Sugar Mill Expenditure Cycle

EXPENDITURE CYCLE

Overview

The Expenditure Cycle of Sweet Grass Milling and Refinery Corporation is a recurring set of business activities and related data processing operations associated with the purchase of and payment for goods and services. Its primary objective is to minimize the total cost of acquiring and maintaining inventories, supplies, and the various services necessary for the organization to function.

Sweet Grass Milling and Refinery Corporation practices Economic Order Quantity (EOQ) in managing its inventories. With this, the system automatically creates a purchase request for raw materials that reached their reorder point. All purchases are made at FOB Destination. Thus, Accounts Payable and Purchases are recorded only upon receipt of Materials. Items received are stored in the warehouse inside the company’s premises and are arranged according to its classification.

The company operates on a credit basis and do not pay for resources until after acquiring them. All data regarding the suppliers, including the payment terms, are captured in the Supplier Master File. These suppliers have established a mutual trust with the company, thus, purchases are made only through them.

The Expenditure cycle of the company is semi-automated. Thus, the company has established internal control procedures to ensure that the system is free from any possible fraudulent schemes and sabotages. These controls also ensure the fair presentation of the figures in the financial statements and as well as the consistency of the accounting estimates and principles applied.

INTERNAL CONTROL

Internal control in the expenditure cycle is established in the First Farmer’s Milling Corporation to provide accountability in the custody of inventories, efficiency and effectiveness in the disbursement process, and compliance with government agencies.

CONTROL OBJECTIVES

The control objectives of the First Farmer’s Milling Corporation in the Expenditure Cycle are:

* To...