Adam & Co. Accounting Information System: Expenditure Cycle Report

This report provides an executive summary and detailed analysis of the accounting information system (AIS) employed by Adam & Co., a Perth-based wholesaler. The report focuses on the company's expenditure cycle, breaking it down into three core systems: purchase, cash disbursement, and payroll. Each system is examined in terms of its processes, including system flowcharts, and identified internal control weaknesses and associated risks. The purchase system outlines the steps from order placement to inventory receipt. The cash disbursement system details the process of fund allocation to suppliers. The payroll system covers employee data management and payment processing. The report also references academic literature related to AIS and expenditure cycle management, offering a comprehensive overview of the topic. The report aims to highlight the importance of a robust AIS for efficient financial management and risk mitigation within the business context.

Accounting information
system

EXECUTIVE SUMMARY
Accounting information system is technology based method that gather and track the
financial activities of all the centralised location of firm by using information technology
sources. This study report concise the relevant information tools of accounting on the basis of
given case study of its expenditure cycle. Accounting information system in relevance with
flowchart and its internal control of the Adam & co is also covered in this report.
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Table of Contents
EXECUTIVE SUMMARY.............................................................................................................1
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
TASK ..............................................................................................................................................3
Purchase system: .........................................................................................................................3
Cash disbursement system- ........................................................................................................5
Payroll system- ............................................................................................................................7
CONCLUSION................................................................................................................................9
REFERENCES..............................................................................................................................10
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INTRODUCTION
Accounting information system is a process that is defined as analysing, processing,
controlling, measuring, storing the accounting and financial information which is used for
decision making process in the business (Libby, 2017) . It is computer based method that track
the financial activities of all the centralised location of firm by using information technology
sources. AIS is generally used in collection of the financial data to make the internal reports of
the business and provides the valued information to its user. This reports covers the process, risk
and internal control of expenditure cycle processor of the Adam & co. It also includes purchase
system, cash distribute system and payroll system and risk associated in these system. In further
to this report case study of the Adam & co which is a Perth based wholesaler of industrial
supplies.
MAIN BODY
TASK
The case study is related to Adam & co, a Perth based organisation and provides the
services to industrial supplies and sources the product from different countries such as china,
Thailand and Vietnam. Company uses centralised accounting system to gather the information
related to business from various locations. Adam & co uses various accounting system in order
to gather the business information and sources related to their operating function. But as per this
case study, Adam & co uses three centralised information system such as purchase system, cash
disbursement system, payroll system (Rikhardsson, 2017). The detail processing, risk and
internal control of these centralised system are discussed below:
Purchase system:
It is process that is used to acquiring the goods and services to manufacture the goods.
For the any firm purchase system is required to operate the purchasing function in the business.
Purchasing system is a way to particular company to efficiently buy the goods and services at
optimum prices and terms. The process of this system starts with order of a particular product
and ends with arrival of the goods in stores. All the process of the purchase system can be
tracked by the information system. In the company Adam & co, the processing of this system
starts with verifying the purchase inventory at subsidiary stock ledger by the purchase clerk in
his computer system.
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Evaluation of the process of purchase system:
Ordering the goods - Purchase order is made by the clerk when quantity of the units seems to be
low , then clerk made the digital order to its respective supplier and filed the copy of purchase to
purchasing department.
Receipt of inventory - At the arrival of ordered quantity, receiving clerk inspects the arriving
goods of purchase order and packaging slip. And sends the copy of goods to inventory
department. Warehouse clerk update the inventory ledger from its computer system after
receiving the approval of stores. In the information system of inventory department, clerk send
the copy of report to accounts payable department. Account payable clerk updates the digital
account payable subsidiary ledgers. And sends the copy of invoice to receiving and purchase
department for the purpose of the cash disbursement (Knežević, 2012) .
Internal control weakness and risk associated with purchase system -
In the purchase system, there are a lots of internal control weakness and risk with this
system. Some of the internal control weakness and risk are described as under:
 In the purchase system , internal control weakness is relevance with not checking the
stock item independently against the purchase order so the risk may be result as overstock
in the production unit.
 Patterns of the order is not consider in the digital information system such as cancellation
of the order that may lead to misplaced order in the purchase records.
 Another weakness is supplier is choose by purchase clerk on previous terms and
reputation but not on the current factor such as price, credit policy, quality and other
terms.
 There is no physically check the purchase order against given order to supplier which
may lead less quantity of the stock.
 Order may be forgotten by purchase clerk that may lead less production.
 Any disparity between order and order delivery may leads stoppage in the manufacturing
of goods.
 Other weakness of the internal control are miss the discount factor to buy categorised
goods, competitive prices, poor quality, wrong amount entered in the system. All the
issues may lead the error in the accounting system (Spraakman, Askarany and Akroyd,
2015).
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System flowchart of purchase system:
Cash disbursement system-
This is expenditure cycle of a business organisation that includes a process by which a
firm purchase the goods or items and its parts for the purpose of producing a finished items to
sale it. This process is totally depends on the approval of the accounting department of a business
organisation. It is accounting process that deliver the funds to its suppliers. This system of the
business is handled by the finance or accounting department. In the case study of Adam & co,
the cash disbursement system is handled by the account payable department that provides the
fund to suppliers on the due date of invoices by taking the approval of purchase department (Al-
Mawali and Nasir Kader Ali, 2012) .
Evaluation of the process of cash disbursement system:
Accounts payable department verify the receipt or document of the purchase order. On the due
date of the invoice or bill accounts payable clerk prepare a cheque of the invoiced amount and
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sent it to cashier to sign on it. Clerk of the account payable department send the cheque to its
supplier to complete the process of the order (Apostolou, Hassell and Rebele, 2014) .
The cash disbursement clerk update all the document related to particular order in the digital
book of accounts payable subsidiary ledger.
Internal control weakness and risk associated with cash disbursement system:
In the cash disbursement system, there are internal control weakness and risk with this
system. Some of the internal control weakness and risk are described as under:
 Accountability or security in the internal control may lead the misconduct and misuse of
the monetary funds of the business.
 Continual adaption issues that is related with changes in the approval process due to
install new technology information system may occur the insecurity issue of funds.
 Improper control in the internal system may leads the time consuming process and
inappropriate payment delays in the business systems .
 Skipping the control at particular circumstances may lead the issue of insecurity in fund
payment or cash disbursement for the normal projects and task.
 Infeasible or non viable techniques does not provide guarantee to support the cash
disbursement system that may lead to lose the cash or run into numerous financial
problems (Mancini, Vaassen and Dameri, 2013).
 Non reconcile the banking transaction on regular time may lead the cash loss due to
various charges by the bank.
System flowchart of cash disbursement system:
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Payroll system-
Payroll system is defined as task related to the employees includes payment and filinf of
the employment tax. In this system, some of the detail information is included related to
employees as keeps track record of the working hours, wages, taxes, deduction, checks records,
employment taxes to government and other function related to workers. It is also confirms the
different no. of individual and their salary records as well as task performed by them. All the
points used to find out the aggregate employee's pay. In the case study of Adam & co, the
payroll system is handled by the human resources department that provides the information
related to individual to its management (Awosejo, Kekwaletswe, 2013) .
Evaluation of the process of payroll system:
Payroll department of the Adam & co maintain the proper records of the employee's working
hours on time card, task performed by them and other data related to employees. Payroll
department uses the accounting information system that connected to centralised payroll system.
In the data processing department clerk input all the data and information related to employees
and post to employee records. The payroll clerk files detail in the payroll department and sends
the employee pay cheques after review by supervisors and distribution to their respective
department. The payroll clerk send the data to account payable department. The accounts
payable clerk reviews the payroll register and prepares a disbursement voucher. The accounts
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payable clerk makes cheque for the entire payroll and issue to bank. Finally the clerk files a copy
of the cheque in the accounts payable department and files the voucher and payroll register in the
department(Usenko, Bogataya, 2018) .
Internal control weakness and risk associated with payroll system:
In the this system, there are internal control weakness and risk with this system. Some of
the internal control weakness and risk are described as under:
 entering the payroll off time data effect the employees pat rate it may cause to oless
earning of the individual.
 Division in the payroll system separate the responsibility of the workers it may lead
divert the money to a wrong person in the business.
 Lack of payroll preview may lead accuracy or live status of the employee. It may lead the
error related to terminated employees who are still receiving pay checks, inordinate
amounts of hours worked or vacation hours posted and other issue that manipulate of
data.
 Lack of the systematic internal audit that may impact in large amounts of money do so
over time of payroll and dishonest employee from setting up a scheme that arise the
financial loss (Dowling and Leech, 2014) .
 Incorrect pay rates to different employees can negatively impact to liquidity and increase
tax burdens. It may lead indiscipline in IRS regulations that result in higher employee
turnover rates, significant fines, legal fees and loss of reputation of the business.
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System flowchart of cash disbursement system:
CONCLUSION
As per this case study report related to Accounting information system, company is
applying the centralised tech based system in the business organisation that is good for the unit in
high techniques provides the current or updated data to head department. By compliance of
accounting information timely that avoid any complexity in accounting processing system
purchase,payroll and cash disbursement systems. But the main thing is internal control weakness
in the system that needs to be address to better functioning of the business operation.
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REFERENCES
Books and journals:
Libby, R., 2017. Accounting and human information processing. In The Routledge Companion to
Behavioural Accounting Research. (pp. 42-54). Routledge.
Rikhardsson, P. M., 2017. Information systems for corporate environmental management
accounting and performance measurement. In Sustainable Measures. (pp. 132-150).
Routledge.
Knežević, S., Stanković, A. and Tepavac, R., 2012. Accounting Information System as a
Platform for Business and Financial Decision-Making in the Company. Management .
(1820-0222). (65).
Al-Mawali, H., Zainuddin, Y. and Nasir Kader Ali, N., 2012. Customer accounting information
usage and organizational performance. Business Strategy Series. 13(5). pp.215-223.
Mancini, D., Vaassen, E. H. and Dameri, R .P., 2013. Trends in accounting information systems.
In Accounting Information Systems for Decision Making (pp. 1-11). Springer, Berlin,
Heidelberg.
Apostolou, B., Dorminey, J. W., Hassell, J. M. and Rebele, J .E., 2014. A summary and analysis
of education research in accounting information systems (AIS). Journal of Accounting
Education. 32(2). pp.99-112.
Awosejo, O .J., Kekwaletswe, R. M., Pretorius, P. and Zuva, T., 2013. The effect of accounting
information systems in accounting. International Journal of Advanced Computer
Research. 3(3). p.142.
Usenko, L. N., Bogataya, I .N., Bukhov, N. V., Kuvaldina, T. B. and Pavlyuk, A .V., 2018.
Formation of an integrated accounting and analytical management system for value
analysis purposes. European Research Studies. 21. p.63.
Dowling, C. and Leech, S .A., 2014. A Big 4 firm's use of information technology to control the
audit process: How an audit support system is changing auditor behavior. Contemporary
Accounting Research. 31(1). pp.230-252.
Spraakman, G., O'Grady, W., Askarany, D. and Akroyd, C., 2015. Employers’ perceptions of
information technology competency requirements for management accounting
graduates. Accounting Education. 24(5). pp.403-422.
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