Expenditure cycle definition — AccountingTools (2024)

FAQs

What is the expenditure cycle in accounting? ›

What is the Expenditure Cycle? The expenditure cycle is the set of activities related to the acquisition of and payment for goods and services. These activities include the determination of what needs to be purchased, purchasing activities, the receipt of goods, and payments to suppliers.

Four Components of Expenditure Cycles

Ordering goods and services. Receiving what has been ordered. Approving the invoices presented by vendors and suppliers. Paying the invoices.

The three basic activities performed in the expenditure cycle are: (1) ordering goods, supplies, and services; (2) receiving and storing these items; and (3) paying for these items. These activities mirror the activities in the revenue cycle.

The expenditure cycle may be divided into five categories of transactions used by most governmental funds. These catergories are pre-encumbrances, encumbrances, vouchers payable, disbursem*nts, and interfund/interagency transfers.

An expenditure represents a payment with either cash or credit to purchase goods or services. It is recorded at a single point in time (the time of purchase), compared to an expense that is recorded in a period where it has been used up or expired.

The revenue cycle, where goods and services are sold for cash or a future promise to pay cash. The expenditure cycle, where companies purchase inventory for resale or raw materials to use in producing products in exchange for cash or a future promise to pay cash.

There are four main aggregate expenditures that go into calculating GDP: consumption by households, investment by businesses, government spending on goods and services, and net exports, which are equal to exports minus imports of goods and services.

First step in the expenditure cycle? Ordering of materials, supplies, and services involves what? MRP(Materials Requisition planning): Seeks to reduce required inventory levels by improving the accuracy of forecasting techniques to better schedules purchases to satisfy demands.

The three types of expenditures are Capital Expenditure, Revenue Expenditure, and Deferred Revenue Expenditure.

production. All of the choices above are part of the expenditure cycle except production. Production is part of conversion cycle along with planning, physical product control, and scheduling.

What is risk in expenditure cycle? ›

The following are the primary risks associated with expenditure cycle transactions: Unauthorised inventory purchase. Receiving wrong items, incorrect quantities or damaged goods. Inaccurate record keeping.

THREAT: Wasted time and cost of returning unordered merchandise to suppliers. CONTROL PROCEDURES: Only accept deliveries for which an approved purchase order exists.

The expenditure cycle flowchart helps you track the expenses and gives you a detailed and organized employee task. That means you'll be able to identify the cash spent by every person with the help of this flowchart. As for the display, it appears to be appealing and accessible simultaneously.

: the act of spending (as money, time, or energy) : something that is spent.

An expenditure is a payment or the incurrence of a liability in exchange for goods or services. Evidence of the documentation triggered by an expenditure is a sales receipt or an invoice. Organizations tend to maintain tight controls over expenditures, to keep from incurring losses.

Revenue expenditure refers to those expenditures which are incurred during normal business operation by the company, the benefit of which will be received in the same period and the example of which includes rent expenses, utility expenses, salary expenses, insurance expenses, commission expenses, manufacturing ...

The primary objective in the expenditure cycle is to minimize the total cost of acquiring and maintaining inventories, supplies, and the various services the organization needs to function.

Expenditure cycle affects financial statement accounts. It impacts all current assets, except marketable securities and accounts recievable, all plant and intangible assets and many current liabilities.

ANS: The fixed asset system processes nonroutine transactions for a wider group of users in the organization than the expenditure cycle. Further, the expenditure cycle processes routine acquisitions of raw materials inventories for the production function and finished goods inventories for the sales function.

An expense is an amount spent by a business in the process of earning revenue. Expenditure is the amount spent on acquiring an asset, goods or services etc. Q. _______ arise because of the failure to differentiate between capital expenditure and revenue expenditure and capital receipts and revenue receipts.

What are the two types of expenditures in accounting? ›

Both capital expenditure and revenue expenditure are two different types of expenses incurred while running a business.

The final activity in the expenditure cycle is the payment of approved invoices. The cashier reviews the voucher package, approves the payment, prepares the check for payment, and signs the check. Procurement cards provide one way to eliminate the need for accounts payable to process many small noninventory invoices.

This chapter examines the principal features of the two major subsystems that constitute the expenditure cycle: (1) the pur- chases processing subsystem and (2) the cash disbursem*nts subsystem.

Recall that aggregate expenditure is the sum of four parts: consumer expenditure, investment expenditure, government expenditure and net export expenditure. A key part of the Income-Expenditure model is understanding that as national income (or GDP) rises, so does aggregate expenditure.

The Aggregate Expenditure Approach in National Income Accounts divide expenditures in four categories: Consumption, Investment, Government Spending, and Net Exports (Exports minus Imports).

1. Expenditure Cycle subsystems: Purchasing/Accounts Payable, Cash disbursem*nts, Payroll, and Fixed assets. 2. Conversion Cycle Subsystems: Production Planning (planning, scheduling, and control of the physical product throughout the manuf.

Examples of expenditures that will not be an expense in the accounting period in which the payments are made include the purchase of land for a future expansion and the principal portion of a monthly loan payment.

The first step in the expenditure cycle is to order materials, supplies and services for the company.

Is cash receipt system part of the expenditure cycle? ›

Explanation: Cash receipts would be involved in the revenue cycle so it could not be included in the expenditure cycle.

Segregation of duties serves two key purposes: It ensures that there is oversight and review to catch errors. It helps to prevent fraud or theft because it requires two people to collude in order to hide a transaction.

A three-way matching is the process of matching purchase orders (PO), goods receipt note, and the supplier's invoice to eliminate fraud, save money, and maintain adequate records for the audit trail. Three-way matching is usually done before issuing payment to the supplier post delivery.

Types of Revenue Expenditures

Salaries and employee wages. Any overhead expense, such as salaries for the corporate office, which typically fall under selling, general, and administrative expenses (SG&A) Research and development (R&D) Utilities and Rent.

THREAT: Accidental loss of purchasing data. CONTROL PROCEDURES: Regular backup of the expenditure cycle database. THREAT: Disclosure of sensitive supplier information (e.g., banking data). CONTROL PROCEDURES: Restrict access to the supplier master data.

production. All of the choices above are part of the expenditure cycle except production. Production is part of conversion cycle along with planning, physical product control, and scheduling.

The three types of expenditure that a business can incur include capital expenditure, revenue expenditure, and deferred revenue expenditure.