Accounting Information Systems: Adam & Co. Case Study

Desklib provides solved assignments and past papers to help students succeed.

Accounting Information Systems
1

Contents
Executive summary.........................................................................................................................3
Introduction......................................................................................................................................4
Purchase system...............................................................................................................................5
Internal control weakness................................................................................................................7
Cash disbursement system.............................................................................................................10
Internal control weakness..............................................................................................................12
Payroll System...............................................................................................................................13
Internal control weakness..............................................................................................................14
Conclusion.....................................................................................................................................16
References......................................................................................................................................17
2

Executive summary
Here in this report accompany has been taken, Adam & Co. which is located in the Perth, an
Australian city. This company is a supplier company supply industrial material on wholesale
amount. It means it is a wholesaler company. This company is going to hire a new person who
can understand the needs of the company regarding different part of the business. Through this
report, it showed the requirement of accounting systems into the business in various parts like in
purchasing department, cash department for disbursement of capital to the respective persons and
payroll for salary and wages purpose. With the understanding of the requirement of such
systems, the management of the Adam & Co. took best decisions. This report showed internal
issues in the systems which are discussed and also found the reasons behind the weakness in
internal control system.
3

Introduction
In this repot it focuses on the requirement of the cash disbursement system, payroll system and
purchasing systems for their respective department. This provide why such systems are
necessary and important for the company as well as the departments. This report shows the
functions which are performed by the use of such systems. In Adam & Co., various processes are
already existed in the company management system. For this company, an analysis bas been
made on each systems and shows the weak point within the systems and also ascertain the way in
order to overcome such issue which are facing by the company in systems or process. A person
who is hire determines the various issues and problems within the systems. Analyzing of each
system is important as it provide the reason of lacking behind the systems and aid in obtaining a
correct way in order to solve such issue and work properly within the organization so that
company efficiency can be increased.
4

Purchase system
Purchase department for the organization like Adam and Co. is an important department
(irrespective of business size). The importance of this department is because of the company
profitability is also based on purchasing department. As if this department purchase material at
high cost then it will reduce the profitability percentage of the company and if purchase at
nominal rate then profit hike or maintained at the same level. So on this basis, this department
play a significant role in supplying the raw material to the production department so that
production department can starts the production process in order to made available in the market
for selling purpose. This department needs to perform all the duties and manage entire functions
related to the purchasing of material and aid in procuring such material to the production house
of the company (De Mattei, et. al., 2016). On this basis, it is concluded that this department not
only fulfill the requirement of production house but also enable to meet the other department
requirement. In the Adam and Co., purchase department follow the simple and straight forward
process of buying the material from the factory as it has a business of supply material on
wholesale basis. When supply material to the other firm, this company’s department first needs
to calculate the stock availability and the after check and review the related accounts and ledger.
To complete these two steps then purchase department look at the list of vendor and made a
selection from the available of vendors on various basis like quality of material, cost of material,
delivery time and other parameter as decided by the management. As soon as the vendor is
selected, it is need to place an order in digital form in order to reduce paperwork and save
environment. After that, the person who mad purchased take two prints of the order where one
copy of the order is given to the vendor and the second copy is keep with himself. Now the time
come to receive the order placed and it should be compared with the printed copies that all the
material had been obtained as per the printed copy or left some of them. Now the purchase
department of the Adam & Co. posts the received material into the stock ledger and also update
related accounts and ledger. This is because management and other person can be took any
information regarding purchasing by just seeing stock edger accounts. The entire process system
5

of this company had been made in summarized form in the below flow chart and same process
has been followed by them (Dominguez, et. al., 2018).
 Check available stocks
 Made a selection of appropriate vendor on parameters provided by the management like cost
 Place order
 Take out two copies
 Reconcilement of goods
 Provide information if mistake in order, if any
 Update respective and related accounts
 Make payment and send bill (Haleem, and Jehangir, 2017)
6

Internal control weakness
Internal control and management is an important part for the Adam & Co. as it aid in obtained
the pre-defined goals and also other objectives. In the purchase system, various weakness are
identified which effect the performance of the department as well the company and also the
chance of creating new issues. To overcome such dilemma it is must analyzing the weak are in
purchase system and improve as soon as for removing the effect of such problems. In Adam &
Co., the issues are seen as below:
7

 The main issue or provable is that company always prefer to those vendors which are mentioned
din their list. By doing it not giving priority to the other vendors who are ready to provide
material at reasonable or less market cost with good quality. Hence this opportunity is not
grabbed by the Adam & company as it can pay higher price to existing vendor. So this is the risk
associated with the company (Haleem, and Jehangir, 2017).
 This company only takes advantage of this only in situation if this company trade in purchase
and sale of the same product. It means it not change the nature of the material. In other words,
company sale the same material in same nature without change the level of material.
Cash disbursement system
Cash disbursement system is a system adopted by the Adam and company in order to disburse of
allocates cash availability to the company’s departments. This is the process by which the
company makes payment to its creditors and other parties in a systematic manner so that
variance or chance of mistake can be avoid. This will assist company cash department to make
payment effective and in efficient manner (DeVan, et. al., 2015). This process is done by the
cash department of the Adam & company by taking help of cash disbursement system. This
company uses this system in the following way:
 Receipts send to the concerned department
 Fulfill the required information into the document
 Make cheque in favor of concerned party
 Check that cheque duly sign and stamp by the company and transfer to the vendor
 Update necessary and related accounts
Cash disbursement flow-chart
8

Internal control weakness
There were some discrepancies in cash disbursement system used by the Adam & company
which effect company’s cash management. The head of the cash department has responsibility
that he should take some steps in order to solve the issues which are being in this system. This is
because if this was not sorted on time then company will suffer loss and also decrease its power
of managing the cash and the cash system not in perfect way. The weaknesses which are found in
this system are as:
 The Adam & company use a rigid system of cash disbursement which is not suitable to all the
area in business. As the company cash system is same for all activity it face a problem regarding
when the transaction nature change. This issue will suggest company management that uses new
9

technology of cash disbursement so that transactions which are not related to the company can be
not taking into consideration.
 There is a chance of fraud done by the company internal person as there is proper person over
such department and no rules followed by the department. This will reduce company cash capital
(Haleem, and Jehangir, 2017).
Payroll System
Payroll is a system taken by the company for making payment of salary or wages to the
employee of an organization. It provide tax advantage as it automated cut the amount of tax by
complying the tax and other related norms and then make payment to the respective employee.
The use of this system as it ascertain the perquisite amount which is to be paid by the Adam and
company to its employees like paying house rent allowance, entertainment allowance and others.
It reduces the work of the management as the management need to determine and calculate the
number of working days of employees. The purpose of use this system by Adam and company as
it determine the efficiency of employees. Time card, a system used by the company in order to
know the present days of employee at the time when salary or wages to be made paid. The
company maintains record of each employee in payroll system for creating an automated salary
to the employee (Collins, et. al., 2016). At last the company after seeing various aspects it passes
an order to the cash department for making payment to employee regarding salary and wages.
The Adam and company use this system in the below manner:
 Send time card to the concern department
 Insert such card in the computer for computing their present working days
 Generate salary and any other monetary benefits via payroll system
 Accept the system
 Make payment in form of cash or cheque
10

Internal control weakness
The weakness in the payroll system are identified and shown in the below:
 Time card used by the management for the employee of the company may encourage to use
unethical because of comp any not authorized a person who can look at the time card on regular
basis. This will lead to affect company as it may cause a reduction in the market value due to
cheatings (Haruna, et. al., 2015).
11

 Company needs a professional person who can have skills and use such system. But as the
company facing this problem due to not having an experience person who can use such system in
the interest of company.
12