The first major business activity in the expenditure cycle is:
a. ordering inventory, supplies, or services.
b. a customer sale.
c. shipping goods to customers.
d. receiving goods from vendors.
The correct answer and explanation is:
The correct answer is: a. ordering inventory, supplies, or services.
Explanation:
The expenditure cycle refers to the set of business activities involved in acquiring goods, services, or inventory for an organization and includes the processing of payments for these items. The first step in this cycle typically involves ordering inventory, supplies, or services from suppliers or vendors. This is because businesses need to secure the necessary resources to maintain operations, whether for manufacturing, retail, or other types of services.
The ordering process begins when a business identifies a need for products or services. This could be driven by inventory levels running low, anticipated production needs, or the requirement for essential services. The organization then places an order with a vendor or supplier to fulfill this need. This order is usually based on a purchase requisition or inventory management system, which provides details on what is required and in what quantity.
Once the order is placed, the following steps in the expenditure cycle include receiving goods from vendors, inspecting the goods for quality and accuracy, and then processing payments. After the goods are received, they are recorded in the accounting system, and the corresponding accounts payable are generated.
The ordering process is crucial because it ensures that businesses maintain adequate inventory or supplies to continue their operations. Without a proper order, the cycle would not start, and essential resources would not be available for the organization to continue its daily activities. Hence, ordering inventory, supplies, or services marks the first major activity in the expenditure cycle.