By: Group 3 Accounting Concepts of Accounts Payable and other disbursements What are Disbursements?
Disbursement is the act of paying out or
disbursing money, such as money paid out to run a business, cash expenditures and dividend payments. It constitutes all cash paid out during a given period either in currency (cash) or by check. It may also mean the settlement of government payables/obligation by cash or by check. Accounts Payable
is an accounting entry that represents
an entity's obligation to pay off a short-term debt to its creditors. the accounts payable entry appears under the heading current liabilities. Other Disbursements: Purchases an exchange of money for a particular good or service. Payment of Operating Expenses Operating Expenses are those expenditures that a business incurs to engage in any activities not directly associated with the production of goods or services. Payment of Dividends Payable Dividends payable are dividends that a company's board of directors has declared to be payable to its shareholders. Other Disbursements: Payment of Payroll Liabilities Payroll liabilities are any type of payment related to payroll that the company owes, but has not yet paid. These include taxes withheld from employees, Social Security and other items such as union dues, health insurance contributions. What are the best internal control practices for Purchasing Department? What are the potential consequences if those practices are not performed? Internal Control Practices: Purchasing Separation of duties To ensure proper separation of duties, assign related buying functions to different people. With proper segregation, no single person has complete control over all buying activities. Internal Control Practices: Purchasing Best practice is to have different people: Approve purchases Receive ordered materials Approve invoices for payment Review and reconcile financial records Perform inventory counts Potential consequences if duties are not separated: Unauthorized or unnecessary purchases made Improper charges made to department budgets Excessive costs incurred Goods purchased for personal use Internal Control Practices: Purchasing Accountability, authorization, and approval You maintain accountability when you authorize, review, and approve purchases based on signed agreements, contract terms, and purchase orders. Internal Control Practices: Purchasing Best practices: Comply with ethical buying practices and policy. Review and update signature authorizations periodically. Obtain pre-approval of consultant agreements by Purchasing. Verify receipt of goods and services against contract/ purchase order and invoice information. Reconcile ledgers for accuracy of recorded transactions. Monitor to ensure that invoices are paid in a timely manner. Internal Control Practices: Purchasing Potential consequences if accountability does not exist: Unauthorized, unnecessary, or fraudulent purchases Unauthorized work performed by suppliers Lost supplier discounts due to late payments Improper charges to incorrect account/ funds resulting in a misappropriation of funds Conflict of interest when paying UCSD employee for unauthorized outside work Internal Control Practices: Purchasing Security of assets Once you have received your purchased goods, secure the materials in a safe location. To ensure that your resources are accounted for, periodically count your inventory and compare the results with amounts shown on control records. Internal Control Practices: Purchasing Best practices: Secure goods received in a restricted area. Restrict inventory access to appropriate staff. Lock goods and materials, and provide key or combination to as few people as possible. Keep inventory records and periodically calculate beginning and ending inventory amounts. Potential consequences if your assets have not been secured: Theft of goods Inventory shortages Additional costs incurred for replacement of goods Internal Control Practices: Purchasing Review and reconciliation Practice timely review of suppliers invoice, packing slips, and purchase orders. Check accuracy of the information for prior payment, correct quantity ordered, and price charged. Monthly ledger reconciliation enables you to find improper charges and validate appropriate financial transactions. Internal Control Practices: Purchasing Best practices: Review supplier invoices for accuracy by comparing charges to purchase orders. Verify that the goods and services purchased have been received. Perform monthly reconciliations of operating ledgers to ensure accuracy and timeliness of expenses. Potential consequences if review and reconciliation is not performed: Improper charges to your department budgets Disallowances resulting from costs charged to incorrect accounts/funds Payments made for items or services not provided Any internal control system has limitations. Because humans are involved in the internal control system, our negligence, fatigue, misjudgment, and confusion can negatively impact the goals of the system. Also, an internal control system can be circumvented by individuals who desire to commit fraud and who are willing to work together to do so. Human fraud is driven by the triple-threat of fraud which includes opportunity, pressure, and rationalization. 4. Assuming that you are the Chief Executive Audit of SM Department Stores Corporation, prepare internal control guidelines for Inventories