1 The company has some 50 suppliers whose records are held on computer master file, updated by the buyer, Ivor Jordan, using a terminal in his department.

2 Ivor prepares a purchases budget annually on the basis of a sales budget and estimated minimum inventory levels and suppliers, lead times. The budget is agreed by the board at an annual budget meeting but is updated from time to time as circumstances change.

It is used by Ivor to negotiate contracts with suppliers.

3 The budget is also used to set minimum inventory levels for each type of inventory. Inventory records are computerized and purchase requisitions are produced automatically in duplicate when inventory balances reach reorder levels. The requisitions are sent to Ivor Jordan who decides whether it is appropriate to send out an order to suppliers. [If he decides it is not necessary he notes ‘rejected’ on the requisition and changes the minimum inventory level on the inventory records file. Management recently gave him this authority after orders were sent out despite a slowing in economic activity and a management decision to reduce inventory levels.]

4 Ivor batches purchase orders and calculates quantity hash totals and record count. A data control log is kept both by Ivor Jordan and Eric Owler, data control clerk in the computer department, and control totals, together with date and run number are entered in the logs by Ivor and Eric respectively. When the purchase orders and control prelist are given to Eric Owler, both Ivor and Eric sign the respective control logs. Orders and prelist forms are input to a computer run which produces five copies of the official purchase order, which are sent to Ivor Jordan (two copies, one being sent to the supplier), James Hemsworth in the main stores (two copies) and Janet Black in the accounting department. Official purchase orders are sequentially numbered. A further output is an exception report that contains control totals and details of rejected items.

Eric Owler is responsible for making the necessary corrections of rejected items and putting them through the computer system in an additional run. When the control totals are in agreement with his control log, he informs Ivor Jordan. The purchase orders and prelist are returned to Ivor Jordan.

5 Goods are received in the main stores by James Hemsworth who checks the purchase order to supplier delivery note and the goods and enters the goods received on his copies of the purchase orders which then become goods received notes (GRNs). He signs these for approval and sends one copy to Janet Black.
6 Purchase invoices are matched to purchase orders and GRNs by Janet Black. She checks calculations, enters the supplier and general ledger code, prelists invoice values and records the total and document count in her purchases control book.
7 The invoices and prelist are sent daily to Eric Owler who enters control totals in the data control log and both he and Janet initial the logs for agreement. The invoices form input for an inventory records and trade payables ledger update run. This run also produces a weekly listing of invoices. Rejected items appear on an exception report. Eric compares the machine generated control totals with the predetermined totals, reviews the exception report and arranges for input errors to be corrected. The purchase invoices and control totals prelist are returned to Janet Black.
8 At the end of each four-week period the following are printed:
● list of creditors (individual invoices and total for each supplier)
● list of invoices for the period and summary per cost code.
The chief accountant, Roger Barraclough, reviews listings for reasonableness and uses the creditors’ listing as the basis for payment decisions. He posts cost summary totals to the general ledger file using the VDU in his office and prints cost information prior to preparing management accounts for the period.
Required

(a) State the broad systems objective of a purchases and related trade payables system.

(b) Redraft the part of the flowchart to reflect the fact that Ivor does not always send out an order on the basis of the requisition and has the authority to change inventory reorder levels.

(c) Suggest key questions in the following areas:
● requisitioning ● purchasing ● receipt of goods and services

• processing of suppliers invoices • entry in purchases ledger • entry in general ledger.

(d) Evaluate the system you have recorded.

Transcribed Image Text:

Computer department Data control clerk operators (Eric Owler) Suppliers records Stock records Purchases requisitions A. Suppliers records are updated using a terminal in the buying department. B. The purchases budget is prepared by Ivor Jordan and stock reorder levels set (annually). C. When reorder level is reached the computer automatically prepares purchase requisitions which form the basis for preparation of the purchase order by Ivor Jordan. D. There is formal transfer of purchase orders and control totals pre-list and control logs are signed by both Jordan and Owler. E. The exception report is used by Owler to make corrections in a separate purchase order run. F. Copy 4 of the official purchase order becomes a goods received note that is passed to Janet Black for matching with purchase invoice. She enters supplier and general ledger codes on the face of the invoice. G. There is a formal transfer of purchase invoices, and control totals Buyer (Ivor Jordan) Suppliers records Purchases orders To supplier Purchases budget B Forward contracts Pre-list control /totals C Main stores (James Hensworth) Purchase order run D Data control log Data control log E ..... and Exception report Official N purchase and order F pre-list and control logs are signed by both Black and Owler, Stock creditors Data control G H. The exception report is update log used by Owler to make corrections in a separate Purchases stock/creditors update run. Exception stings report (daily) I. The chief accountant Accounting department (Janet Black) Chief accountant (Roger Barraclough) Suppliers delivery note Enters goods received and signs Enters codes, Purchase invoice Purchases control book Pro-st control total FIGURE 10.2 Document flowchart for the purchases systems of Broomfield plc. Reviews for reasonablenase and signe