Comprehensive Case Study: Adam & Co. Expenditure Cycle Analysis

This case study analyzes the expenditure cycle of Adam and Company, a wholesale industrial supplier in Perth. It examines the buying system, cash distribution process, and payroll system. The buying system involves inventory management, purchase orders, and vendor selection, with a focus on the need for effective stock control and Economic Order Quantity (EOQ). The cash distribution process is analyzed for its payment verification and approval procedures. The payroll system, including compensation and employee information, is also evaluated, highlighting the need for accurate job ticketing and separation of duties. The study identifies shortcomings in the current processes and recommends improvements to enhance financial management and operational efficiency, emphasizing the importance of accurate records and efficient processes.

Case Study
Expenditure Cycle of Adam and Company
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Contents
Introduction.................................................................................................................................................3
Expenditure Cycle........................................................................................................................................3
Buying System of Adam and Company........................................................................................................4
Effective Purchase System...........................................................................................................................4
Cash Distribution Process of Adam and Company.......................................................................................8
Payroll System of Adam and Company........................................................................................................9
Pay roll System of Adam and Company.....................................................................................................11
Conclusion.................................................................................................................................................12
References.................................................................................................................................................14
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Introduction
With the ramified changes in economic, there are several factors which may impact the
business economic factors of the company. For any organization, controlling cash flow is very
important. The aim of controlling the cash flow is to check the shrinkage in the flow of cash, to
control the cash blockage which results in opportunity cost and to make sure that the cash is
available in cash deprived circumstances. The businesses like retail which have several flows of
cash keep a check on the cash flow. This is done for optimum utilization of the scarcely available
resources. The buying system in retail includes making request based on the available inventory,
identifying the vendor and placing the order at best rates, receiving stocks and managing the
payments of the vendors. The payroll process includes compiling the employees’ information
and salary management. The study conducted here is done on the current expenses cycle of
Adam and Company who is an industrial supplier in wholesale division in Perth.
Expenditure Cycle
The expenditure cycle converts the cash of a business into physical assets like stocks and
manpower. The physical assets and manpower in the business are depended on the cash
distribution depended on the time (Stevens, & Johnson, 2016).These assets are bought by the
company by making the cash out flow. Therefore, it makes two -way traffic for the expenditure
cycle, the assets are bought in the first cycle and cash is distributed in the second cycle. Both
these cycles have distinct sub-categories (Azudin & Mansor 2018).
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Buying System of Adam and Company
The buying clerk starts the process of purchase which is based on the details provided to him at
his computer station related to the assets’ availability in the stock and the products to be ordered.
Based on these details the clerk orders inventories from the respective sellers. The received items
are checked for their quality and quantity and displayed in the retail stores. The cash distributing
liability is implemented when the stocks are procured by the purchase section (Chompu-Inwai,
Jaimjit &Premsuriyanunt 2015). . This sets up the transparency in the recorded items and books
of accounts which helps company to make the double check of the problems and issues in the
recorded items and buying procedural work to strengthen the book keeping records of the
company.
Effective Purchase System
Effective buying system determines the various stages of stock management like the highest and
lowest levels and the orders for various products. The store in-charge keeps a track of the
inventory, whenever the assets of a particular item are required to be re-ordered he process the
buying request to the department. Based on this request, the buying department creates the
buying orders and issues them to the suppliers and the copies of these orders are sent to the
departments like accounts and stocks and one copy is kept in the buying department. The
purchase order is retained by the accounts department in the stock check file. The second copy of
this purchase order forwarded to the stock receiving department (AL-Dweikat, M. F. S. & Nour,
2018). However, This results in the discrepancy in calculating the purchases which might cause
the outflow of company’s cash. Therefore, it has shown that store in-charge keeps a track of the
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inventory, whenever the assets of a particular item are required to be re-ordered he process the
buying request to the department.
(Wang, Gunasekaran, Ngai., & Papadopoulos, 2016).
The process of buying should be initiated from the stock control department for ensuring the
proper working of the purchase department. The buying department contains the required
information for giving an order for quality, quantity, costs of the stocks and details of the
registered sellers. This helps the buying department to make appropriate choices (Wilson,
Anderson, Bartram, Patel,. & Liu 2016). This sets up direct link between the cash outflow and
inventory recording system in the process work of the organization.
The research carried out on Adam & Co shows that there are several short comings in their
buying system. The buying department of the organization is dependent on the details available
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in the stock register and not on the order placed by the stock in-charge (Sayed, Kamath and
Sharma, 2018). The stock maintenance register do not have correct details pertaining to the real
scenario and the sellers’ details which cause the not required buying or delay in buying which
effects the business of the firm adversely. The company should consider this inadequacy and
reframe the buying department of the company. Adam & Co should also manage the stocks and
buying system by setting up the stock counting measures.
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The company should also maintain the minimum level of inventory for conducting the operations
of the firm effectively. The highest level of inventory is the one which is the benchmark of the
company, the stocks of the company should not rise above this, and otherwise the capital can be
blocked. The orders are placed between these maximum and minimum stock levels. The quantity
which is to be ordered again is called Economic Order Quantity (EOQ). The EOQ is ordered
such that the amount of buying and the amount of giving orders is maintained at the lowest.
These amount are calculated on the source of yearly requirement, amount per piece, per order
placing cost and the transport and storing expenses of the stocks. The levels if maintained in the
buying system make sure that the stock maintenance is carried out in an efficient manner by the
company’s buying department.
Vendor selection Digital purchase
order
Receiving deptt
Warehouse
Accounts deptt
Cash
disbursement
deptt
Digital accounts
payable subsidiary
ledger
Accounts payable
control ledger
Inventory control
account
Oopen Digital
PO and AP
files
Prepare cash
disbursement
Accounts
Cash
Identify
liabilities Supplier
The buying department sends a blank copy of the PO (purchase order) to the stocks receiving
department for the stock in-charge to verify the inventory quantity against the PO given to him
by the person of the seller who delivers the inventory.
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Cash Distribution Process of Adam and Company
Cash distribution process pursues the buying process for making through the payment
transactions produced by the buying department. This process maintains the check on untimely
payments which leads to the less interest earned by Adam & Co, and also checks the late
payments which leads to the collapsing of the discount system. Also, the firm loses its credibility
for completing the short issues (Clarke, Collier, Munir, Oliver, Robinson, Steenkamp & Zwikael,
2019).
Accounts
payable
deptt.
Cash deptt. Treasurer
Vendor
Time card Payroll deptt. Digital employee
recirds
Supervisors
Accounts
payable
Bell Studio's
employees Time
card Payroll Supervisors
In the cash distribution system, the accounts department of the company refers the due accounts
file for verifying the short term creditors. The clerk of the accounts department forwards for the
approval of cash distribution department. The cash distribution department clerk verifies the bills
forwarded by the clerk of the accounts department to check any calculation error on the amount
to be paid and makes the cash distribution bills.
The Adam & Company’s cash distribution department has this process that has regular check
points. However, the firm has not developed any system for approval of the head of the cash
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distribution department and accounts department. This system may help in preventing ay error
made while creating bill for payment in the cash distribution department.
Payroll System of Adam and Company
The compensation provided to the employees like salary, perks, incentives, bonuses, other
compensations etc. comes under the payroll system of an organization. The perfect payroll
system makes sure that right amount of payment is made to the right person at the right time. The
payroll system can also be considered as purchase system, as the employer buys the services of
the manpower against the cash provided. The payroll process includes compiling the employees’
information and salary management. The study conducted here is done on the current expenses
cycle of Adam and Company who is an industrial supplier in wholesale division in Perth. This
will be useful to track the record the cash inflow and outflow from the process which is used to
evaluate how much cash is enrolled in the process. It could also be further used to match with the
closing inventory and expenses recording program. The payroll system can be varied from one
organization to other like in some firms the salaries are distributed weekly, in some firms in
every fortnight and others monthly. The human resource or personnel department caters to the
employees’ earnings details to the account department of the firm which prepares the
compensation sheets (Afrifa and Tingbani, 2018).
Time card Payroll deptt. Digital employee
recirds
Supervisors
Accounts
payable
Employees
bank details Time
card Payroll Supervisors
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The accounts department primarily requires a person’s time card and job ticket in order to make
the salary sheet. The time ticket refers to the time a recruit spends in the job area and the job card
represents the time spent by an employee on any particular task. The employees may bluff the
pay roll department by giving details of the employees who are no more the part of the
organization.
Bank details Supervisor Hard copies of paycheques
Payroll registers
Details
Pay deductions
Hours worked and rate
Employee payslip
Employee pay
Employees
bank details Time
card Payroll Supervisors
Calculate pay
Calculate
deductions and
subtractions
Deductions
Employee pay
Depodit
employee
pay
The companies have now started to use the pay masters to keep a check on this practice. The pay
master helps in preparing the pay checks without using the information from pay roll. If the
salary remains unclaimed for any employee, it goes back to the pay roll section (Ford, 2017).
The salary registers are also verified by the accounts department who prepares the employees’
salaries. The clerk maintains the record in the bills ledger. The cash distribution department
makes the check for the complete amount and submits in the firm’s pay roll interest section. The
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amount is shifted to the imprest account which makes the employees’ pay checks. It is important
that the amount credited and amount debited should be the same. The errors must be rectified.
This account is also cross verified by the accounts section and after checking they provide the
pay checks to the company workers (Karimi, Papamichail & Holland 2015). Nonetheless, This
process maintains the check on untimely payments which leads to the less interest earned by
Adam & Co, and also checks the late payments which leads to the collapsing of the discount
system
Pay roll System of Adam and Company
Adam & Co does not follow the system of job ticket which causes problems for the company.
This can also result into the outflow of the cash from the company’s pay roll department. As the
job ticket helps in referring to the type of work of the employee of the company, Adam & Co
faces lot of problem in absence of this. Since, this company has employees at different grades for
different work the chances are that the employee may take more salary due to this error (Clarke,
B., Collier, P., Munir, R., Oliver, G., Robinson, P., Steenkamp, N., & Zwikael, O. (2019).
However, the store in-charge keeps a track of the inventory, whenever the assets of a particular
item are required to be re-ordered he process the buying request to the department. Based on this
request, the buying department creates the buying orders and issues them to the suppliers and the
copies of these orders are sent to the departments. This sets up the transparency in the recorded
items and books of accounts which helps company to make the double check of the problems and
issues in the recorded items. Nonetheless, The stock maintenance register do not have correct
details pertaining to the real scenario and the sellers’ details which cause the not required buying
or delay in buying which effects the business of the firm adversely.
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The pay roll department can also acts as the human resource department. Therefore, the work of
pay roll department must be limited to preparing pay checks to ensure that the correct salary is
processed. However, in Adam & Co both the roles are taken care by the personnel section, which
makes it over burden (Wang, Gunasekaran, Ngai, E. W. & Papadopoulos, 2016). This results in
the discrepancy in calculating the employee’s salaries which might cause the outflow of
company’s cash. Therefore, it has shown that store in-charge keeps a track of the inventory,
whenever the assets of a particular item are required to be re-ordered he process the buying
request to the department. Based on this request, the buying department creates the buying orders
and issues them to the suppliers and the copies of these orders are sent to the departments like
accounts and stocks and one copy is kept in the buying department. It helps in strengthen the
system process and increasing the overall outcomes of the process. Therefore, it could be
inferred that if proper accounting system and payroll system is adopted by the company then it
will help company to lower down the procedural work. It will also be useful to set up strong
internal control system in the organization. It will eventually help in assessing the cash inflow
and outflow from the process (Stevens, & Johnson, 2016). This
Conclusion
The report is based on the processes followed by the firm Adam & Co in its cash distribution
system, cycle of business expenses, best organization process and the pay roll process. The
research finds out some limitations in the processes of this company. The buying process of the
firm is required to mend certain processes which results in the outflow of cash or causes cash’s
opportunity cost. The buying department must follow the process of implementing best available
asset managing equipment’s for ensuring the exact data of the buying department. The cash
distribution system should be made strong by providing the authority to the managers of giving
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