Accounting Information System: Internal Control and Adam & Company

This report analyzes the benefits of accounting information systems (AIS) within an organization, examining various accounting software options and the risks associated with the expenditure cycle. It reviews the existence and effectiveness of internal controls, using Adam and Company as a case study. The report includes several system flowcharts, such as payroll, purchase, and cash disbursement systems. It compares different accounting software, highlighting the advantages and disadvantages of each, and identifies internal control weaknesses within Adam and Company's manual accounting system. The report suggests improvements through implementing computerized accounting systems like Zoho Books or QuickBooks and payroll accounting software such as MYOB or Tally ERP 9 to enhance efficiency, reduce fraud risks, and improve decision-making.

Accounting Information System
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Executive summary
In this paper, the benefits of accounting system in an entity has been analysed and
also different accounting software has been examined. The risk associated with the
expenditure cycle has been reviewed. The existence and the effectiveness of
internal control used in the organisation has been taken into consideration.
Numerous flow charts such as payroll system, purchase system, cash disbursement
flow chart has been formulated.
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Table of Contents
Executive summary......................................................................................................1
Introduction...................................................................................................................3
Findings and analysis...................................................................................................3
CONCLUSION..............................................................................................................7
References.................................................................................................................14
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Introduction
In this assignment different system of accounting system use in the organizational
structure has been analysed and also the different kinds of information system which
are often used by the organizations has also been examined in detail. The
methodologies to analyse the information in an organization has been studied in this
paper. A report has been prepared to analyse the internal controls whether internal
control exist in the entity and also to evaluate the process applied for the expenditure
cycle of Adam and Company. The risk related to the expenditure cycle has been
explained. Several type of system flowchart has also been prepared such as
flowchart related to the purchase system, payroll system, cash disbursement
flowchart. The accounting software are compared with the other accounting
software.
Findings and analysis
The information system for accounting (AIS) which are used by many organization
nowadays involves the method of collecting the financial data and the next step is to
store the accounting data and the last step is processing the accounting and
financial data. Organization install the information system so that the internal users
of an organization can send the accounting report to the external users such as
lenders, investors, suppliers, creditors, shareholders. AIS can assist the entities in
processing and managing complex accounting transaction. The reports which are
prepared by AIS are reliable. The results which are provided by AIS are very
effective to take decision at different level such as operational level, strategic level,
and tactical level. AIS include the system of installation by technical department of
organization and then it is implemented and monitored by the controlling department.
According to Frazer (2016, p-25), different accounting such as management
accounting, cost accounting, financial accounting can be done with the assistance of
AIS. Financial accounting includes activities such as classifying the transaction of
business and then recording it in the financial statement of entity. The system place
of AIS has been categorised in three types such as manual system, modern system
or integrated system, and legacy system. According to Shin and Park (2017, p-19), a
legacy system of AIS provide historical information relating to the entities and will be
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customised as per the needs of the organization. This type of customization cannot
be found in other accounting software. According to Dooley (2018, p-859),
information system can assist the management of an organization to track the
activities related to different departments such as activities of purchasing
department, sales department, cash disbursement department, payroll department,
etc.
In the given case the Adam and Company has used a centralised system of
accounting with terminals located at different locations. Whenever the stock of any
item is going to be low the purchasing department select a potential supplier and
then prepare a purchase order. The hard copy of the purchase order is printed by the
purchasing clerk and one copy of the purchase order has been forwarded to the
supplier and the other copy has been attached by the purchasing clerk in the file of
purchasing order. The clerk is preparing manually the hard copies of the purchasing
order reports and the receiving report. The clerk is also reconciling the documents
manually which can take a long time. Thus it can be seen that the organization has
used the manual system of accounting and this is the reason that it requires the use
of different ledger such as special journal, general ledger, and subsidiary ledger.
According to Taiwo (2016, p-1), the organization can also use computerised
accounting system in the purchasing department which can help the organization to
do the work smoothly and effectively. There are different kinds software available in
the market such as Zoho Books, which is an accounting software and are used by
most of the organization to handle the task of purchasing of stock to recording the
stock in the purchasing ledger of the organization automatically. Zoho Books are
very easy to access and the employees are not required any special training to
access the software. Zoho software are suitable for medium and small types of
enterprises. Any organization can take the subscription or purchase this software as
it is affordable for both small and medium enterprises.
In the given assignment it has been noticed that the clerk of the account payable
division of Adam and Company preparing the check and updating the register
manually. The receiving clerk also doing his work manually such as filing the invoice
and receiving the hard copy of the report. The purchasing clerk can commit fraud
with supplier and the risk associated with this kind of weakness is known as
operational weakness. According to Komala (2017, p-19), financial managers of the
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organization need the accounting information which are provided by information
system so that the organization can assess the past performance and prepare
future plans to maximize the profits of an organization. The organization can also so
automated system of accounting by installing software for their department of cash
disbursement. Accounting software such as Quickbooks can be installed to do
automated accounting which can save time as well as efforts. This software also
don’t need any specialized training to access it. The employees or clerk can find it
very easy to access the software with any difficulties. Quickbooks can be easily
purchase from the market and the price of the software is also very less as compare
to other accounting software. All types of enterprises can easily purchase the
software. Zoho as compared to Quickbooks are very effective to carry on the
business process and it also very productive. Quickbooks can be easily updated but
Zoho cannot be updated easily. To update the Zoho applications can take a long
time for the organization. Most of the organization are installing in their premises the
applications of Zoho. The price is also less in comparison to QuickBooks. While
purchasing the Zoho applications the training cost, license fees, hardware cost,
customization cost, subscription fees, maintenance cost are all included in the
original cost of software. QuickBooks is costlier as compared to Zoho software. The
features which are included in the Zoho application are:
 Zoho books can be used in billing and invoicing
 The reporting related to sales and purchase can be easily done with the help
of this software
 Entity can also comply with the tax requirement by using Zoho
 The main features of this application is that it can track the expense of
organization with ease.
The features of Quickbooks are that it can be used in doing accounting task such as
account receivable, preparing balance sheet, audit trial, invoicing and billing. Both
the software are designed for small enterprises as well as medium enterprises.
The payroll department of Adam and Company prepare the time card each and
every day. The time card are reviewed by the supervisor at the end of the week it is
submitted to the payroll department. The time in the time card are processed with the
help of processing system but the disbursement voucher are prepared manually by
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the payroll clerk which consume too much time. This is considered as one of the
internal control weakness as this type of internal weakness is termed as
administrative weakness. The organisation can save time and efforts both by
acquiring and installing any payroll accounting software. There are numerous types
of accounting software available and most of the entities are doing their payroll
accounting by installing the application in their establishment or premises. The
software if installed in the premises can help the organization in detecting fraud done
by the payroll clerk or other clerk employees of cash disbursement department. The
risk related with this type of weakness is that the cash department can commit
forgery related to cash. The accounting applications serves as internal control
mechanism to the entity. There are several types of payroll accounting applications
such as MYOB, Tally which gives best service to entities and are suitable for
organization which handles the payroll task manually. MYOB applications provide
many important accounting features such as preparing timesheet, accounting
management, payroll accounting, audit trail, Goods and service tax (GST)
accounting. The other software Tally ERP 9 is also considered as one of the best
accounting software for doing activities related to accounting. It is a flexible
application which helps in maximizing profits. The fraud done by the accountant can
easily be detected. This applications helps to prevent and detect fraud which are
done by different clerk or employees. If any data has been modified by the
accountant then it can be detected because it uses a security system which is known
as vault key. Tally ERP 9 features are:
 Accounting management
 Helps in banking transaction
 Inventory management
 Payroll management
 Assist in preparing budgets
 It does accounting in multilanguage
 Data can be easily shared over networks
 Business reports can be easily accessed
 GST invoicing can be easily prepared
 Application also helps in forex transaction
 The sales are easily categorised into distribution as well as retail sales
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 Transactions related to sales and purchase can be filtered easily
 Sales order, purchase orders, credit notes, and debit notes are kept updated
 The e-way bills are easily generated.
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Purchase Department
8
Is quantity
of an item
to low?
START
When the stock is below inventory
level then the purchasing staff
select the supplier and if he found
the best supplier then he file
purchase order and the file then
transferred to purchasing
department
Check Inventory
Subsidiary Ledger
Purchase
Order File
Prepare Purchase
Order
View Vendor
File
Purchase Order
Select Vendor
Purchase
Department
Vendor
A
B
Purchase System (System Flowchart)

Receiving Department
9
The receiving department prepare the
report of numbers of stock received
by Adam and Company and after that
the stock is send to the warehouse
and then the Account payable
division update the file related to the
balance payable to the supplier
A
Goods,
Packing Slip
Reconcile Goods,
Packing Slip,
Purchase Order
Prepare
Receiving Report
Accounts Payable
Department
Inventory
Warehouse
Update
Inventory
Update AP
File
Receiving
Department
C

Accounts Payable Department
10
Vendor
Supplier
Invoice
AP Clerk Print
Purchase OrderB
Reconcile Receiving
Report, Purchase Order,
Supplier Invoice
C
AP Clerk
Update
DAPSL
APCA
ICA
Receiving Report,
Purchase Order,
Supplier Invoice
Receiving
Department
AP= Accounts Payable
DAPSL= Digital Accounts Payable Subsidiary Ledger
APCA= Accounts Payable Control Account
ICA= Inventory Control Account
The purchase order, supplier
invoice, and the receiving report
has been send to the receiving
department and then the
subsidiary ledger and the
account payable updated by the
AP clerk

Payroll Department
11
START
Review Employees’
Time Cards
Supervisors of
respective
Departments
Payroll Clerk
2 Copies of
Payroll register
Update Time
Cards in Payroll
System
Payroll
Department
Pay Cheques
Employee
Records
Review Pay
Cheques
Distribute
Employees
AP
Clerk
The payroll staff update the
information related to the time
cards of employees and then two
copies related to payroll register is
send to the staff of account
payable division and then the
paycheque is send to different
departments and the supervisor of
their department evaluate the
paycheque