash Disbursements Applications
Data Processing Department: Step 3
Then a batch program updates the inventory subsidiary file from
the receiving report file.
The program removes the ‘‘On Order’’ flag from the updated
inventory records and calculates batch totals of inventory receipts
Accounts Payable
When the AP clerk receives the supplier’s invoice, he or she
reconciles it with the supporting documents that were previously
placed in the AP pending file
The clerk then prepares a voucher, files it in the open voucher file,
and sends a copy of the voucher to data processing.
Chapter
4-7
Computer-Based Purchases and
Cash Disbursements Applications
Data Processing Department: Step 4
 The voucher file is created from the voucher documents. A batch
program validates the voucher records against the valid vendor
file and adds them to the voucher register
Chapter
4-8
Computer-Based Cash Disbursements
Data Processing Department
 the system scans for vouchers currently due
 Checks are printed for these items, and each check is recorded in
the check register
 Records these checks in the check register
 Batch totals of closed AP and cash disbursements are prepared
for the general ledger update procedure.
Chapter
4-9
Computer-Based Cash Disbursements
Cash Disbursements Department
 The cash disbursements clerk reconciles the checks with the
transaction listing and submits the negotiable portion of the
checks to management for signing.
 The checks are then mailed to the suppliers. One copy of
each check is sent to AP
Accounts Payable Department
 Upon receipt of the check copies, the AP clerk matches them
with open vouchers
Chapter
4-10
REENGINEERING THE
PURCHASES/CASH
DISBURSEMENTS SYSTEM
Data Processing
The following tasks are performed automatically.
The inventory file is searched for items that have fallen to their
reorder points.
A record is entered in the purchase requisition file for each item
to be replenished
Requisitions are consolidated according to vendor number.
Vendor mailing information is retrieved from the valid vendor
file.
Purchase orders are prepared and added to the open PO file.
A transaction listing of purchase orders is sent to the purchasing
Chapter
department for review.
4-11
REENGINEERING THE
PURCHASES/CASH
DISBURSEMENTS SYSTEM
Receiving Department
 the receiving clerk accesses the open PO file in real time by
entering the PO number taken from the packing slip.
Data Processing
 Quantities of items received are matched against the open PO
record, and a Y value is placed in a logical field to indicate the
receipt of inventories.
 A record is added to the receiving report file.
 The inventory subsidiary records are updated to reflect the
receipt of the inventory items.
Chapter
4-12
REENGINEERING THE
PURCHASES/CASH
DISBURSEMENTS SYSTEM
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The general ledger inventory control account is
updated.
The record is removed from the open PO file and
added to the open AP file, and a due date for
payment is established.
Chapter
4-13
REENGINEERING THE
PURCHASES/CASH DISBURSEMENTS
SYSTEM
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Each day, the DUE DATE fields of the AP records
are scanned for items due to be paid
Checks are automatically printed, signed, and
distributed to the mail room for mailing to vendor
vendors receive payment by electronic funds transfer
The payments are recorded in the check register file.
Chapter
4-14
REENGINEERING THE
PURCHASES/CASH DISBURSEMENTS
SYSTEM
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Items paid are transferred from the open AP file to
the closed AP file.
The general ledger AP and cash accounts are
updated.
Reports detailing these transactions are transmitted
via terminal to the AP and cash disbursements
departments for management review and filing.
Chapter
4-15
The Automated System
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Improving ability to manage inventory needs.
Inventory requirements are detected as they arise and
are processed automatically.
As a result, the risks of accumulating excessive
inventory or of running out of stock are reduced
With this advantage, however, comes a control
concern.
Program errors or flawed inventory models can cause
firms to find themselves suddenly inundated with
inventories or desperately short of stock.
Chapter
4-16
The Automated System
Better Cash Management
 The automated system promotes effective cash
management by scanning the voucher file daily for
items due, thus avoiding early payments and missed
due dates.
 By writing checks automatically, the firm reduces labor
cost, saves processing time, and promotes accuracy
Chapter
4-17
The Automated System
To control against unauthorized payments
 voucher file should be validated by comparing the
vendor number on the voucher against the valid
vendor file.
Time Lag.
 A lag exists between the arrival of goods in the
receiving department and recording inventory receipts
in the inventory file
 When sales clerks do not know the current status of
Chapter
inventory, sales may be lost
4-18
The Automated System
Excessive Paper Documents
 All operations departments create documents, which
are sent to data processing, and which data processing
must then convert to magnetic media.
 Paper documents add costs because they must be
purchased, stored, prepared, handled by internal mail
carriers, and converted by data processing personnel
Chapter
4-19
The Reengineered System
 it uses real-time procedures and direct access files to
shorten the lag time in record keeping.
 It achieves a significant reduction in paper documents
by using digital communications between departments
and by digitally storing records
Chapter
4-20
The Reengineered System
Control Implications
 This system removes the physical separation between
authorization and transaction processing.
 Computer programs authorize and process POs as
well as authorize and issue checks to vendors.
 The system provides management with detailed
transaction listings and summary reports
Chapter
4-21
The Reengineered System
Accounting Records And Access Controls.
 Advanced systems maintain accounting records on
digital storage media, with little or no hard-copy
backup.
 Sarbanes-Oxley legislation requires organization
management to implement adequate control security
measures to protect accounting records from
unauthorized access and destruction
Chapter
4-22