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88 CHAPTER 5 ACQUISITION/PAYMENT BUSINESS PROCESS

firms is similar regardless of whether the firm is engaged in manufacturing, in service, or
in retail.

Tragg's Custom Surfboards

Additional Background Dan Tragg insists on using only the highest quality mate-
rials in the manufacturing of his surfboards. Tragg's uses a list of approved suppliers with
whom they have established a good relationship over the years. For example, they obtain
their blanks (the molds for their surfboards) from one of two vendors, SeaFoam or Clarke
Foam. These companies manufacture blanks that are near perfect in density from deck to
core without compromising weight. In addition, they have a wide variety of blanks. The
result is that Tragg's incurs much less waste when shaping the surfboard into one of its
styles.
The boards are laminated with Volan fiberglass, which is a flat-weave fiberglass
cloth that resists dings. This finish also makes the boards water tight, stronger, and more
durable. They outsource the application of most of the Volan fiberglass finish to a well-
established glasser, Austad Glassing. Pigments and other supplies are obtained through
several suppliers with whom Tragg's has been dealing over a period of years.

Model the Expenditure Cycle Using REA As we begin modeling the
expenditure cycle using the REA diagram, we will focus our discussion on the purchase
of inventory (i.e., the blanks, or molds, for each style of surfboard sold). Obviously,
there are expenditures for goods other than inventory. For example, there are expendi-
tures for fixed assets, for miscellaneous supplies, and for services. Similarly, there are
items (i.e., fixed assets and miscellaneous supplies) that are received other than
inventory. For simplicity's sake, we have chosen not to represent those in the REA dia-
gram so that you can focus on the process of purchasing, receiving, and paying for
inventory.
Since the blanks are purchased for each style of surfboard sold, Tragg's is able to use
only one inventory table to record the inventory for all of its stock, both production and
retail. The blanks are purchased when a production supervisor recognizes a need for inven-
tory. The supervisor goes to his or her terminal and completes a Purchase Order Form
online. This is done by selecting the vendor, as well as the inventory and amounts to be
ordered. The order can be for one type of blank or for several types. The Purchase Order
Form is reviewed by a Purchasing Agent. If it is approved, a Purchase Order Report is
prepared, printed, and mailed to SeaFoam or Clarke Foam.
The goods are received and counted by the receiving clerk. The receiving clerk
enters the date, the PO Number, and the Supplier's Invoice Number in the top portion of
the form. In addition, the clerk must enter the Inventory ill number and the quantity
received in the form.
If the order is in agreement with the Purchase Order, it is scheduled for payment. A
separate receiving report wilLhe completed for each Purchase Order; however, if any goods
are backordered (which happens on rare occasions), Tragg's may have to complete more
than one Receiving Report for a Purchase Order. Tragg's sometimes pays for more than one
invoice (receipt of inventory) with each check (cash disbursement). In addition, on occasion
they have placed very large orders and have paid for those orders in installments.