Chapter 7 Purchase system

Question 1

What are the stages of the purchase cycle?

Answer 1

• order placed
• Good received
• Invoice received
• Purchase recorded
• Cash paid

Question 2

What are the risk and procedures of orders placed in purchase

Answer 2

• bad quality for money - from authorised supplier
• ## unapproved purchase for personal use - numbers recorded in order; central purchasing dept. approved supplier list

Question 3

What are the risk and procedures of good received in purchase?

Answer 3

• goods accepted but not really ordered by comp. : examine goods inwards for quan,qual and condition
• receipts not recorded: record inwards sequ. number
• goods misappropriated: match GRN to invoice of unmatched GRN; stock control check

Question 4

What are the risk and procedures of invoice received in purchase?

Answer 4

• slow pay and loss to supplier if late inv. : match to GRN

- inv. incor. : arithmetic check on supplier inv.; claim credit notes

Question 5

What are the risk and procedures of purchase recorded in purchase?

Answer 5

• purchases not recoreded so misstatement: match cash payments
• purchase recorded with no receipt: compare supplier statement to Pay ledger balances

Question 6

What are the risk and procedures of cash paid in purchase?

Answer 6

• false inv. paid: Segregation of duties; transfer authority

- pay not recorded corr. so disputes: approve after checking docs (GRN)

Question 7

What are the test controls for purchase cycle?

Answer 7

• test if effective, obtain evidence by identifying risk