Question
ABC Company (ABC) uses a process called 'evaluated receipt settlement' (ERS) to pay its suppliers. ERS involves paying for goods received based on purchase order
ABC Company (ABC) uses a process called 'evaluated receipt settlement' (ERS) to pay its suppliers. ERS involves paying for goods received based on purchase order (PO), advance shipping notice (ASN), and goods receipt. An ASN is an electronic notification of the supplier indicating the exact amount being shipped (i.e., like a packing slip but sent prior to delivery). In this process, invoices are not needed, and payment is therefore immediate, which is appreciated by suppliers.
Last month, ABC hired Don Genius as its new Accounts Payable manager. Don has never heard of ERS and thus waited for invoices to come in. As soon as a few disgruntled suppliers called ABC's CEO to complain about not getting paid, the CEO informed Don that ABC pays suppliers based on the data available prior to delivery and that invoices are not received from suppliers. Don thought he understood and started paying suppliers based on purchase order (PO) data.
- Would this be considered a systemic or random error from a data perspective? Explain why.
- What effect, if any, would Don's approach to paying suppliers have on EACH of the following process cycles? Consider BOTH short-term and long-term impacts.
a) Expenditure Cycle (2 marks)
b) Revenue Cycle (2 marks)
c) General Ledger & Financial Reporting Cycle (2 marks)
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