Question
This is the entire case available to me. Questions related are on the second picure.
Required
a) State the broad systems objective of a purchases and related trade payables system.
b) Redraft the part of the flowchart to reflect the fact that Ivor does not always send out an order on the basis of the requisition and has the authority to change inventory recorder levels.
c) Suggest key questions in the following areas: Requisitioning, Purchasing, Receipts of goods and services, processing of supplier invoices, entry in purchases ledger, entry in general ledger.
d) Evaluate the systems you have recorded. (It might be useful to think of subsidiary questions to help answer the key questions.
CASE STUDY 9.3 Broomfield plc: part of purchases and trade (two copies, one being sent to the supplier), James Hemsworth in the main stores (two copies) and Janet Black in the accounting department. Official purchase orders are sequentially numbered. A further output is an exception report that contains control totals and details of rejected items. Eric Owler is responsible for making the necessary corrections of rejected items and putting them through the computer system in an additional run. When the control totals are in agree- ment with his control log, he informs Ivor Jordan The purchase orders and pre-list are returned to lvor Jordan payables system 1 The company has some 50 suppliers, whose records are held on computer master file, kept updated by the buyer, Ivor Jordan, using a terminal in his department. 2 lvor prepares a purchases budget annually on the basis of a sales budget and estimated minimum inventory levels and suppliers lead times. The bud is agreed by the board at an annual budget meeting, updated from time to time as circumstances change. It is used by lvor to negotiate contracts with suppliers 5 Goods are received in the main stores by James 3 The budget is also used to set minimum inventory levels for each type of inventory. Inventory records are computerized and purchase requisitions are produced automatically in duplicate when inventory balances ch re-order levels. The requisitions are sent to Ivor Jordan who decides whether it is appropriate to send out an order to suppliers. [if he decides it is not necessary he notes 'rejected' on the requisition changes the minimum inventory level on the entory records file. Management recently gave this authority to him after orders were sent out despite a slowing in economic activity and a management deci- Hemsworth who checks the purchase order to the supplier's delivery note and the goods and enters the goods received on his copies of the purchase orders which then become goods received notes (GRNS). He signs these for approval and sends one copy to Janet Black 6 Purchase invoices are matched against purchase orders and goods received notes by Janet Black. She checks calculations, enters the supplier and general ledger code, pre-lists invoice values and records the total and document count in her purchases control sion to reduce inventory levels. vor batches purchase orders, and calculates quantity 7 The invoices and pre-list are sent daily to Eric Owler hash totals and record count. A data control log is kept both by lvor Jordan and Eric Owler, the data and the who enters control totals in the data control log and both he and Janet initial the logs for agreement. The invoices form input for an inventory records and trade . This run also produces clerk in the computer department, payables ledger update run dre entered in the logs by lvor and Eric respectively. a weekly listing of invoices. Rejected items appear When the purchase orders and control pre-list are on an exception report. Eric compares the machine- ontrol totals, together with date and run number generated control totals with the pre-determined n the respec given to Eric Owler, both Ivor and Eric sig tiy e control logs. The orders and prelist form are input totals, reviews the exception report and arranges for input errors to be corrected. The purchase invoices to a computer run which produces five copies of the official purchase order, which are sent to lvor Jordan and control totals pre-list are returned to Janet Black Continued
Explanation / Answer
Broad objectives of a purchases and related trade payables system Ensure that necessary goods and services are procured Ensure that goods procured are for the benefit of the company Ensure goods procured are of sufficient quality Ensure goods are procured on a timely basis Ensure goods are procured on best possible trading terms while taking into account price and payment due date Ensure that all purchase related transactions are accurately and timely recorded in the accounting records of the company Ensure that any disputes with suppliers are settled to the benefit of the company A decision box has to be added before purchase orders box. This is because Ivor Jordan has been given the authority to decide whether it is appropriate to send out an order to supplies. Key questions in areas are as below: Requisition What expenditures must be reviewed? What expenditures can be automatically approved? Who is required to review and approve expenditure requests? What role are these users assigned to? What process must be followed if a reviewer is not available? Purchasing How much to order? How much inventory has to be maintained? What is the lead time of suppliers? Are logs entered by Ivor and Eric matching? Are there any corrections of rejected items? Are control totals tallying with those in control log? Receipt of Goods and Services Who will make the entry for Goods received notes? Are quantities matching in purchase invoices and purchase orders and Goods received notes Entry in ledgers Should be matching
