Purchasing, Inventory, and Cash Disbursements

Chapter 2 CASH DISBURSEMENTS CYCLE

LEARNING OBJECTIVES

After completing this section, you should be able to do the following:

•     Recall typical controls in the cash disbursements cycle.

•     Identify various forms (electronic or paper) used in the cash disbursements cycle.

•     Recall the processes in the cash disbursements cycle's various phases.

•     Identify various types of errors or fraud that can occur if the cash disbursements cycle does not have adequate procedures or adequate segregation of duties in the ordering, receiving, and warehousing phases.

Cash Disbursements

The cash disbursements cycle encompasses payments that originate from various accounting subsystems. For example, cash disbursements transactions for goods purchased for resale in a retail store originate in the company's purchasing and receiving subsystems of the acquisitions cycle. Cash disbursements for payroll originate in the personnel and payroll subsystems. Some cash disbursements are based upon loan obligations and require periodic payments of interest and principal on either secured or unsecured debt (financing subsystem). In addition, funds are paid for property, plant, and equipment and investments (investing subsystem).

Cash disbursements can be made in different ways. Many smaller companies use the traditional method for cash disbursements, which requires the generation of paper checks that are mailed to vendors. Larger companies use a cash disbursements method that has existed ...