Bus 426 - Chapter 18

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Business Administration
BUS 426
Michael Favere- Marchesi

Chapter 18 -Audit of the Acquisition and Payment Cycle The Nature of the Acquisition and Payment Cycle Acquisition and Payment Cycle: The transaction cycle that includes the acquisition of and payment for goods and services outside the organization Processing Purchase Orders  Purchase Requisition: A written request for goods and services by an authorized employee  Purchase Order: A document prepared by the purchasing department indicating the description, quantity, and related information for goods and services that the company intends to purchase  Vendor Master File: Sums acquisitions, cash disbursements and acquisition returns and allowances for each vendor  Purchase Order Transaction File  Internal Controls Receiving Goods and Services  Receiving Report: A document prepared by the receiving department at the time tangible goods are received, indicating the description of the goods, the quantity received, the date received and other relevant data; part of the documentation necessary for payment to be made  Internal Controls Recognizing the Liability  Acquisitions Journal, lists the acquisition transactions  Summary Acquisitions Report  Vendor’s Invoice: A document that specifies the details of an acquisition transaction and amount of money owed to the vendor for an acquisition  Debit Memo: A document indicating a reduction in the amount owed to a vendor because of returned goods or an allowance granted  Vendor Transaction File  Voucher  Vendor Master File: A computer file for maintaining a record for each vendor of individual acquisitions, cash disbursements, and acquisition returns and allowances, and vendor balances  Accounts Payable Trial Balance: A listing by each vendor of the amount owed at a point in time, prepared directly from the accounts payable master file Chapter 18 -Audit of the Acquisition and Payment Cycle  Vendor’s Statement: A statement prepared monthly by the vendor, which indicates the customer’s beginning balance, acquisitions, payments and ending balance  Internal Controls Processing and Recording Cash Disbursements  Cheque for Payment  Cash Disbursement Journals  Internal Controls Substantive Testing of Accounts Payable Analytical Procedures Out-of-Period Liability Tests  Examine underlying documentation for subsequent cash disbursements  Examine underlying documentation for bills not paid several weeks after the year end  Trace receiving reports issued before year end to related vendors’ invoices  Trace vendors’ statements that show a balance due to the accounts payable trial balance  Send confirmations to client’s vendors Cut-Off Tests  Relationship of cut-off to physical observation of inventory o Are physical inventories recorded in the accounts payable and inventory?  Inventory in Transit o FOB Destination: Shipping goods where title is passed when the goods arrive at the buyer  Inventory recorded when it arrives o FOB Origin: Shipping goods where title is passed when the
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