Expenditure Process

Kyle Ashcraft, CPA · 2019 CPA Exam Scores · 95 FAR · 98 BEC · 91 REG · 90 AUD

The expenditure process is the mirror image of the revenue cycle: same checkpoints, same documents, opposite side of the transaction. Here, the company is the customer.

What are the five steps in the expenditure process?

1. Approve the purchase requisition
2. Send the purchase order
3. Confirm proper receipt of the goods
4. Compare the purchase order, receiving report, and invoice (the voucher package)
5. Make the payment

A need arises, so someone creates a purchase requisition, which requires management approval before anything gets ordered. Once approved, the company issues a purchase order to the vendor. After the order ships, the company confirms it received the goods, compares three documents to make sure everything lines up, and only then pays.

What is a purchase requisition?

A purchase requisition is an internal request to buy goods — not yet an order to a vendor. It needs approval before it can turn into a purchase order, and it typically lists the quantity being requested, the price paid the last time the item was ordered, and approval signatures at the bottom.

What is the voucher package?

Before the company pays a vendor, someone reviews the voucher package — three documents that all need to agree before payment goes out:

• Purchase order: what the company ordered
• Receiving report: what the company actually received, including quantity
• Invoice: what the vendor is billing for

All three have to match before payment goes out. What was ordered, what arrived, and what's being billed need to line up — that three-way match is what the voucher package exists to confirm.

What role does the remittance advice play?

Once the voucher package checks out, the company pays — and sends a remittance advice along with the check. The remittance advice tells the vendor exactly which invoice (or invoices) the payment covers, which matters when a single check settles more than one invoice at once.

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Kyle Ashcraft, CPA scored 90 or above on every section of the CPA exam in 2019, including a 98 on BEC. He is the founder and sole instructor of Maxwell CPA Review, a complete CPA review course covering all six sections, where he creates every lecture, textbook and study outline himself.