11 - Purchases Cycle

Question 1

two major activities in the purchases cycle?

Answer 1

• ordering/receiving g&s from suppliers

- making payments

Question 2

what is fraud?

Answer 2

wrongful deception intended to result in a financial or personal gain

Question 3

risks/negative objectives for ordering goods from suppliers?

Answer 3

• fictitious suppliers, orders (fraud)
• items not needed are purchased
  (error, no updated stock lists)
• incorrect price/quantity due to capturing errors
• orders made too late
• bad quality goods ordered

Question 4

controls for ordering goods from suppliers?

Answer 4

• authorized and up to date supplier list
• monitor stock levels; automated function for low stock
• sequentially number order forms and sequence checks
• have an expert look at quality before ordering
• use requisition forms/purchase orders

Question 5

risks/negative objectives for receiving goods into the warehouse?

Answer 5

• received goods not ordered
• incorrect quantity or quality
• not receiving goods
• not received timeously

Question 6

controls for receiving goods into the warehouse?

Answer 6

• recons to check quality or quantity
• place orders on time
• prepare GRNs and supplier delivery notes

Question 7

risks/negative objectives for recording transactions?

Answer 7

• invoices not recorded (fraud/error)
• fictitious invoices
• duplicate invoices
• invoices in wrong financial year

Question 8

controls for recording invoices/transactions?

Answer 8

• sequential numbering/checks

- ensuring the three-way match*

Question 9

three-way match?*

Answer 9

ensure that:
- purchase order
- delivery note / goods received note
- invoice
all match in terms of details of quantity/prices

Question 10

risks/negative objectives for making payment?

Answer 10

• payments to fictitious suppliers
• duplicate payments
• payments are inaccurate (wrong amt)
• not paying all suppliers (incorrect acc records or negligence)
• not paying on time

Question 11

controls for making payments?

Answer 11

• reconciling bank statements to ensure no duplicate or wrong pmts
• do a creditors recon to ensure we keep track of our debts
• have access controls ; approval/auth ; login security for all electronic payments

Question 12

documents used for making payments?

Answer 12

• remittance advice
• EFT documentation
• bank statements
• journals and ledgers
• cheques

Question 13

what is a remittance advice?

Answer 13

it shows proof of all the payments we made to creditors

Question 14

main purpose of a non-manufacturing entity?

Answer 14

to safeguard and manage inventory

Question 15

if the entity fails to safeguard inventory?

Answer 15

they can face theft or fraud

Question 16

how are transactions triggered in the inventory cycle for a non-manufacturing entity?

Answer 16

• placing order = purchase order
• receiving order = GRN
• move to WH = inv transfer form
• store and safeguard = inv tags or count sheets