Accounting Information System Analysis: Adam & Co Case Study

This case study analyzes the accounting information system of Adam & Co, a large industrial supplier, focusing on its expenditure cycle. The analysis includes system flowcharts, processes, risks, and internal control weaknesses within the purchases, cash disbursements, and payroll systems. The purchases system involves order processing, vendor selection, receiving, and accounts payable. The cash disbursements system covers payment authorization and cheque processing. The payroll system details time card management, payroll processing, and cheque distribution. The report identifies risks like fraud, errors, and authorization issues. Weaknesses are highlighted, such as communication gaps, lack of management authorization, and time card inaccuracies. The report provides an overview of the accounting system, including the processes, risks, and internal control weaknesses associated with each system.

Accounting Information System1
<University>
Accounting Information System
By
<Your Name>
<Date>
<Lecturer’s Name and Course Number>

Accounting Information System 2
Table of Contents
Contents
Table of Contents.............................................................................................................................2
Executive Summary.........................................................................................................................3
Introduction......................................................................................................................................4
System flowchart of purchases system............................................................................................5
Processes involved in purchases system of Adam & Co.............................................................5
Risks associated with purchases system of Adam & Co.............................................................7
Internal control weaknesses involved in purchases system of Adam & Co................................7
System flowchart of cash disbursements system.............................................................................8
Processes involved in cash disbursements system of Adam & Co..............................................8
Risks associated with cash disbursements system of Adam & Co..............................................9
Internal weaknesses associated with cash disbursement system of Adam & Co.........................9
System flowchart of payroll system..............................................................................................10
Processes involved in the payroll system of Adam & Co..........................................................11
Risks involved in payroll system of Adam & Co......................................................................11
Internal weaknesses associated with payroll system of Adam & Co.........................................12
Conclusion.....................................................................................................................................12
References......................................................................................................................................14

Accounting Information System 3
Executive Summary
Adam & Co is one of the industrial suppliers in Perth that make use of a centralized accounting
system to control and manage its expenditure cycle. Purchasing, cash disbursement, and payroll
systems make up the company's expenditure cycle as a massive volume of financial resources is
spent on them. Financial resources are spent mainly on processes relating to the acquisition of
goods and services as well as compensation payments for labor services. The company makes
use of its employees and departments to ensure that all processes involved in its purchasing, cash
disbursement, and payroll systems are effectively executed to achieve set goals and objectives.
However, fraud, miscalculations, and incorrect entries that take place during execution of system
processes pose a significant threat to the achievement of desired business goals. Besides, internal
weaknesses in the form of ineffective communication, authorization concerns, and time card
errors threat the company's financial accounting system.

Accounting Information System 4
Introduction
Being a large wholesaler of industrial suppliers, Adam & Co makes use of its centralized
accounting system at distinct locations to ensure that the utilization of resources is effectively
done to meet desired goals and objectives. Adam & Co focuses on providing that the flow of its
resources is effectively done basing on its organization structures at distinct locations. Most
significantly, the company consists of several departments and professionals that collaborate and
coordinate to ensure that all resources are effectively managed to achieve set goals and
objectives. Purchase clerk, vendors, payroll clerk, are some of the professionals at the company
that ensures that its expenditure cycle is effectively executed to meet desired business goals and
objectives. Besides, purchasing department, receiving department, accounts payable and
receivable are the necessary departments at Adam & Co that ensure that all processes and risks
involved in the expenditure cycle are expertly executed and managed (Belverd & Marian 2013).
As such, this report will mainly address the risks, processes, and internal control of Adam & Co's
expenditure cycle. As a business analyst, the report will be directed to the managing director at
the company regarding the expenditure cycle. Most importantly, the report will address risks,
processes, and internal control weaknesses associated with the company’s purchases system,
cash disbursements system as well as payroll systems as discussed below.

Accounting Information System 5
System flowchart of purchases system
Processes involved in purchases system of Adam & Co
Purchases system is a composition of processes that are utilized by an entity to attain goods and
services at a given period. The above system involves assessing the goods and services that are
Vendor
Cash disbursement voucher
General Ledger
Accounts Payable
department
Inventory
warehouse
Receiving
department
Purchase Clerk
Purchasing
department
Purchase Order
Inventory
subsidiary ledger

Accounting Information System 6
available at a company before making purchasing decisions. Just like any other company, Adam
& Co made use of its employees and departments to ensure that the purchasing processes are
systematically executed to obtain desired goods and services. All processes involved in
purchases systems of any company require step by step descriptions that deliver a meaningful
interpretation of how an entity can buy its goods and services. Basing on the case under
consideration, an inventory subsidiary ledger is a tool that is used at Adam & Co to determine
the need to purchase particular goods and services to achieve desired business goals and
objectives (Nathan 2019). The above role is executed by a purchasing clerk who visits his
computer terminal every morning to identify items whose quantity gas significantly reduced and
thus need to be replenished.
Having recognized and identified the need to replenish identified items, the clerk
considers approval list of vendors as a source alternative to select the most appropriate vendor
whom digital purchase orders are forwarded to. Also, purchasing clerk goes on to advance
printed copies to selected vendors and purchasing department. Receiving department plays a
clarification function by ensuring that received goods and services conform to the information
specified in packing slip and digital purchase order. As such, conformity reports that are
generated by receiving departments are provided to the inventory warehouse, accounts receivable
department and as well a copy of these report are retained at the receivable department. Upon
receiving the above report, accounts payable clerk awaits the supplier's invoice. After receiving
the invoice from supplier, accounts payable clerk reconciles and updates the digital purchase
order, supplier's invoice, and reports that are got from the receivables department in his general
ledger. Ultimately, the accounts payable clerk delivers copies of purchase order copy, receiving
the report, invoices to the department of cash disbursement (Pierre & Nikitin 2009 p.152).

Accounting Information System 7
Risks associated with purchases system of Adam & Co
There are fraud risks particularly regarding the purchasing systems at Adam & Co as there are no
specifications for items to be purchased, their quantities as well as particulars of selected vendors
by purchasing clerk. As such, there exist high prospects of fraud by the purchasing clerk since he
is solely responsible for initiating the purchasing processes at Adam & Co. In this case, fraud
may be exhibited in the form of bribery to attain supply contracts among vendors, and as well the
purchasing clerk may exaggerate figures regarding units of items to be purchased. As a result,
there exists a high risk of purchasing clerk exercising his personal interests over the interests of
the company during the initiation of purchasing processes (Mahhaden 2013).
Internal control weaknesses involved in purchases system of Adam & Co
There exists an internal weakness in communication among the departments, particularly when
reports from the receivable department are sent to the accounts payable departments.
Evidentially, accounts payable clerk cannot proceed to make statement reconciliations and
updates unless the invoice from the supplier is received. As a result, there exists a risk of time
mismanagement which may lead to deficiencies in supply, especially when invoices from the
supplier are not timely delivered to accounts payable clerk (William & Jay 2010).

Accounting Information System 8
System flowchart of cash disbursements system
Processes involved in cash disbursements system of Adam & Co
Cash disbursement system includes all operations aimed at verifying documents and advancing
appropriate payments for ordered goods and services. At Adam & Co, cash disbursement clerk
receives documents concerning ordered purchases and keeps hold of them until the specified
dates of payments are reached. On the day of payment for ordered goods, clerk processes
invoiced account cheque which is delivered to the treasurer who later approves and mails it to the
vendor. Cash disbursements clerk makes use of his computer terminal to update the register of
Cash disbursement clerk
A cheque for the
invoiced account
Treasurers
Vendor
Updates the cheque register,
accounts payable subsidiary
ledger, and the accounts payable
control account
Receiving Clerk

Accounting Information System 9
cheques, accounts payable control account and accounts payable subsidiary ledger. Ultimately,
the whole system of cash disbursement ends when the receiving clerk documents purchase order
copy, invoice, cheque copy, and receiving the report (Luke 2017 p.40).
Risks associated with cash disbursements system of Adam & Co
There exist a risk omitted amounts, notably when errors are exhibited in the accounts payable
department. The above is attributed to the fact that the cash disbursement process relies on
documentation from the accounts payable department. As such, there exist high risks of
inaccuracy when errors of omission are committed in the aforementioned department as they
cannot be rectified in the cash disbursements system (Mahhaden 2013).
Internal weaknesses associated with cash disbursement system of Adam & Co
Authorization of actual payments is one of the internal weaknesses at Adam & Co as the process
does not consider management members like board of directors or managing directors. Instead,
the authorization process for actual cash payments is done upon authorization by cash
disbursements clerk and treasurer at the company. More so, bank accounts on which the cash
payments may be advanced may be in the names of the board of directors and thus would need
their authorization. As a result, excluding management members in the process of authorizing
actual payment increases the risk of no payment of cheques due to lack of signatures from
authorized approvers of cheques (William & Jay 2010).

Accounting Information System 10
System flowchart of payroll system
Sending of payroll register
to accounts payable
department
Filing of payroll
registers with time
cards
Accounts
payable clerk
General ledger
department
Files a cheque in
accounts payable
department
Files a cheque in
accounts payable
department
Posting of voucher
and payroll register
Files time cards
Timecard data
Hard copy of
pay cheques
2 copies of pay
register
Digital employee
records
Payroll clerk
Deliveries of employee
pay cheques for review
and distribution

Accounting Information System 11
Processes involved in the payroll system of Adam & Co
Employees at Adam & Co make use of time cards to record the number of hours they have
worked for on a daily basis. Time cards offer pivotal information to the supervisors regarding the
attendance of employees whereby corrections are made, and records are sent to the payroll
department at the end of every week. Thereafter, the payroll department makes use of its
computer terminals to input data from time cards so as to aid the process of printing pay cheques,
digital employee records, and payroll registers. Payroll clerk documents time cards and delivers
pay cheques of employees to a number of supervisors at the company. Supervisors make a
review of the received pay cheques of employees so as to rectify any issues and later distribute
them to employees who work under various departments (Luke 2017 p.40). In addition, the
payroll clerk then makes two copies of the payroll register and delivers them to the payroll
department and accounts payable departments. A disbursement voucher is prepared by accounts
payable clerk after making thorough reviews of payroll register that later send these two
documents to the general ledger department. Additionally, a cheque is written and deposited in
imprest account by accounts payable clerk who later retains a copy of the aforementioned cheque
at the accounts payable department. Ultimately, the general ledger clerk utilizes his computer
terminal to file payroll register and voucher in the general ledger department upon receiving the
aforementioned documents from accounts payable clerk (Nathan 2019).
Risks involved in payroll system of Adam & Co
Given that the number of hours worked by employees is recorded by use of time cards, there are
likely to be high risks of incorrect documentation due to manual entry of records by supervisors
and employees. At the time, such errors may arise when computer systems are associated with

Accounting Information System 12
faults that may lead to miscalculations. As a result, inaccuracies during documentation and
calculation of a number of hours worked by employees are likely to lead to an inaccurate
paycheck. Also, it may lead to deficiencies in the accrual of remunerations to all workers at
Adam & Co (Mahhaden 2013).
Internal weaknesses associated with payroll system of Adam & Co
Payroll system of Adam & Co only considers the number of hours worked by its workers as a
standard for determining advancement of salaries and wages to its employees. In this regard, the
company ignores social security, tax imposition, and other deduction on the remunerations that
are advanced unto its workers whilst preparing its payroll systems. Moreover, entities are
required to withhold taxes that are imposed on salaries and wages of their employees and also
make deposits whilst relying on the magnitude of return. As such, there exists a high risk of
failing to make timely deposits to internal revenue service, which may lead to fines and penalties
(William & Jay 2010). Therefore, Adam & Co is exposed to a risk of losing significant volumes
of finances to internal revenue service in the form of penalties and fines arising from delayed
deposits.
Conclusion
Expenditure cycle at Adam & Co is quite critical in that it directly deals with purchases, cash
disbursements, and payroll systems. As such, mishandling of the processes that take place in all
the aforementioned systems may hinder the company from achieving its desired business
objectives and goals. The above claim is attributed to the fact that the above systems directly
deal with the financial resources of Adam & Co. Most significantly, the company has clearly
stipulated departments and employees who collaboratively execute all necessary documentation