Question

explain the expenditure cycle.

Answer 1

Expenditure cycle refers to the various stages involved in buying a particular good. It involves decision regarding purchase, ordering,receiving the order, approval of the order, storage and payment. The expenditure cycle begins at deciding to purchase a material and ends at the payment of the material deducting the payment for the unapproved material.

First looking at the expenditure cycle from personal perspective. You need to buy say a laptop. So, for this first you had an idea to make a purchase, you will look for various available options of different companies, compare features etc. , So as a first step you make a purchase decision to buy the laptop from a particular company. After that you will make a puraches order, say you have ordered online, now you will receive the delivery and check the invoice and the product details. After satisfaction and preliminary check you pay for the laptop. So, all these steps make your expenditure cycle.

In the similar way, expenditure cycle is a very common for businesses. The purchase of materials is the most frequent domain where concept of expenditure cycle works. In businesses the purchase department is involved in making purchases. In order to make purchase decision the purchasing department will compare the various suppliers/vendors, the price being offered by them and then decides to purchase from a particular supplier. After placing the order, the purchase department receives the order and check the invoices and the material so that defective or unapproved items could be returned. Then these items are stored or given to manufacturing department and finally payment is made for the approved items. Thus this constitutes an expenditure cycle for a business organisation.