Report: Adam & Co Expenditure Cycle, Systems, and Risks Analysis

This report offers a detailed analysis of Adam & Co's expenditure cycle, which is managed through a centralized accounting system with multiple networking terminals. The report examines the expenditure cycle based on three key systems: purchase, payroll, and cash disbursement, which are integral to the overall process. The analysis is supported by data flow diagrams (DFDs) and flowchart diagrams to illustrate the operational processes within Adam & Co. Moreover, the report critically assesses the potential risks and weaknesses inherent in each of the three systems. The purchase system is examined in detail, including procedures for placing orders, receiving inventory, and recognizing inventory needs. The cash disbursement system and payroll system are also thoroughly analyzed, highlighting their respective processes and data flows. The flowchart diagrams provide a visual representation of each system, enabling a clearer understanding of the processes involved. Furthermore, the report identifies and evaluates internal control weaknesses and potential risks within the purchase, payroll, and cash disbursement systems. The report concludes with a summary of the key findings and recommendations for improving the efficiency and security of the expenditure cycle.

Adam & Co Company 1
Adam & Co Company
Name
Professor
College
Course
Date

Adam & Co Company 2
Executive Summary
The discussion in this report seeks to understand the expenditure cycle of Adam & Co
which has a centralized system of accounting with manifold networking terminal in diverse
destinations. Thus a deeper examination of this cycle process is undertaken based on three
system including purchase, payroll and cash disbursement which make up expenditure cycle.
This discussion is supported by data flow diagram, and flowchart diagram to help understand
the systems in Adam & Co. This discussion also involves the examination of the potential
risks and weakness of all the three systems.

Adam & Co Company 3
Table of Contents
Executive Summary...................................................................................................................2
Introduction................................................................................................................................4
DFD Cash Disbursements (CDS) & Purchases Systems (PS)...................................................5
Purchase System.....................................................................................................................5
Fig1: DFD Purchase System..............................................................................................5
CDS........................................................................................................................................9
Fig 2: DFD Cash Disbursements Systems.........................................................................9
Payroll System DFD............................................................................................................10
Fig3: Payroll System DFD...............................................................................................10
Purchases System Flowchart................................................................................................11
CDS System Flowchart........................................................................................................13
Payroll System: System Flowchart......................................................................................14
System Internal Control Weaknesses and Risks......................................................................15
Payroll Systems....................................................................................................................15
Purchases System.................................................................................................................15
CDS......................................................................................................................................15
Conclusion................................................................................................................................16
Bibliography.............................................................................................................................17

Adam & Co Company 4
Introduction
The main aim of this report is to examine the expenditure cycle of Adam & Co which
uses a centralized system of accounting with multiple networking terminal in diverse
locations. Therefore a comprehensive investigation into this expenditure cycle process is
carried out premised on three system which include purchase, payroll and cash disbursement
which make up expenditure cycle. The analysis is backed by data flow diagram, and
flowchart diagram to assist in understanding the systems in Adam & Co. This examination
further encompasses the probe of the weakness and potential risks in all the three systems.

Adam & Co Company 5
DFD Cash Disbursements (CDS) & Purchases Systems (PS)
Purchase System
Fig1: DFD Purchase System
The PS entails procedures for processing purchase including pertinent activities to
place orders, receive inventories and enhance recognition of inventory needs and revaluate
existing liabilities. All such tasks and their association are shown in figure one overhead
(Romney and Steinbart 2015).
All such procedures are applicable in retail and manufacturing sector in Adam & Co
However, main difference defining these 2 sectors is manner that various purchases get
authorized (Cook 2018). The manufacturing sector in Adam & Co purchases raw materials
vital for production, where purchasing decisions get approval by control functions alongside
Purchasing
Department
Inventory
Warehous
e
Cash
Disbursement
Department
Monitor inventory
records
Updates inventory
records
Receives Goods
Prepares Digital
Purchase Order
Updates Inventory
Control Access
Updates AP Control
Access
Updates digital AP
subsidiary ledger
Valid Vendor File
AP Pending File
Vendor
Account
Payable
Department
Inventory
Subsidiary
Ledger
Receiving
File
Digital purchase
order records
Purchase
order copy
1
Purchase order copy 2
Receiving reports copy
Receiving report copy 2
Sends invoice Sends invoice
Inventory level
Inventory
Subsidiary Ledger

Adam & Co Company 6
production planning. The retailing sector in Adam & Co purchases finished goods for
reselling and function for inventories control provides purchasing approval (Thite and
Sandhu 2014).
The process of inventories records monitoring is facilitated whenever Adam & Co
exhausts is stock by transferring materials in production stage. Such procedure is conversion
cycle while reselling finished goods to consumers is called revenue cycle. The inventory
controls monitors and records the finished products alongside its inventory levels. With a
plunge in the stock levels and predetermining point for reordering, a need ensues for the
purchasing clerk to prepare function for purchase order that shall initiate purchasing process.
Afterwards, purchase requisition is fundable and varies in different organizations.
Typically, the company will facilitate and prepare a discrete purchase requisition for various
inventory items where need be (Fauzi and Setyawan, 2018). Resultantly, multiple purchasing
requisitions may be evidently for an available vendor and these requisitions need to be
combined into one purchasing order then sent to a vendor. Such a system type allows every
PO to get linked to many purchase requisitions.
The preparation of the purchase order function obtains the purchasing requisitions,
organized by the vendor whenever needed. Afterwards, the Purchase Order (PO) copy is
designed for the respective vendors as indicated in the Data Flow Diagram (DFD) in Fig 1.
Additionally, another copy is transferred to the purchasing department for a set-up of the
Account Payable (AP) functions meant for temporary filing of the AP pending files.
Consequently a blind copies of a file is sent by clerk to Receiving Goods functions
(Yuliyanto 2018).
Many companies experience a time lag between receiving goods and placing an order.
During this stage, various PO copies will be included in the temporary files in the account
payable department, and no economic aspect is executed. At this juncture, the Adam & Co

Adam & Co Company 7
organization has never received stock or incurred financial obligations. Thus, there is no need
of facilitating the making of formal entries in the accounting records (Fedaghi, 2014).
Nonetheless, the company may decide the make a memo entry while referring to the pendant
stock-related receipts besides obligation (Jarrah 2018).
The next step comprise the receipt stock where goods arrive as the receiving report
gets prepared. These goods are then reconciled with the packing slip and DPO. Copies of the
document include the data on quantity and prices of the items received. The foremost aim of
these documents is to permit receiving clerk to inspect and count inventories before drafting
the receiving report. Mostly, the receiving department is busy and their staff as subjected to
pressure of unloading the delivery vehicles or signing lading bills (Gautam, 2010). In such
cases, the receiving clerk will only be provided with the relevant data on item quantity and
accept a delivery of products in reference to the provided data.
In the cycle, the next stage in the provision of update regarding the inventory record.
Relative to the inventories valuation technique, the inventories controls technique varies in
different organizations. A company that utilizes a standardized cost framework may execute
their inventory at a predetermined standardized figure irrespective of the charges being paid
to a given vendor (Bhoite, 2012). Presenting a standardized inventories ledger necessitates
the relevant data regarding the quantity attained. Since the receiving reports contain the item
quantity data, this file serves this purpose. Thus, updating the main cost inventory ledger
necessitates more financial data from the inventory warehouse. During the process of this
transaction, accounts payable needs a set-up. The AP function receives this setting the
temporary files of the receiving report and PO is filed. The Adam & Co organization has
received these stock from respective vendors and realized respective obligation for received
goods’ payment.

Adam & Co Company 8
In completing this process, the AP clerk must evaluate the exact obligation valuation
till the point the invoice gets received. Whenever an estimate is materially improper, an
adjustment of the entry needs to be undertaken to rectify the mistakes. Because received
invoice receipt activates AP techniques alongside processes, clerks must evaluate unrecorded
liabilities when closing. Upon the arrival of the inventories, the AP clerks reconcile the
relevant financial data with purchasing order and receiving report in available awaiting file.
Such is called trio-way matching which verifies quantity obtained and respective prices.
During this moment, the clerk progressively updates the DPO subsidiary ledger, AP controls
account alongside stock controls account in GL. Lastly, an invoice, PO and receiving report
are then transferred (Hall 2015).

Adam & Co Company 9
CDS
Fig 2: DFD Cash Disbursements Systems
In the expenditure cycle, the evaluation of cash disbursement flow is vital. When the
clerk receives relevant documents receipts from AP department, he files them awaiting the
payments due date. At payment date, the clerk prepares a cheque while referring to invoiced
account. Such a cheque is sent subsequently to the treasurer of Adam & Co to sign and mail
to the vendor. Afterwards, registers for cheques are updated, AP subsidiaries ledger alongside
AP control account is executed from a computer terminal. Lastly, clerk sends records to
receiving department for invoices to be filed, receiving reports, and cheque copies alongside
purchasing order copies (Pautsar, Ayunovani and Surahman 2016).
AP
Department
Updates
Documents
Document
Receipts
Identification
of Liability
Due
Treasurer
Vendor
Preparation of
cheque for invoice
account Signature
Mailing
Receiving
Receiving
Report File
Invoice File
Cheque
Copy

Adam & Co Company 10
Payroll System DFD
Fig3: Payroll System DFD
The payroll system in Adam & Co is designed in a way which allows the employees
to fill-in time-cards thus collects data about the hours each employee works. Information in
such cards is subsequently evaluated as well as reviewed by a supervisors and forwarded such
Prepares cash
disbursement
vouchers
Payroll
DepartmentEmployees
Time Cards
Supervisors
Central Payroll
System
Time
Card data
Payroll
register
Payroll register
Supervisor
AC Department
Write Cheques
Cheque
file
Imprest
bank
General ledger
department
Cheque
file
Department
Employees
Reviews and
submits
Hour’s records
Digital
Employee
Record
Reviews
and submits
Deposits
Reviews
Check

Adam & Co Company 11
data to payroll department (Janvrin and Watson 2017). Payroll system gets referenced from
Adam & Co central PS which is located in data processes department whereby a clerk inputs
data as well as print paycheque copies, payroll registers copies and copies of records of
digital employees. The clerk, from the payroll department, possibly files time-cards and
transfer the employees’ payment cheques to a supervisor to distribute as well as review.
Afterwards, the clerk sends a payroll register copy to AP department while another copy
containing time-cards is sent to department for payroll (Lopez et al. 2017).
AP clerks then appraises register then makes the CD voucher manually. Afterwards, a
clerk then passes on a payroll register alongside voucher to the GL department and AP clerk
draws a cheque for payroll to be deposited in the bank’s imprest account.
Purchases System Flowchart

Adam & Co Company 12
The flowchart of a system comprises inventory control where inventory level remains
monitored. During a plunge in predetermined point of reordering, a clerk will draft a
purchasing requisition where a copy gets transferred to department for purchase while
another to available purchase requisition file. It should be noted that the provision of the
authorization controls in stock controls department is separated from department for purchase
which executing transactions.
This process follows the purchase requisition, sorting by vendors and preparation of
the PO for every vendor in the purchasing department. Here, 2 copies of the PO are
transferred to vendor and PO copy is transferred to inventory control to be filed alongside
available purchasing requisition. The goods which originate from vendors are reconciled with
blind copies of PO. At the completion of physical counting alongside inspection procedure,
receiving clerk then prepares different reports which state status alongside quantity of stock.
A copy of the receiving reports is passed on to inventory department alongside physical
inventory. Remaining copy is transferred to department for purchases and a clerk can then
reconcile it with PO available.
In AP department, the clerk receives inward invoice where information is reconciled
with available awaiting doc file. Thereafter, relevant transactions record in journal purchases
is executed alongside points, along with AP subsidiary ledger being prepared. It follows a
liabilities records, where a clerk sends source documents, receiving reports alongside
available files for voucher payable. During this point, DAP subsidiaries ledgers update takes
place, and it include AP controls account alongside the stock control accounts in GL
department from computer terminal. Lastly, the clerk transfers the invoices, PO copies and
receiving reports to the cash disbursement department.

Adam & Co Company 13
CDS System Flowchart
In Adam & Co, AP clerk inspects alongside reviews available files for payable
voucher hence denoting item due then transfers the relevant vouchers alongside documents in
cash disbursement department (Geerts and O'Leary 2015). In department of AP, a clerk then
receives the relevant voucher packets and conducts a review on them for clerical
effectiveness and completeness. In every disbursement, a clerk presents 3 records alongside
counter-checking records, amount, pertinent data and numbers of vouchers within a register.
Consequently both cheque and accompanying supportive documents proceeds to the treasurer
in cash disbursement department to be signed (Fedaghi 2014).

Adam & Co Company 14
Afterwards, the clerk then returns the cheque copies alongside packets for voucher to
department of AP where a copy of the cheque gets filed. Lastly, a summary of relevant
entries of a register for cheque is hence prepared by clerk thereafter transferred the journal
voucher to department of GL. In department of AP, AP clerk eliminates obligations by
cheque numbers recording in the register for vouchers then files packets for voucher in safe
files for a voucher (Cook 2018).
Payroll System: System Flowchart
The PS flowchart states procedures of payroll authorization that includes the number
of worked hours by relevant employees in Adam & Co. Such information is relevant and has
to be reviewed by the relevant supervisors and subsequently sent to payroll department from

Adam & Co Company 15
sources of production and personnel. Here, the clerk reconciles the relevant data, distributes
the payment cheques and calculate payroll. Consequently, the counting of the costs is
performed, and information about amount of time spent by employees on a single job is
evaluated from production. AP clerk obtains a summarized data from the payroll departments
and approves the deposit of cheques by the cash disbursement department. This amount is
subsequently deposited in imprest account (Collier 2015).
System Internal Control Weaknesses and Risks
Payroll Systems
The weakness is the entry of payroll time information whereby employees enter data
regarding the worked hours. The company needs to use individual codes or any other
methodology to recognise employees in addition to their entry of worked hours. Such an
exclusive codes will limit the chances of employees to share a code and falsely clocking in
someone’s data. This system lacks a proper handbook with definite procedures for checking
in or out and entry of the payroll data.
Purchases System
Failure to conduct enough thorough probe is a major weakness of this systems. This
department in the Adam & Co fails to do a research on the suppliers in regard to quality and
quantity of materials to be produced. The organization relies on just any supplier (Brandon
2016.).
CDS
This department risks underperformance due to improper controls. The internal
control of an organization is decided upon by the management and thus their decisions might
be inappropriate (Bhoite 2012). The company risks to be subjected to security concerns by
being lax in one sector and being strict on the other.

Adam & Co Company 16
Conclusion
This report has examined the Adam & Co expenditure procedures that are relevant in
running the business and enabling the acquisition of finished products and raw materials.
Since many companies conduct these activities, data systems need to be evaluated and
designed effectively to record and review various obligations and discharge them whenever
necessary.

Adam & Co Company 17
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