Adam & Co Expenditure Cycle 4

This report examines Adam & Co expenditure cycle composed of purchase system, payroll system and cash disbursement system. It discusses the potential weaknesses and risks in each of the system and provides recommendations for improvement.

Adam & Co Expenditure Cycle 1
CASE STUDY – ADAM & CO
By (Student’s Name)
Professor’s Name
College
Course
Date

Adam & Co Expenditure Cycle 2
Executive Summary
This paper presents a report which resulting from the examination of Adam & Co
expenditure cycle composed of purchase system, payroll system and cash disbursement
system. Adam & Co uses a centralized system of accounting with various networking
terminals differently situated in the UK. Adam & Co is discussed based on the above
mentioned systems alongside potential weaknesses and risk in each of the system

Adam & Co Expenditure Cycle 3
Table of Contents
Executive Summary...................................................................................................................2
Introduction................................................................................................................................4
Data Flow Diagram of Purchases and Cash Disbursements Systems........................................4
Purchase System.....................................................................................................................4
Cash Disbursement Systems..................................................................................................7
Data Flow Diagram of Payroll System......................................................................................8
System Flowchart of Purchases System...................................................................................10
System Flowchart of Cash Disbursements System..................................................................12
System Flowchart of Payroll System.......................................................................................13
Internal Control Weaknesses and Risks in Each System.........................................................14
Purchases System.................................................................................................................14
Cash Disbursement Systems................................................................................................14
Payroll Systems....................................................................................................................14
Conclusion................................................................................................................................14
References................................................................................................................................15

Purchasing
Department
Inventory
Warehous
e
Cash
Disbursement
Department
Monitor inventory
records
Updates inventory
records
Receives Goods
Prepares Digital
Purchase Order
Updates Inventory
Control Access
Updates AP Control
Access
Updates digital AP
subsidiary ledger
Valid Vendor File
AP Pending File
Vendor
Account
Payable
Department
Inventory Subsidiary Ledger
Receiving File
Digital purchase order records
Purchase order copy 1
Purchase order copy 2
Receiving reports copy
Receiving report copy 2
Sends invoice
Sends invoice
Inventory level
Adam & Co Expenditure Cycle 4
Introduction
Adam & Co expenditure cycle allows human resources, physical materials and
business cash to be converted thereby enhancing various functions. This paper analysed
expending cycle through cash disbursement, purchase and payroll systems applicable to
Adam & Co alongside their associated potential weakness and risks. This enables the Chief
Operation Officer to understand the internal control of the cycle to trigger desirable changes.
Data Flow Diagram of Purchases and Cash Disbursements Systems
Purchase System
Figure 1: Purchase System Data Flow Diagram
Inventory
Subsidiary
Ledger

Adam & Co Expenditure Cycle 5
The Adam and Co purchase system entails procedure for purchasing process that
makes include tasks pertinent for placing order, receiving inventory, identifying the inventory
needs improvement and revaluing existing liabilities. These tasks and their
interconnectedness are shown in figure 1 above. Every procedure used in manufacturing and
retail segment of Adam & Co is shown. Nevertheless, the main difference which
distinguishes the two sectors is the purchase authorization. Adam & Co’s manufacturing
segment purchase useful raw material to produce whereby decision to purchase is approved
by both control function and production planning (Brandon 2016). On the other hand,
retailing sector purchases finished goods to resell as approved by inventories control.
Monitoring process for inventory is triggered when inventories are depleted whereby the
materials will be transferred to production stage-a conversion cycle whereas reselling
finished goods to customer is the revenue cycle. The inventory controls will then record and
then monitor level of finished products and inventory. When the level of inventory drops,
Adam and Co pre-determines re-ordering point, the purchase clerk is then required to make
purchase order function hence triggering purchasing process.
This makes the purchasing requisition to be funded and Adam & Co will facilitate and
draw a discrete purchase requisition for different inventory items. Thus, the Company might
have multiple purchasing requisition for available vendor which are then combined into one
purchasing order and transferred to a vendor. This method helps the Company to link up all
purchasing orders intone purchase requisition (Hall 2015). The preparation of purchase order
function acquires purchasing requisition when required. Thus, purchase order is designed by
Adam & Co to distinct vendors as shown in DFD above (see fig 1). Moreover, another copy
is sent to purchasing department for Account Payable (AP) functions for AP impending file’s
provisional filing. The blind copy is then passed on to receiving good functions.

Adam & Co Expenditure Cycle 6
Adam & Co faces a lag between order placement and goods reception and hence PO
copies are included in provisional files department’s AP without executing any economic
aspect. Adam & Co neither received inventories nor incurred obligations financially and
needed not to facilitate any formal entry in accounting records. Nonetheless, the Company
could do a memo entry in reference to impending inventories associated obligations and
receipts. The next step entails receiving inventories where goods arrive and receiving reports
are prepared. The goods are reconciled with packing slips and DPO (digital purchase order)
with copies including quantity and prices of goods received. The key aim these docs is to
permit inventory counting and inspection by receiving clerk before drafting receiving report.
Receiving clerk will primarily be pre-occupied and its workforce are under intense pressure
for delivery vans unload and bill of lading signing. Therefore, only relevant data is given to
receiving clerk on item quantities to accept goods delivered based on provided data (Geerts
and O'Leary 2015).
The next stage entails update provision regarding inventory records using inventory
control technique. Adam & Co is using a standardized cost model for inventory execution at
pre-determined standardized figure notwithstanding fee paid to a vendor. When a
standardized inventory ledger is presented, suitable data concerning received quantity is
triggered. Receiving report includes data on quantity of an item and hence its files is serving
this purpose. Thus, updating main cost inventory ledger activates extra financial data from
inventory warehouse and AP is set-up. Thus, AP function will receive the setting and the
receiving report provisional file is then filed. Adam & Co received inventories from suitable
vendors and have realized obligation to pay for received commodities.
The AP clerk winds up the process by assessing precise obligation valuation till when
invoice is received. When there is material improper estimation, the AP clerk corrects the
mistakes through adjustment. The invoice received activates AP techniques beside process,

AP Department
Updates
Documents
Document Receipts
Identification
of Liability
Due
Treasurer
Vendor
Preparation of
cheque for invoice
account Signature
Mailing
Receiving
Receiving Report File
Invoice FileCheque Copy
Adam & Co Expenditure Cycle 7
and hence the clerk will assess every liability not recorded during closure. Arrival of
inventory activates the reconcilement of relevant financial data with PO by the clerk and
existing impending file receiving report through a three-way matching of attained quantity
and accompanying price verification. The clerk then progressively adjust DPO subsidiary
ledger and AP control account alongside inventory control in general ledger and transfer PO,
receiving report and invoice.
Cash Disbursement Systems
Figure 2: Cash Disbursements Systems Data Flow Diagram

Adam & Co Expenditure Cycle 8
It is imperative for Adam & Co to evaluate cash disbursement (CD). When the AP
clerk receives relevant docs, the department (AP) files awaiting due dates for paying. When
due date reaches, the AP clerk draws a cheque in reference to invoiced account and send it for
signing and mailing to the vendor by the treasure. From computer terminal, the AP updates
AP control account, cheque register and AP subsidiary and all these records are sent to
receiving department for invoice, receiving reports, cheque and PO’s copies filing.
Data Flow Diagram of Payroll System
Figure 3: Payroll System Data Flow Diagram

Prepares cash
disbursement
vouchers
Payroll DepartmentEmployees Time Cards
Supervisors
Central Payroll SystemTime Card data
Payroll register
Payroll register
Supervisor
AC Department
Write ChequesCheque file
Imprest bank
General ledger
department
Cheque file
Department Employees
Reviews and submits
Hour’s records
Digital Employee Record
Reviews and submits
Deposits
Reviews
Check
Adam & Co Expenditure Cycle 9
The payroll system (PS) of Adam & Co is customized to allow staff to fill-in data on
time cards which will gather relevant data on number of hours worked and evaluate and
review by supervisor to send to payroll department. This PS is references from Adam & Co
central PS located in data processing department from where clerk will input data and have

Adam & Co Expenditure Cycle 10
paycheque copies printed, employee copies recorded alongside copies of payroll register. The
payroll department allows the clerk to file time cards and transfer the cheque for pay for
employees for distribution and review by the supervisor. The clerk will subsequently send the
payroll register (PR) copies to department of AP accompanied by copies that contain info
about time cards to department for payroll. Subsequently, the AP clerk reviews these registers
and undertake manual voucher preparation for CD and send PR besides prepared voucher to
GL (general ledger). A cheque for payroll is subsequently drawn by AP clerk and deposited
into imprest account of Bank.
System Flowchart of Purchases System

Adam & Co Expenditure Cycle 11
The constituents of system flowchart (SF) include inventory control for monitoring
inventory levels. A drop in pre-determined reordering point (RP) activates the drafting of a
purchasing requisition by the clerk and sends a copy to purchase department and another to
available file for purchase requisition. Adam & Co distinguishes between authorization
controls provisions in inventory control department from purchase department which is the
transaction executor (Cook 2018). This procedure follows purchase requisition sorting by
vendors as well as preparing PO for all vendors. Two PO copies are sent to the vendor and
one copy is sent for filing besides existing purchasing requisition. Reconcilement of goods
coming from vendors with blind copy is done and when the physical filing alongside
inspection is completed, receiving clerk prepares separate reports and state the inventory
conditions and amount. Receiving report’s copy is sent to department of inventory besides
physical inventory while additional copies is sent for reconciling with available PO by clerk
in purchase department (Lopez et al. 2017).
The AP clerk receive incoming invoice and reconcile the data with available
impending document file and appropriate transaction is record in journal purchase and points
including preparation of AP subsidiary ledger following records of liabilities whereby the
source doc, available voucher payable file and receiving reports are transferred. From
computer terminal, the digital account payable (DAP) subsidiary ledger is updated including
AP control and inventory control in GL department. The receiving reports, PO copies and
invoice copies are transferred finally to CD department (Romney and Steinbart 2015).

Adam & Co Expenditure Cycle 12
System Flowchart of Cash Disbursements System
The available voucher payable file is checked and reviewed to denote items due by
the AP clerk who then send relevant documents and voucher to CD department. Such
voucher packets are received by the clerk and reviewed for both clerical effectiveness and
completeness. Three records besides every disbursement are presented by the clerk who then
re-inspect the records, voucher number, pertinent data and register’s amount and send the
cheque besides supportive docs to CD to be signed by treasurer. The cheque copies together
with voucher packets are reverted to the AP department to file a copy of the cheque. The
clerk finally draws a summary of relevant cheque register entries and send journal voucher to

Adam & Co Expenditure Cycle 13
department of GL and exempts liabilities by recording cheque number in voucher register and
voucher packets are filed safely.
System Flowchart of Payroll System
Payroll SF highlights the procedures to authorize payroll which entail useful info on
hours worked by employee and reviewed by supervisor before sending from production and
personnel sources to payroll department. Relevant data is the reconciled by the clerk and
payment cheque is distributed and payroll calculated by the clerk (Collier 2015). The clerk
conducts cost accounting and relevant info pertinent to number of hours used by workers to

Adam & Co Expenditure Cycle 14
undertake one task in production is evaluated. The clerk then deposits the amount approved
to the imprest account of the bank.
Internal Control Weaknesses and Risks in Each System
Purchases System
The purchase system is weakened by failure to adequately conduct a research by this
department by studding suppliers with regards to produced materials’ quality and quantity
making the Company to only rely on any supplier (Cook, Zoccam Technologies Inc 2018).
Cash Disbursement Systems
The CD system is facing underperformance risk since it lacks sufficient control of
internal control of organization which is left for the management to decide. It also weak
because it is subject to security concerns due to lax in one sector while ignoring the rest
(Janvrin and Watson 2017).
Payroll Systems
The PS faces the risk of dismal accounting accuracy thus prone to many risks of many
mistakes when writing cheques and the PS department has significantly failed to enhance its
efficiency in operation since it is using incompetent technology.
Conclusion
This paper has discussed the process of expending cycle of Adam & Co and recognize
its significance in everyday running of the business. Adam & Co data system has to be
evaluated and customized to achieve full potential based on the identified risks and
weaknesses its internal control system.

Adam & Co Expenditure Cycle 15
References
Brandon, D., 2016. The blockchain: The future of business information
systems. International Journal of the Academic Business World, 10(2), pp.33-40.
Collier, P.M., 2015. Accounting for managers: Interpreting accounting information for
decision making. John Wiley & Sons.
Cook, A., 2018. Systems and methods for database management of transaction information
including data representative of documents related thereto. U.S. Patent Application
15/933,238.
Cook, A., 2018. Systems and methods for database management of transaction information
and payment data. U.S. Patent Application 15/887,790.
Cook, A., Zoccam Technologies Inc, 2018. Systems and methods for database management
of transaction information and authentication data. U.S. Patent Application 15/933,278.
Geerts, G.L. and O'Leary, D.E., 2015. A note on an architecture for integrating cloud
computing and enterprise systems using REA. International Journal of Accounting
Information Systems, 19, pp.59-67.
Hall, J.A., 2015. Information technology auditing. Cengage Learning.
Janvrin, D.J. and Watson, M.W., 2017. “Big Data”: A new twist to accounting. Journal of
Accounting Education, 38, pp.3-8.
Lopez, A.G., Butler, M.F., Arslan, B., Welsh, T. and Parento, S., Mastercard International
Inc, 2017. Systems, methods, and devices for implementing a scavenger hunt reward
program. U.S. Patent Application 14/962,026.

Adam & Co Expenditure Cycle 16
Romney, M.B. and Steinbart, P.J., 2015. Accounting information systems. Pearson Education.