Accounting Information System Solved Assignment

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Accounting Information
System

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TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
Purchase system......................................................................................................................1
Cash disbursements system....................................................................................................3
Payroll system........................................................................................................................5
Internal control weakness in each system and risk associated with weaknesses...................9
CONCLUSION .............................................................................................................................10
REFERENCES..............................................................................................................................11
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INTRODUCTION
An accounting information system is an effective system that collects, store and process
financial as well as accounting data that are useful in decision making process. It is a computer
based method which are being used by companies in tracking accounting activity. This present
study is based on Adam & Co that is a Perth based wholesaler of industrial suppliers. It uses a
centralized accounting system with network terminals at different locations. This study is going
to show different payroll system that this company uses (Libby, 2017). Purchase system helps
the company in acquiring only those products which are required by them. Cash disbursement
system also play an important role in accounting information system as it supports Adam & Co
to issue check to vendors and third party in accurate and timely manner. Further it will also show
the importance of payroll system as it ensures both employees and employers that they are being
paid accurately on the basis of their working hours.
Purchase system
A purchasing system can be defined as a process that is being followed by manager of an
organization to acquire goods and services for company. Some steps involves in purchase system
is being defined as follows:
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Accept purchase requisitions from users: A purchase requisition is a form that is filled
out by an employee of Adam & Co, requesting that purchasing department of this company
obtain certain goods and service. This form includes all informations about the nature of
products that need to be acquired and time as when they are needed. For authorization,
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Illustration 1: Purchase system

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department manager sign that purchase requisition. This form is then sent to purchasing
department that is responsible for acquiring the requested items ().
Evaluation of suppliers: After identifying number of items or purchase requisition it is
important to evaluate of suppliers. Suppliers are called an important part of the supply chain that
provides the bulk of the value in ordered goods. A supplier is usually a manufacturer or
distributor.
Negotiates prices: Negotiation is a simple trying to get a discount from suppliers while
making purchase. The main aim of negotiation prices is to get the best products at affordable
prices along with the best conditions for every items that are being purchased by purchasing
professional of Adam & Co.
Place purchase orders: A purchase order is a written authorization that is received from
buyers in order to acquire goods and services. It takes too much time to create purchase order.
After making an order, suppliers deliver orders to buyers at a price, quality, date which are being
specified in order. For saving time, Adam & Co that is a wholesaler of industrial suppliers,
deliver purchase orders in electronic format via internet.
Monitor procurement cards: A procurement card is an effective way and tool of
making payment to suppliers by the company. It may be a corporate debit card or a credit card. If
an organization uses this system then bank manage this card programme and send a bill to the
payer on a monthly basis. If the payer or an organization delay in making payment then the bank
charges the interest on the open balance. It is generally used for international payment (Pauker
and Spies, 2017).
Dispose of excess assets: Excess assets includes all those equipments and materials that
were being acquired and obtained for fulfilling the main purpose initially but now they are no
longer required. All these type of assets may be unserviced, worn and damaged, so the company
disposed these items. By selling all those items on loss and fully depreciation, company dispose
of excess assets.
So, by purchasing and acquiring only those goods which is needed actually, Adam & Co make
its purchasing system successful (Vaidyanathan, 2015).
Cash disbursements system
Cash disbursement system is being used Adam & Co in order to handle its cash payment
securely. Most of the transactions of this company are being processes via accountable payment,
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when a cash payment is made. It is important for the company to record cash disbursement on its
financial records. It is the outflow of paid cash in exchange for the provision of goods and
services. The main aim of using this system is to settle and prevent themselves from obligations
like interest for loans, operating expenses etc.
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Illustration 2: Cash disbursement system
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Recording the liability: In the account payable cash disbursement system, the first step
is to properly record all liabilities upon receipt of merchandise by making an effective use of
purchase order that estimate as a guideline. For maintaining accuracy, it is important for the
company to record liability as soon as it receives all its ordered purchase items. When actual
invoice arrives then this initial recording can be finalized. So, it can be said that purchase order is
important for merchandise purchase. It allows company to evaluate that how much of its each
item will cost (Ellis, 2018).
Finalized of liability: The second step in account payable cash disbursement system is to
finalize the actual liability. This step is being done when the company receives vendor's invoice.
After making required adjustments to the charges, item costs and freight, it finalizes liability.
Preparation of payment: In the third step, company requires to prepare and insurance
of payment for all those goods that are being received by the company.
Cash disbursement secures the accuracy of the general ledger accounts by evaluating
valid purchase requests that are paid and recorded. The main purpose of cash disbursement is to
issue accurate as well as timely check to all vendors/third party obligors and suppliers. This
process of preparing bills as well as reconciling ensures manager that general ledger accounts
and issued checks are accurate and timeliness. Via sampling, cash disbursement clerks verifies
proper ledgers. By doing this, they confirm that the correct disbursement check number is for
that vendor only that is in the vendor ledger. This verification and vendor account give
confidence to the manager that the cash disbursement and its process is accurate. Sometimes the
whole process does not match with the small business operational flow (Gupta and Gupta, 2017).
Payroll system
Payroll is a procedure by which employers of Adam & Co pay their employees for the
work that have been completed by them. Payroll system includes all those activities which need
to do with the payment of employees. This system ensures employers and employees that they
are being paid accurately. It includes to keep tracks of working hours of employees, withholding
taxes, calculating wages etc. It is stated that employees of Adam & Co record their working
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hours on time card daily. The supervisor ensures if employees record and marked their working
hours correctly, he/she reviews time cards and submit them to the payroll department. The
payroll clerk input all that time card data in the computer terminal that is connected to the central
payroll system and then print hard copies of the pay cheque.
This system starts and company requires to maintain this system when they hire its first
employees. Some steps involved in the payroll system are described as follows:
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1. The first step is to update employees master file. After making changes and updating
informations, payroll clerk receive notification of changes that can impact the processing
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Illustration 3: Payroll system
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of payroll like pay rate changes and withholding exemption. So it is important to update
all informations in employees master file (Parento, Hynes and Sahgal, 2017).
2. After that it is important to set pay period in order to verify that they have set the payroll
module for the correct pay period.
3. The next step is to enter total working hours and overtime worked hours of employees in
the payroll system. This step is not required if the company calculates payroll manually.
For assembling timekeeping informations, company uses computerized clock then all the
informations may be ported into the payroll system or software directly.
4. The company requires to enter manual pay check if they are not been recorded in payroll
software. It may be related to the termination of workers or to the previous hiring.
5. After entering all pay check, Adam & Co manually calculate the amount payable to
those employees who has left the company. It may include their severance pay, unused
vacation time. This step is being done for only those employees who left an organisation
voluntarily. There is a requirement of immediate payments for Forcible termination.
6. With the help of software process, the company calculates all pay. If they calculate
manually then they make an effective use of tax tables which are being provided by the
state and federal government in order to determine the amount of tax holdings.
7. It is the most important step in which the company review all reports. The main aim of
reviewing reports is to identify and underlying transactions for errors.
8. After reviewing reports, Adam & Co issue payments to employees if there is no errors in
reports.
9. After completing payroll, it is important for the company to keep back up of data related
to it. In the type of in house software, data are archived. Outsourced payroll processing is
handled by the suppliers and for manual system, payroll register is kept in locked storage.
10. After that, the company lock down the period in the payroll module with the main aim of
preventing unauthorized changes (Pernsteiner, Drum and Revak, 2018).
11. Company then deposit payroll taxes and confirm their transmission to the government.
12. In the next step, the company requires to file the time cards near the payroll department.
It is useful when some employees questions their pay and by reviewing time cards, the
company can answer all of their questions.
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13. It is the last step in which, Adam & Co investigates errors. By investigating all
transaction errors and initiate changes, the company can mitigate their continued
occurrence.
Internal control weakness in each system and risk associated with weaknesses
Some mistakes and weaknesses of purchase system that can occur within an organization
is order may be forgotten, sometimes goods not for business use, miss out on bulk discount, poor
quality items arrived, errors in posting to the personal payable ledger etc. The main weakness
related to purchasing system is fraud (Essa, 2018). Due to collusion between staff and
supervisor, staff members not investigate complaints and resale environment with poor control
and even they do not analyse them.
In the context of cash disbursement system it can be said that improper control,
accountability, continual adaption issues occur while issuing check to suppliers and reviewing all
data. Security measure can change the channels via which all data and cash move, which the
company wants to pay to suppliers and vendors. Due to changes in government policies it can
add few more steps. All changes and weaknesses can take too much time of the company and can
hamper other activities. Internal control and changes in system takes too much time which can
leave the organization behind because it always tries to meet the new requirement according to
changes made by the government with its existing and outdated strategy.
Internal control weakness in payroll system does not only increases the chances of data
entry errors but also expose and lead to the company to fines, penalties etc. Due to work load and
not separating of duties of payroll system can lead fraud and errors in process (Basri and Siti-
Nabiha, 2016). Security control is other main issue and weakness that can occur in the payroll
process. Weak security control for all information and hard copy informations, blank check can
lead to theft of all informations. It can decrease the brand image of the company and also can
increase labour turnover.
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CONCLUSION
From the above study it has been summarized that accounting information system played
a vital role in managing all accounting and financial data. For managing all data, company has
used different system like payroll, cash disbursement and purchase system. Cash disbursement
allowed organizations to pay and issue accurate check to suppliers in timely manner. Payroll
system also helped organization to answer all questions of employees about their pay and issue
payment to employees. It has also shown the increasing importance of purchasing system as it
made their purchasing system more efficient.
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REFERENCES
Books and Journals:
Basri, H. and Siti-Nabiha, A.K., 2016. Accounting System and Accountability Practices in an
Islamic Setting: A Grounded Theory Perspective. VOL. 24 (S) MAY 2016. p.59.
Ellis, G.E., 2018. Credit wagering system and method of use. U.S. Patent Application
15/787,399.
Essa, A.E., 2018. Internal control systems and financial performance in the petroleum industry:
a case of VIVO Energy Uganda (Doctoral dissertation, Nkumba University).
Gupta, R. and Gupta, Y.P., 2017. System and Method for Cash Withdrawal. U.S. Patent
Application 15/233,789.
Libby, R., 2017. Accounting and human information processing. In The Routledge Companion to
Behavioural Accounting Research (pp. 42-54). Routledge.
Parento, S.A., Hynes, R.C. and Sahgal, S., Mastercard International Inc, 2017. Payroll system
with flexible disbursement options. U.S. Patent 9,613,381.
Pauker, M.J. and Spies, T., EntIT Software LLC, 2017. Purchase transaction system with
encrypted transaction information. U.S. Patent 9,704,159.
Pernsteiner, A., Drum, D. and Revak, A., 2018. Control or chaos: impact of workarounds on
internal controls. International Journal of Accounting & Information Management.
26(2). pp.230-244.
Vaidyanathan, A., 2015. System and method to purchase products seen in multimedia content.
U.S. Patent Application 14/733,974.
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