Worifree Properties is a small start-up company that came into existence in the spring of 2005 with a total of six employees. Headquartered in San Jose, California, the company has experienced moderate growth in its first year. Its core business focuses on property management. Worifree performs all property management-related tasks to satisfy the needs of its clients. Its clients are real estate investors/owners who are interested in renting out their property without incurring the work and worry associated with its management. Worifree attempts to reduce owner involvement in the management process as much as possible while providing them with accurate and reliable services and accounting.

Worifree’s clients own one or more properties in the Bay area. Although a property may have more than one owner, most multiple owners are married couples. In those cases, Worifree keeps track of only one of the owners. Worifree performs rent collection, maintenance, and advertising, and prepares contracts on behalf of the real estate owners for leasing transactions. Maintenance and advertising services are all outsourced to contractors, while lease handling and other services are managed by internal employees. All cash inflows and outflows are controlled through one bank account, although Worifree has a couple of accounts with Bank of America. In addition, because the company has so few employees, many transactions are handled online via electronic funds transfers. For example, Worifree agrees to electronically forward the rental income to corresponding owners immediately upon receiving them from the tenant(s). All tenants are required to make rental payments to Worifree using electronic funds transfers.

Expenditure Cycle:

The expenditure cycle of Worifree is not complex. There are two kinds of expenditures: (1) services provided by contractors and (2) supplies/fixed assets purchases from vendors. Maintenance and advertising services are provided by a specified set of vendors for quality and cost control. Since Worifree always gets services from contractors with whom they have had transactions before, there could be a delay to get the desired service when certain contractors are busy. Some contractors provide more than one kind of service for Worifree. When each service is completed and Worifree is billed, Worifree always pays the contractor electronically in full.

When making purchases, Worifree uses a specified set of qualified vendors. Some vendors in the vendor list are alternate vendors. Worifree orders from the alternate vendors, only if the often-used vendor does not have a specific item in stock. All purchases are made by purchasing agents. Each purchase involves only one purchasing agent and one vendor. Vendors may provide Worifree with one or more than one type of product on more than one occasion. Payments for most purchases are made in full. Some vendors bill Worifree monthly, particularly for office supplies. However, when purchasing expensive office equipment or large furniture, Worifree makes installment payments. Since Worifree has an excellent credit history, some vendors do not require a down payment for installment purchases.

Construct an REA diagram to depict Worifree’s expenditure cycle.

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The expenditure cycle is that the set of activities associated with the acquisition of and payment f... View the full answer