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Dynamics GP – The Expenditure, Resource Management And Cash Disbursement Cycle


An organization’s expenditure cycle includes the function required to acquire goods and services that are utilized by the organization in conducting its operations. The expenditure cycle includes the acquisition of goods for resale or use in production, the acquisition of property and equipment and the acquisition of person service.

 The expenditure cycle embodies all activities in the purchasing /accounts payable/ cash disbursement system and the applicable parts of the general ledger system.

  • Expenditure cycle Operations include:-
  • The preparation of purchase and recording of purchase order.
  • The receipt of goods and the recording of the cost of inventory.
  • The receipt of vendor invoices and the recording accounts payable.
  • The preparation of employee pay-checks and the recording of payroll activities.
  • The preparation and recording of cash disbursements, including payroll.


In some companies, all purchases of goods and services are channeled through and controlled by centralized purchasing department. In others, the authority to place orders with vendors is dispersed throughout the company- a decentralized approach. Centralized purchasing may yield increased quantity discounts stronger market position, better inventory control, buyer specialization, and the like. Decentralized purchasing may also have some benefits because of fast responsiveness of the purchaser and decentralized buyers may have greater knowledge of the use and specifications of the desired goods and thereby maintain optimal inventory levels. As in any organizational decision, the choice is largely one of management style and philosophy.

System Definitions and Functions

The purchasing (p) /accounts payable (AP) / cash disbursement (CD) system is an interacting structure of people, equipment, methods, and controls that is designed to accomplish the following primary functions:-

First the P/AP/CD Systems handle the repetitive work routines of the departments listed by capturing and recording data related to the day-to-day operations of those departments. The recorded data then may be used to generate source documents (such as purchase orders and receiving reports) and to produce internal and external reports.

Second the P/AP/CD system prepares a number of reports that support personnel at various levels for different decisions will be used through out the paper:


Description of Information flows

  1. Purchase requisition sent from inventory control department to purchasing department.
  2. Purchase requisitions from various other departments sent to purchasing department.
  3. Purchase order sent to vendor.
  4. Purchase order notification sent to various other departments or to inventory control department.
  5. Purchase order notification sent to receiving department.
  6. Purchase order notification sent to accounts payable department.
  7. Goods and Services received from vendor.
  8. Receiving notification sent to accounts payable department.
  9. Receiving notification sent to purchasing department.
  10. Invoice received from vendor.
  11. Approved voucher sent to cashier.
  12. Accounts payable notification and inventory cost information sent to general ledger system.
  13. Check sent to vendor by cashier.
  14. Paid voucher returned to accounts payable department.
  15. Notification of the cash disbursement sent from cashier to general ledger system

The process associated with reordering inventory involve several important concept and techniques, such as cyclical reordering, reorder point analysis, economic order quantity (EOQ) analysis, and ABC analysis.

A purchase application system includes the five basic functions:

  1. Purchase requisition is prepared & approved.
  2. Purchase order issued.
  3. Materials received.
  4. Establish payable
  5. Checks are prepared.

Purchase requisition

A department which requires a material prepare a purchase requisition and send to a purchase department.

Order Goods and Services

To place an order for goods and service the buyer first involve in vendor selection and then a potential vendors will be evaluate with respect to such factors as unit price, quality, service, promised delivery dates, terms, reliability, and amount purchased from the vendor to date.

 Receive Goods and Services

When good arrive at the receiving department, it wills inspect and counted. This process helps to insure that the right goods in a correct amount are received in acceptable condition and nonconforming goods are rejected (returned) to the supplier. Notation of rejected goods is added to the vendor service record in the vendor master file.                                                                               

Once the condition of the goods has been approved the process of complete receiving report by noting the quantity received on the approved purchase order receiving notification. Once annotated with the quantity received the purchase order receiving notification become a receiving report, which is the document used to record merchandize receipts.

As in the case of the receipt of goods, services received also should be documented properly. Some organizations use an acceptance report to acknowledge formally the satisfactory completion of a service contract. The acceptance report supports the payment due to the vendor in the same way as the receiving report.

Establish Payable

The first step in establishing the payable involves validating the vendor invoice. This process is triggered by receipt of the vendor invoice, a business document that notifies the purchaser of an obligation to pay the vendor for goods or services that were ordered by and shipped to the purchaser.

The process comprises a number of steps. First, the vendor invoice is compared against data on a copy of the purchase order (Poaccounts payable notification) to make sure that (1) the purchase has been authorized and (2) invoices quantities, prices and terms conform to the purchase order agreement. Next, the invoice is matched against the receiving report to determine that the goods or services actually have been received and that goods have been transferred to stores. Finally, the invoice is cheeked for accuracy of computed discounts, extension, and total amount due.

If the data items do not agree, the invoice is rejected and follow up procedures are initiated. If the data item agrees, the invoice is approved and the validated invoice is then used to record the payable. Note that the vendor master file is also updated at this point to reflect purchase history data.

 A payable is recognized and recorded by simultaneously:

  • Creating a record on the accounts payable master file.
  • Updating the inventory master file for the cost of the item received.
  • Notifying the general ledger system of the amount of the payable that was recorded ( see the data flow “GL payable update”)

Make Payment

 The payment schedule adopted will depend on the availability of any favorable discounts for prompt payment and on the organizations current cash position. Some companies will pay multiple invoices with one check to minimize the cost of processing invoices. Most cash managers will attempt to optimize cash balances to help achieve a fourth system goal. that is to insure that the amount of cash.


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