What is the expenditure cycle?

The expenditure cycle is a sequence of processes that occur for a business to go from saying "I need this in order to make whatever it is our company makes" to paying for what they needed.

This process can and does differ among entities depending on the size and complexity of the organization.

For a large organization with great internal control the process usually starts with a purchase requisition. Accounting department matches the documents that they have. These are the purchase order (what we ordered), the receiving report (what we got), and the invoice from the supplier (what we are now being billed for). If these amounts match then the accounting department records a payable and also increases inventory.

Once all of the documents in the preceding paragraph are matched and made sense of the accounting department approves the invoice for payment. They would send a packet including all those documents (called a voucher packet) to the treasury department to write the check.

The treasury department will then write the check and sign it. They then cancel all the supporting documentation by stamping it paid. These voucher packets are sent back to the accounting department for posting of the payment. Which would be a debit to the account payable and a credit to cash.