BUSACT702 · Accounting Information Systems
The Expenditure Cycle
The expenditure cycle in University of Auckland BUSACT 702 mirrors the revenue cycle from the buying side: determine demand, order, receive, pay. You learn the four processes, the seven source documents, the enabling technologies (ERP and EDI), and the risks and controls across the cycle. Polyanna-style control critiques and expenditure flowcharts with an approval-threshold decision are the standard assessed items.
What this chapter covers
- 01The four processes: 1.0 Determine demand (collect requests, create purchase requisition) -> 2.0 Order (choose supplier, create purchase order) -> 3.0 Receive (accept delivery, record goods received) -> 4.0 Pay (approve payment, make payment)
- 02The seven source documents: purchase requisition, purchase order, vendor/supplier list, purchase invoice, goods packing slip, receiving report, remittance advice
- 03Enabling technologies: ERP (enterprise-wide data integration) and EDI (electronic data exchange between two computer systems)
- 04Ordering risks and controls: unauthorised suppliers -> pre-approved supplier list + independent master-data maintenance; paying too much -> price lists, competitive tendering, budgets
- 05Receiving risks and controls: unordered goods -> check the PO before accepting; miscount -> blind purchase orders, double-checking, barcodes/RFID
- 06Payment risks and controls: paying twice -> mark paid invoices and restrict duplicate transaction numbers; misappropriation -> dual signatories, segregation of duties, regular bank reconciliations
- 07The three-way match: PO vs goods-received report vs invoice before payment
- 08Segregation-of-duties breaches (e.g. the same person requisitions and purchases) as the headline weakness
Critiquing the expenditure cycle
- +1Buyer does requisition AND purchasing (segregation of duties). Risk: the buyer can order unneeded goods or favour a supplier with no independent check. Control: separate requisitioning from purchasing and add independent authorisation.
- +1Verbal purchase orders; no approved-supplier list or price list. Risk: unauthorised suppliers and overpaying. Control: written, sequentially numbered POs; a pre-approved supplier list independently maintained; price lists / competitive tendering.
- +1Goods accepted without checking against the order. Risk: accepting unordered, wrong or short deliveries. Control: check the PO before accepting delivery, record a receiving report, and use blind POs so the receiver counts independently.
- +1Invoices paid without recomputing arithmetic. Risk: paying incorrect or inflated invoices, or paying for goods not received. Control: mathematical-accuracy checks and a three-way match (PO vs receiving report vs invoice) before payment, with dual approval for electronic funds.
Key terms
- Expenditure cycle
- The transaction cycle covering all events in purchasing goods or services and paying for them, structured as four processes: determine demand, order, receive, pay.
- Purchase requisition
- An internal request to buy goods, raised when demand is determined; it should be separate from the purchase order and independently authorised.
- Receiving report
- A document recording what was actually delivered; it is one leg of the three-way match and controls acceptance of unordered or short goods.
- Three-way match
- Matching the purchase order, the receiving report and the supplier invoice before payment so you pay only for goods ordered and received at the agreed price.
- Blind purchase order
- A copy of the PO sent to receiving with quantities omitted, forcing staff to count deliveries independently rather than confirming an expected number.
- ERP and EDI
- ERP integrates data across the whole enterprise; EDI electronically exchanges structured data (like orders and invoices) between two separate computer systems — both enable and control the expenditure cycle.
The Expenditure Cycle FAQ
What are the four processes of the expenditure cycle?
Determine demand (requisition), order (choose supplier, raise the PO), receive (accept and record the goods), and pay (approve and make the payment). Each has its own risks and controls.
What is the three-way match?
Matching the purchase order, the receiving report and the supplier invoice before payment. It is the expenditure cycle's key control against paying for goods not ordered, not received, or priced wrongly.
What are the seven source documents?
Purchase requisition, purchase order, vendor/supplier list, purchase invoice, goods packing slip, receiving report and remittance advice — know which process each belongs to.
What is the difference between ERP and EDI?
ERP is an enterprise-wide system that integrates data across functions; EDI is the electronic exchange of structured data between two separate computer systems (for example, sending a purchase order straight into a supplier's system).
How does the expenditure cycle appear on the test?
As a flowchart to draw (often with an approval-threshold decision, e.g. requisitions over a dollar limit need approval) or as a control critique with an activity -> risk -> control table. Confirm the assessed format for your quarter on Canvas.
Exam move
Memorise the four processes and the seven source documents, and map each risk to its control so you can run the critique table quickly. Drill both the Polyanna-style control critique (spot eight-plus weaknesses) and an expenditure flowchart with an approval-threshold decision. Always lead with the segregation-of-duties breach and put the three-way match at the payment stage. Confirm on Canvas which cases and depth your quarter assesses.
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