Administrative Expense Control Account
©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder
Subsidiary accounts Supplies, Oees Auditing fees, Taxes
19 - 5
Learning Objective 2
Describe the business functions and the related documents and records in the acquisition and payment cycle.
©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder
19 - 2
Transactions in the Acquisition and Payment Cycle
1. Acquisitions of goods and services 2. Cash disbursements 3. Purchase returns and allowances
➢ Recognizing the liability
➢ Processing and recording cash disbursements
©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder
19 - 4
Accounts in the Acquisition
and Payment Cycle
Manufacturing Expense Control Account
Subsidiary accounts Repair and maintenance Taxes, Supplies Freight in, Utilities
Accounts Payable
Acquisitions of goods and services
Selling Expense Control Account
Subsidiary accounts Commissions Travel, delivery expenses Repairs, Advertising
©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder
19 - 7
Classes of Transactions and Accounts
Cash disbursements: ➢ Cash in bank (from cash disbursements) ➢ Accounts payable ➢ Purchase discounts
Audit of the Acquisition and Payment Cycle: Tests of Controls, Substantive Tests of Transactions, and Accounts Payable.
Chapter 19
©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder
19 - 1
Learning Objective 1
Identify the accounts and the classes of transactions in the acquisition and payment cycle.
©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder
©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder
19 - 8
Business Functions in the Cycle
➢ Processing purchase orders
➢ Receiving goods and services
and purchase discounts
©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder
19 - 3
Accounts in the Acquisition
and Payment Cycle
Cash in Bank
Property, Plant and Equipment
Purchase Discounts
Purchase discounts
Prepaid Expenses
©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder
19 - 6
Classes of Transactions and Accounts
Acquisitions:
➢ Inventory ➢ Property, plant, and equipment ➢ Prepaid expenses ➢ Leasehold improvements ➢ Accounts payable ➢ Manufacturing expenses ➢ Selling and administrative expenses
Accounts Payable
Cash Acquisitions disbursements of goods and
services
Raw Material Purchases
Purchase Returns and Allowances
Purchase returns and allowances