Analysis of Rainbow Illusion's Accounting Information System: HI5019

This case study analyzes the accounting information system of Rainbow Illusion, a retail chain, focusing on its transaction cycles (revenue, expenditure, payroll, and finance), financial and management reporting, and e-commerce aspects. The study identifies the strengths in Rainbow Illusion's system, such as the separation of duties and the use of commissions, and how these strengths help to avoid potential problems. It also explores situational pressures that could lead to fraud and discusses the benefits of a distributed computer system. The analysis highlights the importance of internal controls, ERP systems, and security measures to mitigate risks, ensuring the integrity of financial data and preventing fraud within the organization.

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SUPPLY CHAIN MANAGEMENT
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Contents
Executive summary................................................................................................................................
INTRODUCTION: .............................................................................................................................
Strengths in Rainbow illusion’s System...............................................................................................
Problems avoided by incorporating strengths:.....................................................................................
Situational pressure that would increase the likelihood of fraud.........................................................
Reasons for companies to install a distributed computer system rather than centralised one..............
Conclusion............................................................................................................................................
References............................................................................................................................................

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Accounting
Executive summary
This report focuses on understanding the concepts of various transaction cycles.
Additionally, it includes financial reporting, management reporting, e-commerce and most
importantly the crucial risks that are inherited through an internal control system and process.
The papers most accurate part is that it focuses on the Rainbow illusion. The rainbow illusion is a
store retail chain concentrated in the two parts of Australia. The purpose of the store is that it
sells clothes to young women ready to wear clothes.
In depth analysis of Rainbow illusion make it acquire six strengths. The six strengths are
points out within the case. Apart from the six strengths, the problems have since been avoided by
the strengths. The strengths that have been pointed in a similar sales system include: manager
and assistant manager paid on salary base, young cashier and sales person being paid plus
commissions based on sales volume, the use of number sequencing, the separation of duties and
forwarding all cash register tapes, sales invoice, and return slips together to central processing
department system.
It is the mentioned strengths that have helped rainbow illusion in effective control of the
sales transactions. Each of them has been explained in the paper in their own unique way. On the
same note, situational pressure is a factor that is used to motivate employees to commit
fraudulent activities. It can also encourage managers to commit fraud in relation of any business.
Additionally, distributed computerized system has been introduced and discussed in the paper
with its increasing adoption by most company.

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Case Study Rainbow Illusion
Introduction
It is relevant to introduce what accounting information system, what its subsystems are
and how they are connected to the Rainbow store case study. An understanding of the accounting
information system will help derive the meaning of the case study even further. An accounting
information system is a collection of resources, such as people and equipment. All these
resources are designed to transform financial and other relevant data into information that is
helpful to the information. The accounting information system can transform the data whether
manual or computerized. When the system is computerized, the analysis job is made easier. The
use of software can perform additional tasks like book keeping, collection and processing of the
transaction data and dissemination of financial information. The system has immense benefits
but has several risks too. The risks are bound to affect the system if there are no proper controls.
The system contains three sub-systems which include:
Transaction processing system
Transaction processing system is a subsystem of accounting information system. Within
it, it consists of five transaction cycles. The five transactions include; the revenue cycle, the
expenditure cycle, payroll, production, and financing cycle. These cycles perform different tasks
but they share one common characteristic. All of them can only exist in one type of business but
all the types. They can exist in both profit and non-profit organization.

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Revenue cycle: A revenue cycle can be defined as the recurring set of the business
activities and related information. They process operations that are associated with provision of
goods and services to the customers. It also involves cash collection payment from client and
customers. The main objective of the revenue cycle is provision of the right product in the right
place at the right time for the right price and purpose. Revenue cycle is quite important since it
flows to all the other cycles too. For example, the expenditure cycle use information about
transactions to initiate the purchase and production of additional inventory (Schuchter and Levi
2015). The ledger and financial reports use the transaction information to prepare financial
statements and performance reports. For revenue cycle the four most basic revenues include;
sales order entry, shipping, cash collections and billing
Expenditure cycle: an expenditure cycle is an ongoing set of business activities and
related data that process operations (Schroeder, Clark and Cathey 2019). These operations are
directly associated with the purchasing and payment of the product. The main objective of this
cycle is to ensure all the products that are needed are ordered. All the needed products are
verified and that they are in good condition. It also safeguards inventory until needed, recorded
and classified. The expenditure when occurring should be as accurate as possible.
Payroll cycle: payroll cycle is all about managing the employee force. It involves
recurring set of business activities and any data process that will effectively ensure employee
welfare that is achieved. The most important tasks of the system is that it can hire new
employees, training, job assignment, compensation, performance valuation and termination of
employee contract.
Finance Cycle

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Financial reporting system: A sub system which is connected to all the other systems
through transactions. It is first recorded in special journals and subsidiary accounts. The
summary of those transactions are passed into financial reporting systems (Schroeder, Clark and
Cathey 2019). The financial reporting system is the turned to be the source of input into
management reporting system. The most basic activities within this system include: Updating the
general ledger for the journal, posting adjusting entries and preparing financial reports.
Financial reporting system is the one which gets information from the general ledger
system and pass it to the external user (Schroeder, Clark and Cathey 2019). The data collected is
meant to meet the need of various external users in all the business organizations.
Management reporting system: management system is an element of any organizations
internal control procedure. It is the management’s solution to solve various problems faced by
organizations. They should manage to help achieve organizational objectives (Schroeder, Clark
and Cathey 2019). This system is focused on management planning and control. It gives
procedures on the organization and is responsible for most organizational under-takings.
Strengths In Rainbow Illusion’s System
1. All the 30 store of rainbow illusion performs sales transaction using similar system.
2. All the organization managers and their assistants are on payroll
3. Young cashier and sales personnel paid wages and commissions based on their sales
volume.
4. Cash register assigned consecutive number to each transaction
5. Separation of duties

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Problems avoided by incorporating strengths:
All the stores of the Rainbow illusion performs sales transaction using a similar
system.
The Rainbow illusion follows enterprise resource planning as their critical system. ERP
involves integrating all the aspects of a company’s operation for traditional AIS. The method is
important since the company need to maintain flow of communication among all the retail stores.
Such flow of communication and information can only be achieved through the ERP system.
With this system all the important functions are merged into a single system which facilitates
sharing of information and sales among themselves.
It is considered an advantage to the Rainbow illusion since the system can facilitate
effective flow of information needed to store sales of each and about the other.
Managers and their assistant on a full time payroll salary base
As much as this looks like a norm of all the organizations but in this case, it is an
advantage. Rainbow Illusion pays employees. Both managers and their assistant are hired based
on their experience and qualifications (Greenspan and Woods, 2016). They have a responsibility
to do the job for which they were hired to. At times their responsibility requires them to work 60
hours a week while they work off peak at only 40 hours per week. The managers have always
agreed to employ their skills for the benefit of the company. Such a commitment is a positive
aspect to the Rainbow illusion. The Rainbow Illusion is sure that their employees are working as
hard as they should have. Commitment of employees to the organization is just priceless.
Rainbow illusion avoids problems through their managers and assistant managers. If the
managing team can give their efforts continuously to the company and they too can perform their
tasks it makes them the best. The management too can control sales of transactions.

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Young cashier and sales personnel who are paid wage plus a commission based on
sales volume
Commission based on sales volume is a pay system where the employee is paid based on
the sales that they have made (Schroeder, Clark and Cathey 2019). A particular percentage of
the sales make the employee income. When the employees are paid they are always motivated to
increase the sale volume and set goals towards a high pay. In the situation of Rainbow Illusion,
cashiers and sales personnel are more motivated towards increasing sales volume to get high
commission which is beneficial to the store in a way that all the cashiers and sales personnel
(Schroeder, Clark and Cathey 2019). The cashiers are motivated towards increasing sales volume
to get high commission which in turn gets beneficial to the store. There is very little conflict that
might arise among the cashiers and the sales personnel. They in turn get the commissions for
what they work for exactly.
Cash register assigned consecutive number to each transaction
While processing sales transaction, numeric codes and schemes are facilitated. They are
facilitated for effective and efficient data processing (Puspasari 2015). A system without codes is
disadvantageous than one with the code as any firm or business process. Similar transactions
with almost similar attributes can at times create difficulties to differentiate from each other.
It is at this point that we introduce sequential coding. Sequential coding is a transaction
code that detects any errors in the transaction processing (Snapp et al.2017) When assigned
consecutive numbers, it is easier to find cause and effect of the error. The cause and effect of the
error is hard to solve the problem from. The coded system has made it safe for transactions to
happen with very minimum errors.
Separation of duties

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Separation of duties is the most important aspect of a control and management system. In
any organization the three main objectives of separation of duties include;
 Authorization of transaction which is separate from transaction processing
 Record keeping which is separated from the responsibility of holding assets
 The structuring of the organization
The sales department should not prepare the bill as they may charge any client they favor
less than they should bill making the separation very necessary. Additionally, the account
receivable department cannot be given the responsibility to prepare bills (Schroeder, Clark and
Cathey 2019). They have to be limited, since, they own account receivable’s asset.
With the Rainbow Illusion separation of duties was done to perfection. Sales are done in
four stages. The salesperson does his part by giving an invoice to the cashier (Schroeder, Clark
and Cathey 2019). He keeps a copy of the invoice in the sales book. The cashier is responsible
for reviewing the invoice and completing the processing sales transactions. An assistant manager
can perform the daily reconciliation for the review by the store manager. The manager performs
the last task by reviewing the cash, the cheques and credit card sales. They are also responsible
for preparing a daily bank deposit. The duty of each of the employees is stipulated, therefore,
reducing any possible fraud risks in the Rainbow Illusion stores.
Situational pressure that would increase the happening of fraud
Fraud is a false representation of facts. In a business environment fraud is internal
deception of business assets (Zhu et al. 2016). The two types of fraud are employee fraud and
management fraud. Employee fraud is all about personal benefits by the employee. Management
fraud involves direct theft of organization assets. Management personnel may involve fraudulent
activities done so that they meet expectations of the investors.

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Fraud case of Rainbow Illusion
When employees are undergoing a bad situation, they take bad decisions. Fraud is an
easy and fast way out of any situation (Parson, Shuttlewood, Dunn and Hambrook 2015). Fraud
could be internal theft of any business property.
Another possibility that can create fraud is when the company will be threatened by the
economy (Borissov et al. 2016). The management might be tempted to commit fraud so that they
compensate for the situation. The best that can be done to control organization fraud is reduction
of pressure. The store should reduce employee pressure and limit any opportunities for fraud to
present itself.
Reasons for companies to install a distributed computer system rather than
centralized one
Centralized computer system places all the data processing in one large computer at a
central site and the organization is operated through that site (Schroeder, Clark and Cathey
2019). On the other hand, distributed computer system is a collection of autonomous computing
element distributed into small information processing units. The distribution can be in terms of
business or in terms of geographical location. In rare cases the distribution is done at both ends
(Maskell, Baggaley and Grasso 2017). Distributed computer system serves the following
functions and is preferred for this reasons;
Cost reduction; distributed systems enhances cost reduction by eliminating centralized
task of data conversion and control (Schaltegger and Burritt 2017). It in turns reduces control and
reduces application. Secondly, the system is efficient. Several computers working in parallel
procession enhances efficiency and reduces complex problem into smaller pieces. Most

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importantly for the store is that it has back-up. Any systems and data can easily be retraced back
from another computer. Even if the installation of distributed computer is difficult it should be
adopted since it increases rapidity and flexibility.
Conclusion
The aspects of accounting information system can be studied and applied to any nature of
business. As mentioned in the paper; internal control is used to prevent fraud and unethical
process. Computerized system is used to increase efficiency of organizational pressure.
Situational pressure and how it affects the organization is also mentioned. From all the issues
mentioned we can derive the importance of accounting information system to any business
organization. It is relevant for any organization to keep their records as valid as possible. All
organizations need to maintain clean records and safeguard the assets of the organization, failure
of which the business can be affected without a doubt.

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References
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2016. Zero downtime mechanism for software upgrade of a distributed computer system. U.S.
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Greenspan, S. and Woods, G.W., 2016. Personal and Situational Contributors to Fraud
Victimization: Implications of a Four-Factor Model of Gullible Investing. In Financial Crimes:
Psychological, Technological, and Ethical Issues (pp. 141-166). Springer, Cham.
Maskell, B.H., Baggaley, B. and Grasso, L., 2017. Practical lean accounting: a proven system
for measuring and managing the lean enterprise. Productivity Press. (pp. 141-166)
Parson, R., Shuttlewood, A., Dunn, A. and Hambrook, A., Future Route Ltd, 2015. Methods and
apparatus for analysing and/or pre-processing financial accounting data. U.S. Patent 9,031,873.
Puspasari, N. (2015). Fraud theory evolution and its relevance to Fraud prevention in the village
government in Indonesia. Asia Pacific Fraud Journal, 1(2), 177-188.
Schaltegger, S. and Burritt, R., 2017. Contemporary environmental accounting: issues, concepts
and practice. Routledge.
Schroeder, R.G., Clark, M.W. and Cathey, J.M., 2019. Financial accounting theory and
analysis: text and cases. John Wiley & Sons.
Schuchter, A. and Levi, M., 2015, September. Beyond the fraud triangle: Swiss and Austrian
elite fraudsters. In Accounting Forum (Vol. 39, No. 3, pp. 176-187). Taylor & Francis.