In this Unit we will be taking a closer look at the acquisition and payments cycle, and what
makes up their component parts. We will also be looking at the different types of controls
that companies put in place during the different stages of the acquisition and payments
cycle that could have an...
Acquisition and payment cycle
Introduction
There are various costs which are incurred when running a business for example goods
bought for consumption and resale as well as other services. The acquisition and payment
for these goods and services is what constitute this acquisition and payment cycle. The
acquisitions and payment cycle deals with two major activities which are linked but which
are also quite distinct, Adam et al. (2020:756), these include:
Ordering and receiving goods or services from suppliers – this activity is meant ensures that
the entity orders and receives only those goods which it requires, of a suitable quality and at
right price
Making payment for the goods ordered and received – this activity is meant to ensure that
only valid orders have been received, paid for and the payment is authorised, accurate and
timeous.
4.2 Characteristics of cycle
The majority of goods and services acquired by businesses are for resale, manufacturing of a
product (raw materials) or for consumption. Therefore, the consequences of a poor
acquisitions cycle will have severe impact on the business. If the right products are not
available in the required quantities, sales will be lost, and production may be disrupted. This
will result in reputational damage and the customers will find reliable suppliers somewhere.
It is important to strike a balance in the acquisition and payment cycle. For example, goods
bought for resale should be of right quantity, right quality, right price, and the delivery
thereof should be at the right time.
4.2.1 Susceptibility to fraud
The cycle requires sound control to be in place as it is susceptible to fraud due to the
exchange of money involved within the cycle. It is easy to embezzle funds from the company
through official payment system for example by making payment to fictions suppliers or
making the company pay for goods acquired for own purpose. There are many
opportunities for corruption in the acquisition and payment cycle. For instance, the
purchasing department can be offered bribes to purchase goods or services from a specific
supplier or awarding tenders to suppliers at inflated prices and share the profits.
4.2.2 Functions of any acquisition and payment cycle
4.2.3 Ordering of goods
The function ensures that approved orders are place with approved suppliers to obtain
goods and other services required by the company. It is the ordering function’s
responsibility to obtain the right quality and quantity of goods at the best price. Many
companies they do not just buy goods from whoever claims to have the goods, but they
have approved suppliers which have been verifies to be reliable in terms of quality, quantity
, and overall delivery. Controls must be in place to make sure that errors and fraud within the
function are detected and prevented.
Controls that can be put in place in this function which include:
Requisitions from departments requiring goods must be completed and delivered to the
buying department
The buying department must complete sequenced purchase order after checking with the
supplier as to availability and price of the goods
Orders must be place with approved suppliers who are on the approved supplier list
Senior personnel must scrutinise all purchase orders and approve them by signing the
document
4.2.4 Receiving of goods
The receiving function’s role is to accept goods from suppliers and acknowledge receipt of
the goods. It must be a policy of the entity to accept only goods for which valid purchase
orders have been placed. There is risk in this function whereby goods can be received
without inspection resulting in losses due to damaged goods. On the same note there is risk
that the buying department collude with supplier’s delivery personnel deliver only say, half
of the truckload, but for the receiving clerk to sign for a full truckload. Then goods which
remain on the truck, are then driven off the premises and sold cheaply for cash and the
parties involved share the proceeds from the sale of the stolen goods.
Controls that can be put in place in this function which include:
A copy of purchase orders will be sent to the receiving bay and filed in numerical sequence
When goods arrive from the supplier, the receiving clerk will match the purchase order
reference on the supplier’s delivery note
The receiving clerk should count the goods received against the delivery note and purchase
order and should perform at least a superficial check of the quality of the goods
Any deliveries which are incorrect or rejected will be clearly marked on both copies of the
supplier’s delivery note and the amendment signed by the supplier’s employee and the
receiving clerk
A sequenced goods received note should be completed for the goods actually received
Then goods will be transferred from the receiving bay to the warehouse for storage.
4.2.5 Recording purchases and creditors
This function involves recording the purchases made and the corresponding creditor for all
goods and services received. The purchases will be entered in the purchase journal and
allocated to the correct account to be posted to the general ledger and creditors account.
Controls that can be put in place in this function which include:
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through EFT, credit card or Stuvia-credit for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying this summary from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller shantelmmasebee. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy this summary for R133,00. You're not tied to anything after your purchase.
