HA2042: Case Study Analysis of Adam & Co Accounting Systems

This case study analyzes the accounting information systems of Adam & Co, a wholesaler of industrial supplies. It examines the system flowcharts for the purchase, cash disbursement, and payroll systems, identifying weaknesses in internal controls. The report highlights risks associated with these weaknesses, such as the lack of segregation of duties, potential delays in inventory management, and vulnerabilities in payroll processing. The study emphasizes the need for improved procedures, including the use of automated systems, dual approvals, and regular internal audits, to mitigate these risks and enhance the efficiency and accuracy of the accounting processes. The case study also underlines the importance of secure data storage and the implementation of robust internal controls to safeguard sensitive financial information. The analysis covers the advantages of interdepartmental interfacing, the need for a system that can handle emergencies and the importance of ensuring that only valid creditors are paid on time.

Running head: CASE STUDY – ADAM & CO
Case Study – Adam & Co
Name of the Student:
Name of the University:
Author Note

1CASE STUDY – ADAM & CO
Executive Summary
The report has been prepared by the business analyst of Adam & Co for the analysis
and decision making. The system flowchart of purchase, cash disbursement and
payroll has been described. The internal control weaknesses have been detected by
him. The associated risks with the relevant fault have been highlighted.

2CASE STUDY – ADAM & CO
Table of Contents
Introduction...................................................................................................................3
System flowchart of purchases system........................................................................4
System flowchart of cash disbursements system........................................................5
System flowchart of payroll system..............................................................................7
Conclusion....................................................................................................................8
Reference list................................................................................................................9

3CASE STUDY – ADAM & CO
Introduction
Adam & Co is a wholesaler of industrial supplies based in Perth. The sources
for its inventories are from manufacturers in Thailand, Vietnam and China. The
company has adopted a centralized accounting system having networked terminals
at various locations. An accounting information system is a mechanism which
generates financial statements by incorporating the bookkeeping process. It stores
and manages the data which are useful to its users for reporting the relevant
information to its owners and shareholders. Accounting Information System makes
use of high quality, rapid and current information regarding the internal conditions to
formulate their strategic decisions (Collier 2015). This system is built in a manner by
which the data to be displayed can be customized as per the required information
relating to the business. The users of the data are creditors, tax authorities and
investors. It is a method used to track the accounting activities concerning the
resources of information technology (Patel 2015). It combines the traditional
practices of accounting like Generally Accepted Accounting Principles with new
supplies of information technology.
The system includes several elements in its accounting cycle. The contents of an
information system vary from industry to another. However, the essential items of
expenses, employee information, tax information, customer information and revenue
are included in most systems (Prasad and Green 2015). Individual data
specifications include purchase requisitions, check registers, payroll, financial
statement information, invoices, inventory, trial balance, ledger and reports relating
to sales order and analysis. It has the structure of a database for storing data. It is
programmed and designed in a manner which permits the data and table
manipulation. It facilitates input of data and editing of previously entered data
(Laudon and Laudon 2016). These are highly secured platforms having measures
taken for prevention against hackers, viruses and other sources that have been
attempted to collect information. As cybersecurity has increasingly been given
importance, the companies have started storing their data using this electronic
method.
The financial statements that are prepared by bookkeeping of accounts are used by
the users for the purpose of decision making. It involves the preparation of income
statement, balance sheet and statement of cash flows (Jing 2015). It has the
features of cost benefits, compatibility and flexibility. It follows four types of
principles-
Output of data – The system stores the data and supports with relevant data at the
time of decision making. The output devices used by the system are projectors,
printers and other similar devices which help to provide with an outcome.
Processing device – The processing device takes the input which has been received
by the input device and processes it to provide results. It handles the data in a digital
format which is a language of the computer itself (Taiwo 2016). It transforms large
portions of data into user friendly reports within minutes of time.
Source documents – These documents are essential parts of the accounting
information system as they contain the data of the organization. Invoices, sales
orders and other relevant documents relating to the business are prepared by the
accounting information system.

4CASE STUDY – ADAM & CO
Collection of data – The input device collects all the data that has been sent by the
accountant. It has the capability to store bulk data within it. The system processes
the data and saves it in the digital format, which it can read and process to provide
outcome (Galliers and Leidner 2014). This information is used for carrying out the
decision making processes.
Advantages of the system
 Interdepartmental interfacing – The system tries to interface across various
departments at the same time. The sales department has the authority to
upload the budget of sales. The team of inventory management makes use of
the information for conducting the purchase materials and counts of inventory.
On purchasing the stock, there is a notification from the system for the
department of accounts payable of the new invoice (Mancini 2016). The
mechanism can even transfer information of a new order for the customer
service, shipping and manufacturing department are notified of the sale.
 Internal controls – Procedures and policies are put forward to the system for
making sure that sensitive vendor, business and customer information are
maintained internal to the company (Pan and Seow 2016). The login
requirements, authorizations, segregation of duties, approvals of physical
access and access approvals used by the users are restricted, which help
them perform the function of the business.
System flowchart of purchases system
The responsibility is allocated to the purchasing clerk who looks after the
inventories every morning by using the computer terminals. He places an order
request with the vendor upon detecting the low quantity of any item. The
management should appoint two clerks for this task as one clerk can be absent and
the inventory for that particular shall not get checked (Ponisciakova, Gogolova and
Ivankova 2015). A situation of emergency may arise in which the demands for the
goods rose which could not have been predicted by him on the previous day.
Therefore, there will be a delay and hindrance of work as the inventory levels will not
be sufficient to meet the demands of its consumers. The receiving reports prepared
by the clerk can be done, which will make the process faster and easier for preparing
reports instead of preparing it manually. All the recording of the transactions should
be conducted technically using the computers as the company has a centralized
accounting system (Upadhaya, Munir and Blount 2014). A change done by an
employee from one department will automatically get updated in the operations of
the other departments wherever required. There will be no requirement of making
the adjustments manually by the employee of each department. The mechanism
helps to manage the costs and order quantities for effective and efficient utilization of
resources. It helps to reduce the additional costs by using computer systems. The
budget calculation is done and purchase requisition is prepared. The quotation is
obtained and invoices are reviewed upon receipt. The payments are recorded in the
cashbook.

5CASE STUDY – ADAM & CO
System flowchart of cash disbursements system
The cash disbursement system is the mechanism which processes the
obligations of payment that has been generated in the purchases system. The main
objective of the system is to make sure that only the valid creditors are getting the
payments and that the amounts are correctly paid on time.
Budget is checked and prepared according to its
specifications
Preparation of purchase requisition
Checking and authorization of requisition
Obtaining of quotation
Verification of receive invoice
Receiving of goods
Issuance of a purchase order
Purchasing of a panel for selection of supplier
Preparing and authorizing of payment voucher
Making payments of invoice by the supplier
Recording of payment in a cashbook

6CASE STUDY – ADAM & CO
Departments involved in the System-
Accounts payable department
The clerk of accounts payable reviews the file of payable vouchers that are
open for the due items and forwards the supporting documents along with coupons
to the department of cash disbursement. The department updates the subsidiary
ledger of accounts payable.
Cash disbursement department
For every disbursement, there is a preparation of three-part check by the clerk
and recording of the dollar amount, check number, voucher number and other
relevant data in the register of a check. The supporting document, along with a
check, is sent to the treasurer or manager of the cash disbursement department for
the purpose of obtaining signature (Herrera and Ibeas 2015). The packet includes a
blueprint of a check, which is returned to the concerned department by the
clerk(Tueffel 2016). Another copy of the check is filed.
Identification of liabilities due - The process of cash disbursements starts in the
department of Accounts Payable by the identification of items that are due. Every
day, the clerk reviews the open accounts payable file for the items and forwards the
approval of payment by the use of voucher packet to the department of cash
disbursements (Herrera-Cáceres and Ibeas 2016).
Preparation of Cash Disbursement - The clerk of cash disbursement receives the
packet of a voucher and verifies the documents for the purpose of clerical accuracy
and completeness. For every expenditure, a check is prepared by the clerk and the
check number, voucher number, dollar amount along with relevant data are recorded
in the register of cash (Herrera-Cáceres and Ibeas 2016). It is also known as the
cash disbursement journal.
Updating the records of Accounts Payable - After receiving the packet of a voucher,
the clerk of accounts payable eradicates the liability by debiting the subsidiary
account of accounts payable or by way of recording the payment date along with
check number in the register of vouchers (Fanning 2015).
Posting in general ledger – The general ledger receives the voucher in the journal
from the disbursements of cash and the summary of accounts from the accounts
payable (Das and Parida 2016). The coupon displays a total amount of reductions
that are the obligations of the firm and accounts of cash that are the outcome of
payments to its suppliers.

7CASE STUDY – ADAM & CO
System flowchart of payroll system
The automated mechanism of payroll system makes the reporting handling of
the payroll functions automatic and smooth without any manual labour involved. It
helps to prepare reports for the purpose of documentation and auditing (Mahajan,
Shukla and Soni 2015). As the company does manual recording, these benefits
could not be enjoyed by them and became their weakness. The electronic method
prevents false and dummy transactions being reported. It automatically helps to
calculate the paid time offs and other employee benefits which the employees are
entitled on the basis of their worked hours. It is vulnerable to be accessible by
dishonest employees. The employees should be allocated unique codes for their
recognition which will help to make the process of reporting smoother and prevent
chaos (Bajdor and Grabara 2014). A clear reporting procedure should be laid out by
the human resource manager. A signature should be made mandatory for the
changes in the employee’s payroll processing (Donelson, Ege and McInnis 2016).
The responsibility of data inputs should be distributed into two departments where
the work by one department gets scrutinized by the other upon carrying out its
process of recording the data. Another weakness detected is printing the copies of
the payroll details and issuing the checks without the accuracies being reviewed.
The accounting department must train one of its employee for conducting the internal
payroll audit at a regular and timely basis. It will prevent the error and manipulation
of data.

8CASE STUDY – ADAM & CO
Conclusion
As a business analyst of Adam & Co, the report has been prepared for highlighting
the system of a flowchart of purchases system, cash disbursement system and
payroll system. The weakness of internal control in every system, along with its risk
association, has been identified. The preparations of books of accounts and reports
get more accessible and more straightforward by the use of an accounting
information system by a business. The centralized system helps in quick
modifications being done without making manual changes in every system. A proper
reporting system should be followed by the company to overcome its weaknesses
and improve its internal control system. The principles followed by an accounting
information system have been described. The inventory levels are managed by the
purchasing clerk and required orders are placed with the respective vendors. The
cash disbursement transactions should have to be verified and checked before the
checks are issued to its employees. There may be certain false transactions and
diversion of funds from the business. The payroll system keeps track of its
employees and their working hours. The centralized accounting system makes the
process of decision making easier by preparing appropriate and relevant reports.
Timekeeping Clerk Employee Cards Payroll Department
Tax rate reference file
Employee file
Preparation of Pay Checks
Cash
Disbursemen
t Department

9CASE STUDY – ADAM & CO
Reference list
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decision making. John Wiley & Sons.
Das, C.P. and Parida, M., 2016. A Study on Cash Management and Determinants of
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financial reporting fraud. Auditing: A Journal of Practice & Theory, 36(3), pp.45-69.
Fanning, K., 2015. Benefits of Using a Single‐Account Cash Management
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10CASE STUDY – ADAM & CO
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