What control best prevents the receipt of items in the warehouse that are not ordered
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Chapter 5—The Expenditure Cycle Part I: Purchases and Cash Disbursements Procedures TRUE/FALSE 1.Purchasing decisions are authorized by inventory control. ANS:T 2.The blind copy of the purchase order that goes to the receiving department contains no item descriptions. ANS: F 3.Firms that wish to improve control over cash disbursements use a voucher system. ANS:T 4.In a voucher system, the sum of all unpaid vouchers in the voucher register equals the firm’s total voucher payable balance. ANS:T 5.The accounts payable department reconciles the accounts payable subsidiary ledger to the control account. ANS:F 6.The use of inventory reorder points suggests the need to obtain specific authorization. ANS:F 7.Proper segregation of duties requires that the responsibility approving a payment be separated from posting to the cash disbursements journal. ANS:T 8.A major risk exposure in the expenditure cycle is that accounts payable may be overstated at the end of the accounting year. ANS:F 9.When a trading partner agreement is in place, the traditional three way match may be eliminated. ANS:T 10.Authorization of purchases in a merchandising firm occurs in the inventory control department. ANS: T 11.A three way match involves a purchase order, a purchase requisition, and an invoice. A commercial source document issued when placing an order with vendors or suppliers What is a Purchase Order?A purchase order is a commercial source document that is issued by a business’ purchasing department when placing an order with its vendors or suppliers. The document indicates the details on the items that are to be purchased, such as the types of goods, quantity, and price. In simple terms, it is the contract drafted by the buyer when purchasing goods from the seller. Steps in Ordering1. Buyer creates a purchase requisitionBefore sending out the purchase order to the supplier, the first step is to create a purchase requisition. This is a document issued within the company to the purchasing department to keep track of the goods ordered. The purchase requisition also helps the company keep an account of their expenses. The PO is created only after the purchase requisition is approved by the authorized manager. 2. Buyer creates a purchase orderWhen the goods that need to be purchased are agreed upon, the purchase order is created. The PO lists the date of the order, FOB shipping information, discount terms, names of the buyer and seller, description of the goods being purchased, item number, price, quantity, and the PO number. The PO number is a unique number associated with a certain order. It serves two purposes. One is to ensure that the goods ordered match the ones that are received. Secondly, the PO number is matched to the invoice to make sure the buyer is charged the right amount for the goods. 3. Seller accepts (or rejects) purchase orderAt the bottom of the purchase order is a dotted line for the authorized manager of the seller to sign off on the order. The PO includes all the details about the transaction and what the buyer expects to receive. Once the seller receives the PO, they have the right to either accept or reject the document. However, once the PO is accepted, it becomes a legally binding contract for both parties involved. 4. Buyer records purchase orderOnce the order has been placed, the purchase order remains “open.” An open purchase order is a PO where the order is placed but the goods have not yet been received, or it can mean that only part of the order has been received. Either way, it signifies that the delivery of the goods is not complete. Benefits of Purchase Orders1. Avoids duplicate ordersPurchase orders bring several benefits to a company. The most important is that it helps avoid duplicate orders. When a company decides to scale the business, POs can help keep track of what has been ordered and from whom. Also, when a buyer orders similar products, matching the invoices can be difficult. The PO serves as a check for the invoices that need to be paid. 2. Keeps track of incoming ordersIn addition, POs help keep track of incoming orders, and a well-organized purchase order system can help simplify the inventory and shipping process. 3. Serves as legal documentsPurchase orders serve as legal documents and help avoid any future disputes regarding the transaction. How Does the Supplier Use the Purchase Order?Purchase orders play a major role in the inventory management process. When the supplier receives the PO, they will take the items listed in the PO from their inventory. The PO helps keep a record of the inventory on hand and identify any discrepancies between the values shown in the records and the actual stock. Additionally, the supplier needs the PO to fill the order correctly. The buyer will also be charged by the supplier based on the payment terms agreed upon in the PO. Purchase Order vs. InvoiceThe purchase order is a document generated by the buyer and serves the purpose of ordering goods from the supplier. The invoice, on the other hand, is generated by the supplier and shows how much the buyer needs to pay for goods bought from the supplier. The PO is a contract of the sale while the invoice is the confirmation of the sale. Purchase Order vs. Sales OrderWhile the purchase order shows what goods were ordered from the supplier, the sales order is generated by the supplier and sent to the buyer. It signifies the confirmation or approval of the sale. Nowadays, the PO process is no longer paper-based, and the buyer usually sends its suppliers an electronic PO. This is done using the PO module in ERP software. It helps speed up the purchasing process while decreasing the chance of error. More ResourcesThank you for reading CFI’s guide to Purchase Order. To keep learning and developing your knowledge of financial analysis, we highly recommend the additional CFI resources below:
What control prevents paying the same invoice twice?Cancel all supporting documents when the check is signed. This ensures that the supporting documents cannot be resubmitted to pay the same invoice again.
What is inventory control Example?An example of inventory control.
The majority of items are all selling well, but when reviewing stock levels, their inventory control manager can see that one product isn't selling as well as the others. As well as taking up warehouse space, these products have a limited shelf-life.
Which of the following controls can minimize the threat of errors in supplier invoices quizlet?Which of the following controls can minimize the threat of errors in supplier invoices? The use of ERS. vendor-managed inventory.
What is inventory control in material management?What Is Inventory Control? Inventory control, also called stock control, is the process of ensuring the right amount of supply is available in an organization. With the appropriate internal and production controls, the practice ensures the company can meet customer demand and delivers financial elasticity.
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