Accounting Information Systems: The Processes and Controls, 2nd Edition

CASH DISBURSEMENT PROCESSES (STUDY OBJECTIVE 4)

The processing flow related to procurement activities requires that payments be made for purchase obligations that have been incurred. The cash disbursements process must be designed to ensure that the company appropriately processes payments to satisfy its accounts payable when they are due.

Cash disbursements may include payments made by check or with currency. Most companies conduct business transactions with checks so that a written record is established of the cash disbursement. Because the practice of writing checks enhances internal control, here we will describe cash disbursements made by check. Exhibit 9-14 presents a business process map of a typical cash disbursement system, while Exhibit 9-15 shows the document flowchart for that process. Exhibit 9-16 is a data flow diagram of cash disbursements.

The accounts payable department is generally responsible for notification of the need to make cash disbursements and the maintenance of vendor accounts. Before payment is made to a vendor, specific steps should be taken to enhance the effectiveness and efficiency of the process. These steps include vendor account reconciliation, cash management techniques, and payment authorization. Cash management is the careful oversight of cash balances, forecasted cash payments, and forecasted cash receipts to insure that adequate cash balances exist to meet obligations.

Exhibit 9-14 Cash Disbursement Process Map

Exhibit 9-15 Document Flowchart ...