Case Study of Adam and Co

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Running Head: REPORT ON EXPENDITURE CYCLE OF RETAIL FIRM
Case Study
Expenditure Cycle of Adam and Company
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REPORT ON EXPENDITURE CYCLE OF RETAIL FIRM
EXECUTIVE SUMMARY
Adam and Co is a Perth based industrial supply wholesaler. The managing director of the firm is
concerned about the effectiveness of the current business cycle procedure of the firm, where do
the weaknesses of the system lie, so that necessary actions can be taken to make the internal
control system robust and work better. This report comprises of the present state of efficiency in
the systems, namely cash disbursement system, purchase system, and payroll system of the firm,
discussion about their weaknesses and some corrective actions necessary to make the internal
control system robust. The report is based on review of findings, comments, opinions of subject
experts, and the same has been duly recognized by insertion of references in text, and a full list
of works cited at the end.

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REPORT ON EXPENDITURE CYCLE OF RETAIL FIRM
Introduction
Cash is the life-line of any business organization, hence deserves special attention respected with
its control in flows. The objectives of such control are to plug the leakage in its flow, prevent
unnecessary blockade of cash resulting in opportunity cost, and ensure availability of cash to
avoid cash-dry situations. Achieving these objectives is vital for any business, especially for
retail businesses having multiple cash flow directions, in order to ensure that the scarce resource
is optimally utilized in business. Purchase system involves making purchase requisition on the
basis of stock levels, placing purchase order to the best available vendor, receiving inventory,
and authorization and payment to suppliers. Payroll system comprises of maintaining employee
work records and disbursing salaries. This report is constructed upon the existing expenditure
cycle and the systems in the cycle of Adam and Co. a wholesaler of industrial supplies in Perth.
The audience of this report is the managing director of Adam and Co., on whose behest the
report is prepared by the undersigned to evaluate the expenditure cycle procedure of the firm.
Expenditure Cycle
Expenditure cycle of a business has the objective of converting cash into physical resources like
inventory, and human resources. Human and physical resources are obtained by the business
entries mostly in credit with time lagged cash disbursement. Out-flow of cash to purchase these
resources take place after the resources are availed of by the firms. This makes the expenditure
cycle a two-way traffic; in the first phase resources are procured and in the second phase cash is
disbursed, each phase having different sub-systems (Klamm and Weidenmier, 2004).
Purchasing System of Adam and Co.
The purchasing system of the firm is initiated by a purchase clerk on the basis of information in
his computer terminal about the minimum level and reordering level of respective inventory
items. On the basis of such information the clerk places purchase orders to selected vendors.
After the goods are received, the same is inspected and checked with purchase order for quantity,
quality, and price, and then put in shelves in the stores department. Liability to disburse cash is

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REPORT ON EXPENDITURE CYCLE OF RETAIL FIRM
recognized when the goods are accepted by the purchasing department (Accounting Tools,
2018).
Effective Purchase System Flow-Chart
Robust purchasing system requires determination of different levels of inventory, like maximum
level, minimum level, and re-ordering level for each item. When the stock of a particular
inventory item reaches the reordering level, the store keeper places a purchase requisition to the
purchase department. On the basis of the requisition, purchasing department prepares purchase
order/s, sends the original to the vendor/s and copies to the accounts payable and inventory
departments, and keeps one copy in the purchase department. The accounts payable department
keeps the copy of the purchase order in the account payable inventory file. Another copy of the
purchase order is sent to the goods receiving department till the goods arrive (Power, Cassanego,
Subramanian, and Mo, 2016).
In order for smooth functioning of purchasing system, the procedure of purchase should start
from the inventory control department (Money Matter, 2018). The inventory department
possesses and sends necessary purchasing information like re-ordering quantity re-ordering level,