Summary Catch Up (Midterm 2) Part 3

The next major step is receiving, which involves physical receipt of incoming shipments and deciding whether to accept them, inspection, and issuance to their final destination.

When items come in, it is going to be important for a receiving clerk to validate that we did in fact order these items. They are probably going to want to examine the packing slip that accompanies the order, and compare the purchase order reference to something called an open purchase order report. One thing to note is that the open purchase order report will likely omit the quantity ordered, because we want to receiving clerk to perform a fair count of the incoming receipt. If there is a problem, then they are going to need to contact the buyer to resolve the problems. If the order is accepted, then the receiving clerk will complete a receiving report, which documents the details of the receipt. This is going initialed or signed by the receiving clerk, and forwarded on to the accounts payable department as evidence of what we got.

A more detailed inspection may take place on a sample basis for stuff that goes into our products. For example, a computer manufacturer may test a sample of microchips received to validate that they are working. Problems often happen in groups of production, so if one fails, it will likely fail for others in the group.

The last primary step within the expenditure cycle is cash payments, or accounts payable. In this step we are looking to approve vendor invoices, and actually issue payment. When we say “approve” invoices, we are not saying anything about the purchase itself, we are just simply validating that it is OK to pay the particular invoice. This will typically be done by someone in accounts payable, who will look to complete the “three-way match” between the invoice (with price x quantity), purchase order (to validate price), and receiver (to validate quantity).

There are two ways to process vendor invoices – a non-voucher system where we pay as invoices are received (similar to the open invoice method from the revenue cycle), and a voucher system (similar to the balance forward method from the revenue cycle), where we issue payment for a group of invoices from the same supplier in one payment. The “voucher” is the document that authorizes the payment, and articulates the different account numbers that will be hit.

The actual payment of the invoice is done by the cashier, who reports to the treasurer after approval by an accounts payable clerk. The A/P clerk will usually forward a voucher package (containing the documents highlighting the 3-way match) as evidence.

Remember that a vendor invoice contains no new information, and the invoicing process can be skipped entirely under certain conditions. This is known as evaluated receipts settlement (ERS) or the “2-way match”. ERS is something that requires a fairly sophisticated accounting system, and is something that has to be agreed upon between supplier and customer as the way they will handle payments. When ERS is utilized, the invoicing process is skipped, and the customer remits payment at the PO price x the received quantity after an agreed # of days (usually 30 days).