Summary Payment & Acquisition Cycle – Auditing Notes + Exam Approach (BCom Acc 3 / BAcc 2)

AUDITING NOTES


PAYMENT AND ACQUISITION CYCLE:
This Cycle specifically focuses on the PURCHASING of inventory by the business.
- It addresses some of the following important functions:

✓ The Requesting/Requisition of Inventory/Goods.
✓ The purchasing of Inventory/Goods.
✓ The Delivering of Inventory/Goods.
✓ The Recording of Inventory/Goods. [ DR: INVENTORY]
✓ The Payment of Suppliers/ Payment Preparation. [OUTFLOW OF MONEY AND
METHODS OF PAYMENT- LINK THIS TO INTERNAL CONTROLS SPECIFICALLY
THE CONTROL ACTIVITIES]
✓ Recording of payment. [DR: INVENTORY, CR: BANK]


STAGE 1: THE REQUESTING/REQUISITION OF INVENTORY/GOODS.
This stage is point where the people involved within the department of requisition realizes
that there Is a need for purchase of inventory based on the demand and inventory levels.


• THERE ARE FACTORS TO CONSIDER WHEN DETERMINING HOW MUCH
INVENTORY AND WHEN?

1. When (RE-ORDER LEVELS) – This simply refers to when inventory reaches a
certain point, they should be a request of inventory purchase.
2. How much (RE-ORDER QUANTITY) – This then refers to how much inventory is
then needed based on the demand and business objectives (profit they want to
make).
A Document (REQUISITION) must be prepared for this Request and approved by the
HEAD OF THE DEPARTMENT sufficiently before sent to the to the Purchasing/Placing an
order department, it must be prepared in 2 Copies:
- the first is SEQUENTIALLY FILLED IN THE REQUISITION department while
- the other is SENT TO THE PLACING AN ORDER/PURCHASING DEPARTMENT.
(So that they know what to purchases and from which reliable supplier they should
purchase from based on the quality and quantity requested).
- Must receive PURCHASE ORDER.
The PURPOSE of this Stage is to mainly avoid shortage of inventory, surplus of inventory,
theft of inventory, ensure there is accountability and purchasing irrelevant inventory that no
one needed in order to achieve the operational and sales achievement.


• LINKING THIS WITH INTERNAL CONTROLS: (CONTROL ACTIVITIES)
There must be inventory valuation method in place,