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Chapter 12 - The Expenditure Cycle - Flashcards

Flashcard Deck Information

Class:ACIS 3504 - Acct Sys and Controls
Subject:Accounting & Information Systems
University:Virginia Polytechnic Institute And State University
Term:Fall 2012
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Another Name for the Expenditure Cycle Procure-to-pay cycle
4 basic activities performed in the expenditure cycel 1) Ordering of goods, services, or supplies
2) Receiving and Storing these items
3) approving supplier invoices
4) Cash Disbursement
Key decision in the expenditure cycle What you need
Where you are going to get it from
How much you need
3 Types of Inventory Control Methods are: Economic Order Quantity (EOQ)
Just-in-Time (JIT)
Materials Resource Planning (MRP)
Generated by Koofers.com
Economic Order Quantity 1 way of managing inventory. It tells you the most efficient amount to order once you hit the reorder point
EOQ = Sq.Rt((2PS/M))

Where P = Ordering Cost Per Unit
S = Annual Stockout cost
M = Carrying Cost per Unit (Manufacturing cost per unit)
Reorder Point The level of inventory at which the company should order more inventory.

ROP = dL + SS

where d = demand in units (not annual)
L = lead time
SS = Safety stock

Lead time the time between reordering and receiving of new products.
Safety Stock a certain inventory amount on hand at any time to prevent stockouts
Generated by Koofers.com
Just In Time Manufacturing Highly customizible products
  • Computers
  • You are paid upfront, before you fulfill your obligations
  • reduces inventory costs
  • DISADVANTAGE: you are HIGHLY reliable on your suppliers. If they are late, you are late.
Products are made-to-order
Materials Resource Planning (MRP)
JIT and MRP vs. EOQ JIT and MRP can lead to more cost savings than EOQ
Purchase Request an INTERNAL DOCUMENT that is a request for an order
Generated by Koofers.com
Purchase Requistion a paper doc or electronic form that specifies:
  • who is requesting the goods
  • where they should be delivered
  • when they're needed
  • item #s, descriptions, quantities, 
When Picking a Supplier, You should consider... Dependability - if they're late, then you are late
Price - want to minimize expenditure costs
Quality - want the highest quality with the lowest costs

ISO 9000 A quality certification companies must oblige to.
Evaluate Suppliers and keep track of...what? Purchase Prices
Rework or Scrap Costs

Generated by Koofers.com
Purchase order a document that formally requests a supplier to sell and deliver a product at specified quantities and prices
Blanket Order a commitment to buy specified items from a particular supplier for a given amount of time
Benefits:
  1. Supplier always has a consistent customer and knows when to have supplies on hand
  2. Customer always has a vendor lined up for supplies - known source of supplies
IT can help improve efficiency and effectiveness of the purchasing function by:
  • Using EDI
  • Using VMI
  • Reverse Auctions
  • Pre-award Audits
Vendor Managed Inventory System (VMI)
Vendors have access to inventory and sales data to replenish inventory when necessary
Generated by Koofers.com
Reverse Auctions for commodities. Vendors compete for LOWEST bids for selling products
Pre-Awarded Adits
typically used for large purchases that involve formal bids by suppliers. They often identify simple mathematical errors in complex pricing formulas and other discrepancies that, when corrected, can provide considerable savings
2 responsibilities of the Receiving department are: deciding whether to accept the items
verifying the quality and quantity of the items
  • if they received too little items, they could be overpaying
  • if they received more items, it wastes time, takes up storage, and costs more to hold the extra items
Receiving Report
the primary document used in the recieving and storing goods process
  • It documents the date goods received, shipper, supplier, and PO number
  • Shows item number, description, unit of measure, and quantity for each item
  • Provides space for signature and comments by the person who received and inspected

Generated by Koofers.com
debit memo is created if a product is not the right quality, is damaged  or is not the correct item
  • prepared after the supplier agrees to accept a return or grant a discount.

Objectives of Accounts Payable Make sure you are only paying for what you actually ordered and received 
Checks PO and Receiving report
Non-Voucher System each invoice is paid for separately
Voucher System Identifies the supplier, lists the outstanding invoices, and indicates the net amount to be paid after deducting any applicable discounts and allowances
Generated by Koofers.com
Evaluated Receipt Settlement
Who pays invoices Cashier
Who does the Cashier report to? Treasurer
Voucher Package
vendor invoice and supporting documentation, such as purchase order and receiving report.

Generated by Koofers.com

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 Another Name for the Expenditure CycleProcure-to-pay cycle
 4 basic activities performed in the expenditure cycel1) Ordering of goods, services, or supplies
2) Receiving and Storing these items
3) approving supplier invoices
4) Cash Disbursement
 Key decision in the expenditure cycleWhat you need
Where you are going to get it from
How much you need
 3 Types of Inventory Control Methods are:Economic Order Quantity (EOQ)
Just-in-Time (JIT)
Materials Resource Planning (MRP)
 Economic Order Quantity1 way of managing inventory. It tells you the most efficient amount to order once you hit the reorder point
EOQ = Sq.Rt((2PS/M))

Where P = Ordering Cost Per Unit
S = Annual Stockout cost
M = Carrying Cost per Unit (Manufacturing cost per unit)
 Reorder PointThe level of inventory at which the company should order more inventory.

ROP = dL + SS

where d = demand in units (not annual)
L = lead time
SS = Safety stock

 Lead timethe time between reordering and receiving of new products.
 Safety Stocka certain inventory amount on hand at any time to prevent stockouts
 Just In Time ManufacturingHighly customizible products
  • Computers
  • You are paid upfront, before you fulfill your obligations
  • reduces inventory costs
  • DISADVANTAGE: you are HIGHLY reliable on your suppliers. If they are late, you are late.
Products are made-to-order
 Materials Resource Planning (MRP) 
 JIT and MRP vs. EOQJIT and MRP can lead to more cost savings than EOQ
 Purchase Requestan INTERNAL DOCUMENT that is a request for an order
 Purchase Requistiona paper doc or electronic form that specifies:
  • who is requesting the goods
  • where they should be delivered
  • when they're needed
  • item #s, descriptions, quantities, 
 When Picking a Supplier, You should consider...Dependability - if they're late, then you are late
Price - want to minimize expenditure costs
Quality - want the highest quality with the lowest costs

 ISO 9000A quality certification companies must oblige to.
 Evaluate Suppliers and keep track of...what?Purchase Prices
Rework or Scrap Costs

 Purchase ordera document that formally requests a supplier to sell and deliver a product at specified quantities and prices
 Blanket Ordera commitment to buy specified items from a particular supplier for a given amount of time
Benefits:
  1. Supplier always has a consistent customer and knows when to have supplies on hand
  2. Customer always has a vendor lined up for supplies - known source of supplies
 IT can help improve efficiency and effectiveness of the purchasing function by:
  • Using EDI
  • Using VMI
  • Reverse Auctions
  • Pre-award Audits
 Vendor Managed Inventory System(VMI)
Vendors have access to inventory and sales data to replenish inventory when necessary
 Reverse Auctionsfor commodities. Vendors compete for LOWEST bids for selling products
 Pre-Awarded Adits
typically used for large purchases that involve formal bids by suppliers. They often identify simple mathematical errors in complex pricing formulas and other discrepancies that, when corrected, can provide considerable savings
 2 responsibilities of the Receiving department are:deciding whether to accept the items
verifying the quality and quantity of the items
  • if they received too little items, they could be overpaying
  • if they received more items, it wastes time, takes up storage, and costs more to hold the extra items
 Receiving Report
the primary document used in the recieving and storing goods process
  • It documents the date goods received, shipper, supplier, and PO number
  • Shows item number, description, unit of measure, and quantity for each item
  • Provides space for signature and comments by the person who received and inspected

 debit memois created if a product is not the right quality, is damaged  or is not the correct item
  • prepared after the supplier agrees to accept a return or grant a discount.

 Objectives of Accounts PayableMake sure you are only paying for what you actually ordered and received 
Checks PO and Receiving report
 Non-Voucher Systemeach invoice is paid for separately
 Voucher SystemIdentifies the supplier, lists the outstanding invoices, and indicates the net amount to be paid after deducting any applicable discounts and allowances
 Evaluated Receipt Settlement 
 Who pays invoicesCashier
 Who does the Cashier report to?Treasurer
 Voucher Package
vendor invoice and supporting documentation, such as purchase order and receiving report.

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