HA2042: Adam & Co Case Study - Accounting Information System Analysis

This report analyzes the accounting information system of Adam & Co, a Perth-based wholesaler of industrial supplies. The study examines the company's purchase, cash disbursement, and payroll systems, identifying internal control weaknesses in each area. The analysis includes system flowcharts and discusses the risks associated with the identified weaknesses, such as potential for manipulation and fraudulent activities. The report aims to provide recommendations for improving the company's accounting processes to enhance accuracy, efficiency, and overall internal control. The case study covers the processes of product identification, placing and receiving orders, and the role of the accounts payable department within the purchase system. It also examines the cash disbursement system's processes, including document filing, cheque preparation, and updating the computer terminal. Finally, the payroll system, including time card review, data entry, and voucher preparation, is evaluated for weaknesses. The report concludes with suggestions for the company to eliminate the identified weaknesses and mitigate associated risks.

Running head: ACCOUNTING INFORMATION SYSTEM-
ADAM & CO.
Accounting Information System- Adam & Co
Name of the Student
Name of the University
Author Note

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ACCOUNTING INFORMATION SYSTEM- ADAM &
CO
Executive Summary
The report that has been prepared is based on the
given case study of Adam & Co that is Perth-based
wholesaler of industrial supplies. It has a source of
inventories from different manufacturers outside of the
country. The aim of making this report is to understand
the daily process of the entire internal control system.
The study analyzes different weaknesses present within
the Purchase system, Cash disbursement system and
Payroll system and finds several risks linked with the
acknowledged weaknesses. The report concludes with
the decisions that the company could make in respect to
eliminate the weaknesses and the risks. Thus, Adam &
Co increases their level of accuracy and perform the
entire process effectively and efficiently.

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ACCOUNTING INFORMATION SYSTEM- ADAM &
CO
Table of Contents
Introduction.............................................................3
Discussion..............................................................4
System Flowchart related to -...............................4
(a) Purchase System.......................................4
 Internal Control Weaknesses of Purchase
system…........................................................................6
 Risks associated with the weaknesses.........6
(b) Cash Disbursement System......................6
 Internal Control Weaknesses of Cash
Disbursement system....................................................8
 Risks associated with the weaknesses.........9
(c) Payroll System...........................................9
 Internal Control Weaknesses of Payroll
system.........................................................................12
 Risks associated with the weaknesses.......13
Conclusion............................................................14
References...........................................................16

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ACCOUNTING INFORMATION SYSTEM- ADAM &
CO
Introduction
The purpose of preparing this report is to
understand as well as to explain the need for an
appropriate accounting information system within the
structure and operating practices of an organization. The
company chosen here through the case study is Adam &
co, which is a Perth-based wholesaler related to the
industrial supplies. It sources their inventories from
manufacturers of China, Thailand and Vietnam. It has a
centralised accounting system with networked terminals
at different locations. The report prepared to the
managing director of Adam & co to evaluate the
processes, internal controls weaknesses and the risks
with the weaknesses identified for their expenditure cycle.
Further, inputted different system flowcharts of purchases
system, payroll system and cash disbursement system
related to the company for ease in understanding. This
report will help the company in making a proper decision
so that they can eliminate the inadequacies within their
system.
The industry-related with wholesale distribution is
rapidly increasing, and it has to face different challenges
(Marvasti et al 2014). Therefore, the company needs to
have a proper accounting system so that it can balance
the quickly changing requirements and demands of their
customers (Lacoste and Blois 2015). In addition, it can

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ACCOUNTING INFORMATION SYSTEM- ADAM &
CO
manage variations in their supply chain as well as in the
cost margins.
Discussion
System Flowchart related to: -
(a) Purchase System
i. Product Identification:
The process of the purchase system of Adam &
Co starts every morning with the purchasing clerk who
used to read-through the inventory subsidiary ledger on
computer. The clerk checks all the inventory level that is
inappropriate and finds the reordering level of the
required items. It compares and evaluates the necessity
of the required items (Wilkins 2015). The items that are at
the lowest level is required to order and make available
as early as possible so that it will be available on time.
ii. Placing order:
He/she arranges a digital purchase order from a
valid vendor file of that item which seems to be too low.
After finding, an appropriate vendor that can supply the
requirement on time, the clerk place an order for that item
(Stadtler 2015). The clerk usually prints two hardcopies of
that order. One hardcopy is transferred to the vendor, and
the second is to be submitted to the purchasing
department.

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ACCOUNTING INFORMATION SYSTEM- ADAM &
CO
iii. Receiving order:
The order that has been received on time reduce
the occurrence of the situation of unavailability of the
required materials (Tang, Gurnani and Gupta 2014).
When the item reaches the department of receiving,
receiving clerk check the items and reconciles thoroughly
with the purchase order details as well as its packing slip.
Clerk by hand formulates two hard copies of the receiving
report. One of these goes together with the items to the
warehouse where the clerk again update the receiving in
his/her computer system, and the other sent in the
accounts payable department.
iv. Accounts payable department:
The account payable department waits for the
records that have been sent. Only after receiving the
invoice from the supplier, the accounts payable
department print hardcopy of the digital purchase order
(Wisner, Tan and Stadtler 2015). Then, it combines all
the three reports, updates the journal ledger in their
terminal, and finally transfers these copies to the Cash
disbursement department.
This way, the process of the purchase system
performs their work (Lawton 2014). The system flowchart
of the purchase system is shown below.

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ACCOUNTING INFORMATION SYSTEM- ADAM &
CO
(System Flowchart of Purchase System)
 Internal Control Weaknesses of Purchase
system
The purchase system of Adam & Co runs along
with some weaknesses within it. Today almost all the
documents are kept as a softcopy so that it can be kept
without any manipulation and secured (Su, Zhao and
Zhou 2014). But, here the clerks are used to maintain all
the orders manually. Further, the accounts payable
department takes a long time in filing a copy of the
reports as it waits for the receiving the invoice from the
supplier first then only proceed to the next step.

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ACCOUNTING INFORMATION SYSTEM- ADAM &
CO
 Risks associated with the weaknesses
Adam & Co do not have a proper system for
updating their orders. Today there is much software
available to keep track of all these orders correctly and
safely. However, here lack of this can be seen. This could
result in loss of the reports any day.
Further, there are chances that staff can
manipulate the figures of the orders for their own benefit
and represent the wrong data.
(b) Cash Disbursement System
After getting the invoice and receiving reports from
the accounts payable department, the cash disbursement
system follow such process:
i. File the documents:
The clerk of cash disbursement department finds
all the obligations raised in the purchase system. The
clerk of cash disbursement system verifies and ensures
all the payment that has to receive or to be paid by the
department on time. If the payment receives earlier to
their due date, there is a chance of not getting such
amount of interest. The clerk files the required documents
of the valid vendors on the time of their payment or any
receiving amount on such due date.
ii. Preparation of cheque:

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ACCOUNTING INFORMATION SYSTEM- ADAM &
CO
On the due date, the clerk of cash disbursement
system the files that have been received from the account
payable department note all the received reports and
then prepare a cheque for the invoiced account. This is
then sent to the bookkeeper who puts his/her signature
on it. The signed cheque by the bookkeeper has finally
been sent to the valid vendor.
iii. Updating from computer terminal:
The clerk receiving from both side either the files
and cheques from the department as well as from the
valid vendor, he/she updates the cheque register, a
subsidiary ledger of the accounts payable and the control
account of accounts payable from the computer terminal.
iv. Files maintenance in the department:
The receiving clerk checks and reconcile all the
receiving of invoice or cheques, and he/she finally files
the authentic invoice, copy of the purchase order, the
receiving report as well as a copy of cheque in the
department.

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ACCOUNTING INFORMATION SYSTEM- ADAM &
CO
(System Flowchart of Cash Disbursement
System)
 Internal Control Weaknesses of Cash
Disbursement system
One of the weaknesses of this system is that this
does not follow a proper verification process for the
documents they received. The required data has not
been verified, and the guarantee of an authentic figures
does not reflect in this case. Any shortcomings related to
this has been overlooked by the department.

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ACCOUNTING INFORMATION SYSTEM- ADAM &
CO
The other weakness of the system is with
confirmation by the bookkeeper or the treasurer (Cook
2018). The cheques that have been prepared by the clerk
of cash disbursement is not confirmed before putting the
signature and final transfer to the vendor.
 Risks associated with the weaknesses
The lack of verification and confirmation of the
receiving files and cheques lead to an increase in
fraudulent activities (Tsai 2017). As there is not the fear
of being caught to the staffs at the lower level. There are
chances of misrepresenting the figures and files that do
not give a true picture of the orders and receiving and
results in less profit.
(c) Payroll System
The payroll system of Adam & Co works under the
stated process:
i. Time Card Review and Submission:
The employees of Adam & Co maintain and record
their working hours on time cards on a daily basis. The
records maintained by the employers for their hours work
for every day is review by the supervisors for check the
correctness of the record, and after that, in the last of
every week, they finally submit their working hour to the
payroll department.
ii. Records and Print:

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ACCOUNTING INFORMATION SYSTEM- ADAM &
CO
In this step, the payroll clerk enters all the data of
timecards of employees in the computer terminal, that is
available in the department of data processing. The
system of the data processing system is connected to the
payroll system (Haitz et al 2019). After recording the data,
the payroll clerk is required to post these in the digital
employee record. For that the clerk print hard copies of
the paycheques, along with this, he/she takes two prints
as hard copies of the payroll register.
iii. Transferring for Review as well as Distribution:
The payroll clerk after posting the records of their
employees and making the required copies and files the
timecards. He/she refers to the employee paycheques to
the several superiors for the process of review and
distribution of one-to-one employees of the department.
The payroll clerk sends a photocopy of the payroll
register to the accounts payable department and after
that files the further along with the timecards in the payroll
department.
iv. Preparation and transferring of Disbursement
Voucher:
The accounts payable department receives the
files from the payroll clerk. The accounts payroll clerk first
reviews the payroll register and prepares a disbursement
voucher by hand or can say manually. The prepared