Accounting Report: Big D's Inventory Expenditure Cycle and Controls

This accounting report, prepared for Big D Electronics, analyzes the company's inventory expenditure cycle. The report includes a Level 0 Data Flow Diagram illustrating the inventory process from order to payment. It identifies key internal control weaknesses, such as the lack of demand forecasting, absence of inventory checks, and insufficient staffing and training. The report details the potential negative impacts of these weaknesses, including reduced sales, increased costs, and operational inconsistencies. Furthermore, it recommends practical control strategies to mitigate these issues. These include implementing a cloud-based ERP system for demand forecasting, utilizing online inventory checks for real-time updates, and recruiting and training additional staff to address the identified deficiencies. The report emphasizes the importance of these recommendations for improving Big D's inventory control and overall business performance.

Running head: ACCOUNTING
Accounting
Name of the Student
Name of the University
Author’s Note

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Executive Summary
As per the findings of the research, three major areas of weaknesses in the inventory control
system of Big D are the lack of demand forecast, absence of inventory check and the lack of
sufficient employees and training. These weaknesses can be revived with the implementation
of cloud based ERP system, online inventory check and the recruitment of employees needed.

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Table of Contents
Introduction................................................................................................................................3
Level 0 Data Flow Diagram.......................................................................................................4
Weakness of Internal Control, Effects and Strategies for Control.............................................5
Conclusion and Recommendations............................................................................................7
References..................................................................................................................................8

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Introduction
The process of inventory control is provided with major importance as it assists in
ensuring interruption free production process in the companies (Axsäter, 2015). Inventory
control is regarded as the procedure that helps in assuring the maintenance of proper amount
of stocks so that the companies can satisfy the demand of the suppliers and customers in the
absence of any delay along with the effective maintenance of the associated costs (Chen,
Pang & Pan, 2014). The two main aim of this report is the preparation of a 0 level data flow
diagram and for Big D; and the identification internal control weakness, they effects and
strategies to minimize them.

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Level 0 Data Flow Diagram
Figure 1: Level 0 Data Flow Diagram

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Weakness of Internal Control, Effects and Strategies for Control
According to the given information of Big D, there are some specific problems in the
inventory expenditure cycle of the company and negative effects of these issues can be seen
on the inventory control process of the organization.
Internal Control Weakness Impact of the Weakness Controls for Weakness
Forecast of Demand: When
the business organizations
fail in tracking the product
demand, low turnover of
product can be seen below
than the anticipation.
According to the
information of Big D, the
presence of pre-determined
recorder points and recorder
entities can be seen for the
inventory in the purchasing
clerk’s computer. It
indicates the absence of
demand forecast system in
the company. Hence, the
lack of mechanism for
adjusting the demand in
accordance with the increase
or decrease in demand can
be considered as a major
weakness in Big D’s
inventory control
(Taleizadeh & Nematollahi,
2014).
The sales revenue of Big D
can be affected with this
weakness. The lack of
system to forecast the
demand will make the
company unable to readjust
the production process in
accordance with the
fluctuation of demand.
Reduction in sales at the
time of high demand can be
caused due to this.
The requirement for Big D
is the implementation of
specific ERP system that
will be cloud-based as the
presence of this system will
enable the company in
readjusting their production
based on the demand
fluctuations. At the same
time, it will assist Big D in
gaining the demand trend
that will assist the company
in fulfilling the demand of
both of their customers and
the suppliers (Wild, 2017).
Check of Inventory: As per
the given scenario of Big D,
Adverse impact of this
internal control dispute can
One major way for Big D to
get rid of this particular

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the absence of proper system
to check the inventory of the
company in the whole
process of inventory control
can be seen. The given
information about the
company also shows that
that the company has
ensured the presence of fully
automatic system for
controlling inventory and
this whole program lacks the
inventory check process.
This particular aspect can be
regarded as one of the major
disputes in the internal
control of inventory of Big
D.
be seen on the business
processes of Big D because
the company will not be able
to track the inventory
movement in the whole
process. In addition, Big D
will have to bear certain
more costs due to this. It can
cause severe inconsistencies
in the whole inventory
control process that can lead
to the liquidation of the
business (Salcedo et al.,
2013).
internal control related
weakness is the
implementation of the online
inventory management
system. This can be
considered as a dependable
mechanism that will provide
the company with the time-
to-time updates over the
inventory on the real time
basis. Big D will get certain
major benefits from this as it
will assist the company in
controlling the inventory
related costs and expenses.
In addition, it will bring
more clarity as well as
visibility in the whole
inventory control process of
the company (Karimi-Nasab
& Konstantaras, 2013).
Absence of Needed Staffs
and Training: According to
the given information of Big
D, the accounts payable
section of the inventory
control of Big D has
witnessed high turnover of
staffs and the company now
has the requirement of two
more staffs in the
department. It indicates
towards the fact that the
The presence of this
particular weakness can lead
to the errors or disputes in
the payment of the accounts
payable of the company. It
can also misbalance the
whole inventory control
system. All these aspects
can together contribute to
the wrong documentation of
the accounts payable.
With the aim to address this
particular weakness, the
main requirement for Big D
is to recruit the needed
employees and staffs on an
emergency basis. This is
needed for maintaining the
overall balance of the
inventory control of the
company. At the same time,
the need for the company is
to ensure proper training and

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company has lack of
employees in accounts
payable section. At the same
time, in the presence of high
staff turnover, it is likely
that the current employees
do not have the needed
expertise and knowledge.
These are the weaknesses in
the internal control (Tom
Jose, Jayakumar & Sijo,
2013).
development program for
the existing as well as new
employees so that the
employees can conduct all
the required operations of
inventory in the correct as
well as appropriate manner
(Lashgari, Taleizadeh &
Sana, 2016).
Conclusion and Recommendations
It can be seen from the above discussion that the internal control related weakness of
Big D can create negative impact on the company’s inventory related operations. The
weaknesses are absence of demand forecast, lack of inventory check and the lack of staffs as
well as effective training. For this reason, it is needed for the management of Big D to take
certain strategies to revive the current situations; and they are discussed below:
1. It is recommended to Big D that it is needed for the firm to introduce and implement
the ERP cloud-based system for ensuring the demand forecasting process.
2. After that, it is also recommended to the company to implement online inventory
check system for getting the needed updates on inventory.
3. Another recommendation for Big D is the recruitment of needed employees while
ensuring proper training and develop for them.

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References
Axsäter, S. (2015). Inventory control (Vol. 225). Springer.
Chen, X., Pang, Z., & Pan, L. (2014). Coordinating inventory control and pricing strategies
for perishable products. Operations Research, 62(2), 284-300.
Karimi-Nasab, M., & Konstantaras, I. (2013). An inventory control model with stochastic
review interval and special sale offer. European Journal of Operational
Research, 227(1), 81-87.
Lashgari, M., Taleizadeh, A. A., & Sana, S. S. (2016). An inventory control problem for
deteriorating items with back-ordering and financial considerations under two levels
of trade credit linked to order quantity. Journal of Industrial & Management
Optimization, 12(3), 1091-1119.
Salcedo, C. A. G., Hernandez, A. I., Vilanova, R., & Cuartas, J. H. (2013). Inventory control
of supply chains: Mitigating the bullwhip effect by centralized and decentralized
Internal Model Control approaches. European Journal of Operational
Research, 224(2), 261-272.
Taleizadeh, A. A., & Nematollahi, M. (2014). An inventory control problem for deteriorating
items with back-ordering and financial considerations. Applied Mathematical
Modelling, 38(1), 93-109.
Tom Jose, V., Jayakumar, A., & Sijo, M. T. (2013). Analysis of inventory control techniques;
A comparative study. International Journal of Scientific and Research
Publications, 3(3), 1.
Wild, T. (2017). Best practice in inventory management. Routledge.