The spending cycle, also called the expenditure cycle, is a series of recurring activities that revolves around purchasing and paying for inventory. The cycle consists of six business processes: purchase orders, receiving, inventory control, accounts payable, purchase returns, and cash disbursements.

The supplier is the entity that ships goods to the company to fulfill customer sales. Some of the documents in this cycle include:

• Purchase requisition: the internal request for goods (eg, materials needed to produce inventory) to be ordered from the supplier by the purchasing department (Choice A)
• Purchase order: the form transmitted to the supplier requesting goods be delivered to the company
• Receiving report: the document generated by the company warehouse for goods received from the supplier (see image above)
• Purchase (vendor) invoice: the document received from the supplier indicating the goods that were actually shipped to the company and the amount due (Choice B)

To determine whether purchase orders were correctly filled by the supplier, the internal auditor would review a sample of receiving reports. These reports are generated by the warehouse when the goods are delivered from the supplier. A receiving report can be a paper document or an electronic file issued from a barcode scanner.

(Choice D) Reviewing sales invoices would determine if supplier invoices were correct (ie, invoice was for shipped goods only). It does not determine if the correct items were shipped.

Things to remember:
The spending cycle revolves around purchasing and paying for inventory. To determine whether inventory orders from a supplier are being correctly filled, the internal auditor would review a sample of receiving reports.