Question

Upscale Inc. is a medium-sized distributor of designer clothing lines. The company headquarters in New York City manages the purchases to cash disbursements (Expenditure cycle) process. You have conducted several interviews with department supervisors who oversee the expenditure cycle processes. The following is a summary of your discussions. Use this narrative to prepare a flowchart to depict the expenditure cycle for Upscale Inc.

The process begins in the purchasing department where a purchase requisition is received from a department when a need is identified. Purchase requisitions greater than $5,000 require the requesting department supervisor’s signature. The information on the purchase requisition is entered into the purchasing system and the vendor and inventory master files are used to generate a purchase order (4 copies). One copy of the purchase order is sent to the vendor, one copy is sent to the receiving department, one copy is sent to accounts payable, and the original is filed in purchasing alphabetically along with the purchase requisition. Accounts payable is responsible for processing and paying invoices each month. When the purchase order is received from the purchasing department, it is filed in a temporary file. When the receiving report from the receiving department and the invoice from the vendor arrive in accounts payable, they are matched to the purchase order. If there are no discrepancies, the invoice information is entered into the system and the accounts payable master file is updated. If there are discrepancies among purchase order, receiving report, and invoice, they are sent to purchasing to be resolved. A payment authorization form (2 copies) is generated in accounts payable. One copy is sent to the cash disbursements department and the other copy filed with the supporting documents (purchase order, receiving report, and invoice). In the cash disbursements department, when the payment authorization form is received from accounts payable, the information is entered into the system, the cash disbursements master file is updated, and the check is issued (original plus 1 copies). The copy of the check is attached to the payment authorization form and is filed by date. The check is then forwarded to the treasurer department to be signed after it is reviewed based on the information in the system. The check is then sent to the vendor. In addition, a weekly cash disbursements report is generated in the cash disbursements department and is forwarded to the controller.

Answer 1

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