Accounting Information Systems: Adam & Co.'s Expenditure Cycle

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ACCOUNTING INFORMATION SYSTEMS
Adam & Co.
Student Id: DY30653
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Table of Contents
LIST OF FIGURES.......................................................................................................................3
EXECUTIVE SUMMARY............................................................................................................. 4
INTRODUCTION........................................................................................................................5
BODY........................................................................................................................................ 6
SYSTEM FLOWCHART OF PURCHASE SYSTEM OF ADAM & CO.............................................6
SYSTEM FLOWCHART OF CASH DISBURSEMENT SYSTEM OF ADAM & CO...........................7
SYSTEM FLOWCHART OF PAYROLL SYSTEM OF ADAM & CO................................................8
INTERNAL CONTROL WEAKNESS AND RISK ASSOCIATED OF ALL THREE SYSTEMS OF ADAM
& CO..................................................................................................................................... 9
CONCLUSION.......................................................................................................................... 13
REFERENCES........................................................................................................................... 14
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LIST OF FIGURES
FIGURE 1: SYSTEM FLOWCHART OF PURCHASES SYSTEM OF ADAM & CO..............................6
Figure 2: CASH DISBURSEMENT PROCESS................................................................................7
Figure 3: PAYROLL SYSTEM FLOWCHART.................................................................................8
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EXECUTIVE SUMMARY
The report on the accounting information system of Adam & Co. is focussed on the
expenditure cycle which mainly involves the purchases system, cash disbursement system
and payroll system through the centralised accounting system.
Adam & Co.’s all these three systems have been depicted in the following report with the
help of the system flowcharts through which the process initiated and gone through by each
system has been described. In the later part of the report, the weaknesses of these systems
have been discussed which has pointed out few weaknesses in the control system of each
and the risk that emerge as a result of each of those weaknesses for Adam & Co. Thus the
evaluation of these systems at Adam & Co. has been conducted through identifying the
weaknesses and the risk.
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INTRODUCTION
In this report, a Perth based wholesaler has been undertaken named Adam & Co. that is a
wholesaler of industrial supplies with a centralised accounting system sharing its network
terminals at a variety of locations. It usually sources its inventories from the manufacturers
located in Thailand, China and Vietnam.
The expenditure cycle followed by Adam & co. will be dealt in below report by emphasizing
on the purchases systems, cash disbursement systems and the payroll system. In the later
part of the report, the weaknesses of each of the system for their control system will be
evaluated and the risks as a result of those weaknesses are brought to light.
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BODY
Expenditure cycle
The expenditure cycle is a set of the actions and procedures which are followed by the
purchasing decisions and it is termed as the repetitive process wherein the orders of
purchases and the ordering of goods and services undergo the approvals over their invoices
and payment of the same (Frazer, 2016). This overall cycle is termed as expenditure cycle
which is discussed in context to the case of Adam & Co which undergoes through the
purchase system, cash disbursement system and the payroll system (Gelinas et al., 2017).
SYSTEM FLOWCHART OF PURCHASE SYSTEM OF ADAM & CO
Purchase system
A purchase system that is followed by Adam & Co. is a process that undergoes buying of the
services and the products and starts from its requisition till the purchase order of the
product and its payment (Trigo et al., 2016).
The system flowchart of the purchases systems is presented as below which shows a set of
steps accompanied under the purchases system of Adam & Co:
FIGURE 1: SYSTEM FLOWCHART OF PURCHASES SYSTEM OF ADAM & CO.
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1. Checking of
inventory
subsidiary ledger
to chek quntity of
item
2. Selection of vender from
vendor list & Prepartation of
Digital purchase order
3. Preparation of copy of
recieving report
4. Sending the copies
to Accounts payable
department
5. Verification and updation in
accounts payable susbsidary
ledger
6. Sending the copies of invoice,
purchase order and receiving
report to cash Disbursement

(Source: Author’s Work, 2019)
Adam & Co. follows a purchasing system which is initiated when the purchasing clerk checks
regularly the subsidiary ledger and it finishes when the invoice is sent with the copies to the
cash disbursement system of the purchase order and invoices (Bragg, 2019).
SYSTEM FLOWCHART OF CASH DISBURSEMENT SYSTEM OF ADAM & CO
All the monetary records of the organization are kept in cash distribution system. This will
try to confirm that all the financial transaction will finish in a well and proper manner
(DeVan et al., 2015). In every organization, the cash Disbursement System is required
because this will handle the cash payment of the organization properly.
The procedure of Cash Disbursements at Adam & Co. happens when some of the purchasing
clerks will give some copies to the financial department and on the other hand until and
unless the payment is due the clerk of cash disbursements records the papers (DeVan et al.,
2015).
Figure 2: CASH DISBURSEMENT PROCESS
[Source: Author’s Work, 2019]
In this, the payment is done by paying some check or some currency. Nowadays most of the
business organization will do there transaction by checks so that the manager of the
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Kept safely all the
Documents recieved
from purchase
department untill due
date
make somne of the
cheque for theire
vendors
Apprasing in Cheque
register & Accounts
payable ledger
evaluation of the Invoice
and cheque amouunt
Record all the
invoice,Recieving report
and purchase copy

company will record all the reputable of the cash disbursement (DeVan et al., 2015). At the
end of this process receiving clerk will record all the important purchase order copy, cheque
copy, receiving report and invoice in the organization.
SYSTEM FLOWCHART OF PAYROLL SYSTEM OF ADAM & CO
Payroll System
Payroll system is the system that calculates the amount that is payable to the employees
based on their work, their holidays and leaves and the time they contributed towards the
organization. The system of Adam & Co. calculates the gross pay of the employees by
calculating taxes and other amounts and recording their working hours on their time cards
(Beasley, 2019).
Adam & Co. follows the system flowchart of Payroll System that is given below:
Figure 3: PAYROLL SYSTEM FLOWCHART
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Depositing cheques
by the accounts
payable clerk in
imprest and
recording of
cheques in accounts
payable department.
Recording of
working Hours on
time card
Submission on time
cards to Payroll
department at the
end of each week
Printing the copies
of Payroll register
and post to
employee record
sending of
employees cheques
to supervisor for
review and
distribution.

Source: (Author’s work, 2019)
INTERNAL CONTROL WEAKNESS AND RISK ASSOCIATED OF ALL THREE
SYSTEMS OF ADAM & CO
Internal control weaknesses of Purchase system at Adam & Co
Internal control system of Adam & Co. is accompanied with few weaknesses in the purchase
system which includes the major weakness of the selected vendors when a purchase has to
be made by Adam & co. in this case the current purchase system is the one where the
purchasing clerk makes the selection of a vendor on the random basis of the past reputation
irrespective of considering the factors such as prices, time of delivery and the offered terms
and conditions (Frazer, 2016).
Another weakness entangled by Adam & co. is that of the lack of accountability which is
absent in company concerning the cancelled orders and this leads to even no purchase
transaction (Le and Lehmann, 2016).
Purchase system of Adam & Co. faces the internal control weakness of lack of physical
verification of the stock wherein the sales and the sales return are recorded just relying on
the centralised computer system which in case of any technical faults may be difficult to lose
the data (Trigo et al., 2016).
The risk associated with internal control weaknesses of the purchase system of Adam &
Co.
Due to the internal control the weakness of selection of vendors just on the factor of
reputation leads to a high risk of delay in the stock and purchasing the stock at higher prices
from the reputed vendor when Adam & Co. orders the stock from the vendor ignoring the
other important factors (Le and Lehmann, 2016).
Due to the weakness of lack of accountability, there may emerge the risk of absence of a
guarantee of the items that the suppliers have sent as there is no check or monitoring at
purchase department for the inspection records (Gelinas et al., 2017). The purchasing clerk
is more focussed on his knowledge and ignores the importance of verifying the stock with
the prices prevalent.
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Due to the weakness of one centralised system and the recording of data on the same, this
leads to the risk of lack of physical verification which will create a risk of overstocking or
understocking of the stock (Gelinas et al., 2017). For instance, Adam & Co. forgets to record
the sales return or due to technical error it was lapsed to record in such case the new stock
will be ordered by the purchasing clerk of Adam & Co without first physically verifying the
stock currently present (Frazer, 2016).
Internal control weaknesses of Cash Disbursement system at Adam & Co
In Cash Disbursements, all the weakness of the internal control was easily identified. On the
other hand, another weakness of the Cash Disbursements of Adam & Co is that all the
transaction records not in proper manner and the main responsible for this is clerk because
they will not record all the initially received which was purchased by the purchasing
department (Gallien et al., 2017). All the errors were committed by the purchasing
department which was solving with the help of Cash Disbursements. With the help of this,
all the incorrect amounts are recorded in a well and proper manner and the cash registers
after an error of the amount (Gallien et al., 2017).
On the other hand, there are more changes of the cash misuse in Adam & Co because in this
there is no control system which will handle all the wrong transaction which was done by
the financial department (Gallien et al., 2017). For checking the bank statement of the
organization on a regular basis this is important that they have to control the internal
weakness. This is most important because with the help of this all the bank statement and
images for unusual transactions are checked regularly (Herrera et al.,2016). Sometime due
to funding delay there were lacks of control which will handle through the security concern
and take some time.
The risk associated with internal control weaknesses of the purchase system of Adam &
Co.
The main reason of the faulty tracking system is because of the very bad accountability
system while they are handling the weakness of the internal control of the cash
disbursements Adam & Co., on the other hand, they will try to reduce all the risk by
preparing the receipts separately (Herrera et al., 2016). With the help of effective
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segregation of the duty, they will reduce all the risk in the company. With some of the
limited author, the Physical control should also be cheered and this will also help to record
all the stock of the Adam & co in the well and proper manner (Herrera et al., 2016).
Internal control weaknesses of Payroll system at Adam & Co
There are some weaknesses within the payroll system at Adam & Co. Although the payroll
system is computerized, there are still chances that dishonest employees can check-in for
other colleagues in their time cards as codes and information can be shared (Wolff, 2019).
As the responsibility is not shared between accounting and human resource department,
one dishonest person who is responsible for jotting down all the information regarding
payroll in the employee’s time card can easily change the data and might skip the vacation
or holiday time of any employee (Donelson et al., 2016). This leads to a lack of objectivity
and accountability in the payroll department, therefore, the work should be distributed
among different employees to maintain the accountability of the payroll data. There can be
changes in the central payroll system because of the accessibility of data that is granted to
members of the data processing department.
One of the major weaknesses that the Adam & Co. faces is the carelessness of supervisors
that sometimes provide wrong data to the payroll department that result in incorrect
calculations of salaries of the employees according to their data on their time cards
(Donelson et al., 2016).
The risk associated with internal control weaknesses of Payroll system of Adam & Co.
There can be many risks because of the internal control weaknesses like paying incorrect
salaries to the employees because of the wrong calculations of data. this can lead to
inefficient management and loss of financial resources in case, the salary is paid higher than
the work done by the employee or result in loss of faith of employees if the salary is paid
less than the work done by the employees (McMahon and Hartmann, 2019).
Other risks that are faced by the payroll system of Adam & Co. is of centralisation of power
in the hands of the employees of payroll department and data management department
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and this leads to lack of delegation and one dishonest employee can lead to inefficiency in
management and fault in the entire system, in such cases.
Multiple checkpoint error and another review of authorization are necessary by Adam & Co.
to maintain efficiency in its payroll system and mitigate the risks by overcoming the internal
control weaknesses (McMahon and Hartmann, 2019).
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