Which of the following documents would be generated last during activities in the expenditure cycle?

Which of the following documents would be generated last during activities in the expenditure cycle?

Chapter 8 The Acquisition and Expenditure Cycle

Multiple Choice Questions

1.When confirming accounts payable, emphasis should be put on what kind of accounts?

A)Accounts with small or zero balances.

B)All accounts should be equally emphasized.

C)Accounts with large balances.

D)Accounts listed in the accounts payable subsidiary.

Answer: A Source: Original Difficulty: Medium

2."Recorded vouchers (accounts payable entries) in the voucher register (e.g., purchases

journal) supported by completed voucher documentation" is a specific example of

which management assertion?


B)Existence or occurrence.


D) Valuation or allocation.

Answer: B Source: Original Difficulty: Medium

3."All purchase orders are supported by requisitions from proper persons" is a specific

example of which general assertion?

A)Existence or occurrence.


C)Rights and obligations.

D)Presentation and disclosure.

Answer: A Source: Original Difficulty: Medium

4."Observe the work habits of purchasing department personnel" is an audit procedure

intended to satisfy which control assertion?


B)Valuation or allocation.

C)Accounting and posting.

D)Existence or occurrence.

Answer: A Source: Original Difficulty: Easy


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What is Accounts Payable (AP) Cycle?

Accounts Payable cycle, also known as ‘Procure to Pay’ or ‘P2P cycle, is a series of processes involving the company’s purchase and payments department and carrying out all necessary activities from placing an order to suppliers purchasing goods and making final payments to the suppliers.

Which of the following documents would be generated last during activities in the expenditure cycle?

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Source: Accounts Payable Cycle (wallstreetmojo.com)

Every business has two major Business cyclesThe business cycle refers to the alternating phases of economic growth and decline.read more  – revenue cycle and expenditure cycle.

  • The Revenue CycleThe revenue cycle defines and maintains the processes for completing an accounting process for recording revenue generated from services or products, which includes the accounting process of tracking and recording transactions from the beginning to end delivery of an order.read more includes sales, marketing, customer relationship, revenue collection, etc.
  • The Expenditure Cycle includes purchases, supplier payments, production expenses, wages, salaries, etc. The accounts payable cycle is a significant part of the expenditure cycle.

Following are the steps included in the Accounts Payable Cycle

  1. Determination of Goods Required
  2. Procurement Process
  3. Search for Suppliers
  4. Request for Proposal
  5. Review Receiving Quotation
  6. Negotiation
  7. Purchase OrderA Purchase Order (PO) serves as a legal document between buyer and seller, wherein, the buyer sends this contract that details the goods and services, date of delivery, payment terms as per the contract etc.read more
  8. The Supplier’s Confirmation
  9. Suppliers’ Duty
  10. On Successful Delivery of Goods
  11. Invoice Entry
  12. Payment

Let us discuss these in detail –

Steps Included in Accounts Payable Cycle

Accounts Payable cycle is the series of different processes in the company involving the different activities required for the purchase of the product right from placing the order for the goods to the suppliers, then purchasing and getting delivery of the goods and finally making the final due payment to the supplier against the same.

The following are steps included in the procure-to-pay cycle:

#1 – Determination of Goods Required

The purchases are made based on the stocks required by the company’s production department. The production manager identifies the needed supplies and informs the purchasing department.

#2 – Purchase Department starts the Procurement Process

After getting the approval of supplies requests from production, the purchasing department will look if some similar orders have already been placed; if not, new documents of purchase orders are generated.

#3 – Search for Suppliers

Finding suppliers is a tricky job that includes various factors like locality, ease of transport, credit policies, goodwillIn accounting, goodwill is an intangible asset that is generated when one company purchases another company for a price that is greater than the sum of the company's net identifiable assets at the time of acquisition. It is determined by subtracting the fair value of the company's net identifiable assets from the total purchase price.read more of supplier and its products, past connections with the company, and many more. However, the company prefers transactions with its tried and tested suppliers. In other cases, potential suppliers are selected locally, nationally, or internationally using an online business-to-business portal (like Alibaba.com), referrals, etc.

#4- Request for Proposal

After selecting a few potential suppliers, a formal document is delivered to receive quotations of the items. The supplier sends a proposal, including product rates and qualities, and asks the company to do business with them. The document is referred to as a request for proposal (RFP).

#5 – Review Receiving Quotation

The company reviews the quotations from different suppliers and filters the suppliers who can fulfill the company’s requirements. The company informs the selected suppliers about its interest in making purchase deals.

#6 – The company begins the Negotiation Process

Negotiation is a hectic and sometimes time-consuming process. The buyer requests the seller to lower its rates, offer a liberal credit policy, and other basic negotiation terms like discounts, quality of products, freight charges, delivery, and insurance terms. The negotiation process performs the filtering, and the company has identified the best suppliers.

#7 – Purchase Order

On approving the desired supplier, the company awards him the order by sending the official purchase order document. It confirms the supplier about the company’s requirements and the deadline for delivering the products or services.

#8 – The Supplier’s Confirmation

The agreement initiates when a supplier agrees to sell its products at the requested terms and conditions. The supplier must send a confirmation of acceptance in writing through post or email.

# 9 – Suppliers’ Duty

The supplier must get the goods ready and shipped following the deadlines strictly and keep the company informed about the order progress. Notification must be sent when goods are ready to be shipped and a shipment notice, including valid documents specifying a description of goods, weight or units, delivery date, location, etc.

#10 – Inspection of Delivered Goods

The process of inspection begins, which includes both quality and quantity checks. The purchase department checks if delivered goods are according to the purchase order.

#11 – Invoice Entry

On successful inspection, if everything finds fit, the purchasing department sends the approval to the accounts payable department to begin the payments process. The accounts payable department thus makes a record of the invoice, which contains all the specifications about the payment like the final date and a final date with discount, amount of reimbursement, and other official details.

#12 – Payment

After every necessary check, the accounts payable department starts payments to the supplier partially or fully as per company norms. There are various ways to make payments to the suppliers like:

  • Cash payments
  • Cheque payment (or other negotiable instrumentsA negotiable instrument refers to the transferrable and signed written document whereby the payer guarantees or promises to pay a certain sum on a specific future date or as on-demand to the payee or bearer. It includes bills of exchange, delivery order, promissory note, customer receipt, etc.read more)
  • Online third-party transfer
  • Credit Card Payment
  • Payments in dollars or other foreign currency (generally applicable in import transactions);
  • Barter payment, i.e., paying some goods and/or services against the goods and/or services received by the supplier.

Relevant Documents Involved in AP Cycle

The following are important documents included in procure to pay cycle:

#1 – Purchase Order

The company’s purchasing department generates an order of the required goods and sends it to the vendor. The order details the vendor about the items along with their quantities. It also specifies a date on which the goods must be delivered.

#2 – Receiving Report

After the goods are delivered, the management inspects the shipment and checks the quality, quantity, and other essential aspects. After a full inspection, it creates a detailed report called receiving the report.

#3 – Vendor Invoice

The document is the legal contract in which the vendor details the goods, the rate per unit, the total amount, and the appropriate taxable amount. It also specifies the credit policy and the final date for payment.

This article has been a guide to the Accounts Payable Cycle. Here we discuss the top 12 steps of the P2P cycle, including the required documentation. You may learn more about financing from the following articles –

  • Definition of Salary Payable
  • Accounts Payable Ledger
  • Accounts Payable Journal Entries
  • Accounts Payable vs. Notes Payable
  • Deferred Compensation

Which of the following documents would be generated first during activities in the expenditure cycle?

Which of the following documents would be generated first during activities in the Expenditure Cycle? The Purchase Order is used to initiate a purchase of goods or services. Each of the other listed documents would be generated in subsequent Expenditure Cycle activities.

Which transaction cycles include the receiving report purchase order and vendor invoice?

The basic accounts payable cycle includes three significant documents – purchase order (PO), receiving report (or goods receipt), and vendor invoice.

Which of the following accounts would likely be considered as part of an audit plan of the expenditure cycle for a client?

The Inventory account is generally considered as part of the Expenditure Cycle.

Which of the following is a distinguishing factor of attest services?

Which of the following is a distinguishing factor of attest services? T/F An auditor assesses management's compliance with a federal regulation and reports the results to interested users through a written report. This is an example of an attest service.