HA2042 Accounting Info Systems: Adam & Co Case Study Analysis

This report evaluates the accounting procedures of Adam & Co., focusing on the expenditure cycle, including purchasing, cash disbursement, and payroll systems. It details the activities of purchasing and receiving clerks, along with the steps involved in each process, illustrated by flowcharts. The report identifies weaknesses in internal controls, such as the purchasing clerk's heavy workload, manual preparation of receiving reports, and manual payroll processing, highlighting the potential for human error and fraud. Risks associated with the manual accounting system, like customer loss due to lengthy processes, are also discussed. The analysis aims to inform management about system vulnerabilities and potential improvements. Desklib offers a range of solved assignments and past papers to support student learning.

Running head: ACCOUNTING INFORMATION SYSTEMS
Accounting Information Systems
Name of the Student
Name of the University
Author’s note

1ACCOUNTING INFORMATION SYSTEMS
Executive Summary
The report tends to discuss on the accounting procedures of the company, Adam
and Co. These processes are considered to be a part of the expenditure cycle of the
company. The activities of the purchasing clerk of the purchase department is
elaborated in the light of the entire system. The two other processes of the company
are also explained and discussed with the help of a flowchart. These two processes
are the process of cash disbursement and the payroll process. The activities of the
clerks of these two processes are also explained. At the last section of the report, the
disadvantages of these three processes are noted down along with their probable
risks. The different weaknesses of the system are also elaborated as required.

2ACCOUNTING INFORMATION SYSTEMS
Table of Contents
Introduction...................................................................................................................2
Discussion....................................................................................................................2
Purchase system of the company................................................................................2
Cash disbursement system of the company................................................................3
Payroll system of the company.....................................................................................3
Weakness detected in each system.............................................................................4
Risks detected in each system.....................................................................................4
Conclusion....................................................................................................................5
References...................................................................................................................6

3ACCOUNTING INFORMATION SYSTEMS
Introduction
The primary objective of the report is to evaluate the three different kinds of
processes that are prevalent in the accounting system of the company. The
company that has been focussed for the construction of this report is Adam & Co. As
it has been seen that the company is engaged in the business of supplying important
raw materials of the different industries, the accounting procedure of the company is
studied thoroughly in details. The expenditure cycle of the company is very
prominent. The components of the expenditure cycle are the system required for
making purchases, the system for cash disbursements and lastly the system for
making the payrolls. The different weaknesses of the internal controls of the
company are pointed out in order to bring it to the notice of the management. The
different risks that are possessed in carrying out such an internal control are also
indicated and explained.
Discussion
Purchase system of the company
The flowchart that stepwise shows the purchase system of the company can
be stated as follows (Slater, and Deschamps 2015). This system is a part of the
expenditure cycle of the company.
Step 1 – The inventory subsidiary ledger is reviewed by the purchasing clerk.
The clerk then prepares the purchase order according to the quantity of the items.
One of the order copies are printed and added to the purchase order file.
Step 2 – At the receiving department the inspection process of the items is
conducted by the receiving clerk (Slater, and Deschamps 2015). Reconciliation of
the items is carried out according to the purchase order and the packing slip. Two
hard copies of the report are manually prepared by the clerk. One of the copies goes
to the inventory warehouse and the other one is kept in the accounts payable
department.
Step 3 – At the inventory warehouse, the goods are kept in their respective
shelves with the help of the clerk of this department. The inventory subsidiary ledger
is also updated accordingly.
Step 4 – The accounts payable department receives the other copy of the
receiving report. The accounts payable clerk files this copy before the arrival of the
invoice of the supplier.
Step 5 – After the arrival of the invoice of the supplier, the accounts payable
clerk receives it and also pulls the receiving report from a temporary file (Slater, and
Deschamps 2015). The clerk is then required to print a hard copy of the digital
purchase order.
Step 6 – All the documents are updated until the current date. Reconciliation
of the three documents are done by the accounts payable clerk (Xing, Xian and Tu
2014). These three documents include the subsidiary ledger of the accounts
payable, control account of the accounts payable and the general ledger of the
inventory control account. All the three documents, that is invoice, purchase order

4ACCOUNTING INFORMATION SYSTEMS
copy and the report receipt are sent to the cash disbursement system for further
processes.
The diagrammatic representation is shown below.
Review of inventory subsidiary
ledger by purchasing clerk
Inspection and reconciliation of
items by receiving clerk
Goods are shelved in their
respective warehouses
Receipt of the receiving report by
the accounts payable department
Receipt of the invoice by the
accounts payable clerk
Documents are updated and sent
to the cash disbursement
department

5ACCOUNTING INFORMATION SYSTEMS
Cash disbursement system of the company
The flowchart showing the entire system of cash disbursement can be
explained in the following manner.
Step 1 – The three documents, that is, the invoice, order copy of the purchase
department, the report of receipt and the cheque copy, all are transferred from the
purchase department to the cash disbursement department (Xing, Xian and Tu
2014).
Step 2 – The cash disbursement department files all these documents and all
of them are sorted according to the due date of their payments. On the day of their
payments, a cheque of the amount in the invoice is prepared by the clerk.
Step 3 – The treasurer takes the responsibility of signing the final cheque that
should be paid to the vendor and then the cheque is sent to the vendor through
treasurer (Morgan 2017).
Step 4 – After the above process is completed, the clerk of the cash
disbursement department updates all the three important documents. These
documents are the register of the payment cheque, the subsidiary ledger of the
accounts payable department and the control account of the accounts payable
department (Jing 2015). All these updates are done through the computer terminal
present at the cash disbursement department.
Step 5 – The next step is performed by the receiving clerk. The receiving clerk
files the invoice copy, the report of the receiving department, the order copy
prepared by the purchase department and the copy of the cheque. All these
functions are carried out in the cash disbursement department. This is the final step
that marks the end of the process of the cash disbursement system.
The diagrammatic representation is shown below.
A cheque of the amount in the invoice is
prepared by the clerk.
The signed cheque finally gets transferred
to the vendor through the treasurer.
Transfer of the documents from the
purchase department to the cash
disbursement department.

6ACCOUNTING INFORMATION SYSTEMS
Payroll system of the company
The flowchart showing all the functions and duties of the payroll system can
be illustrated below.
Step 1 – Time cards are maintained by all the employees of the company
which are reviewed at the end of the week by the supervisors.
Step 2 – The payroll clerk inputs the details mentioned in the time card into
the system. This system is regarded as the central payroll system that is connected
to a computer terminal.
Step 3 – The payroll clerk prints the hard copies of the different documents
related to the payroll system (Thite and Sandhu 2014). These documents include
pay cheques and two copies of the payroll register. The clerk then updates the digital
records of the employees through the incorporation of the new data.
Step 4 – The payroll clerk files all the time cards of the respective employees
and finally sends all the salary cheques to the respective supervisors (Thite and
Sandhu 2014). The supervisors review and evaluated these salary cheques for
accuracy and finally distributes them among the departmental employees.
Step 5 – One copy of the payroll register is sent to the accounts payable
department and another one is filed along with the time cards (Ireland 2015). The
second process takes place in the payroll department.
Step 6 – The payroll register is reviewed again by the clerk of the accounts
payable department. The clerk then prepares a disbursement voucher.
Step 7 – The reviewed payroll register along with the disbursement voucher is
received in the general ledger department (Ireland 2015). A common cheque is
written for the entire payroll and gets deposited at the imprest account of the bank.
One copy of this cheque is again filed in the accounts payable department.
The documents of the cash disbursement
department get updated through the
computer terminal.
The receiving clerk files the invoice copy,
receiving department report and order
copy.

7ACCOUNTING INFORMATION SYSTEMS
Step 8 – The general ledger and the payroll register is received by the clerk of
the payroll department. The general ledger is again updated according to the current
process from the computer terminal of the payroll department. The vouchers and the
payroll registers are filed accordingly at the end of the process.
The diagrammatic representation is illustrated below.
Maintenance of time cards by the
employees
The details of the time cards are
written down by the payroll clerk
Printing of the different documents of
the payroll system is done by the
payroll clerk
Receipt of the salary cheques by the
supervisors
The accounts payable department
receives one copy of the payroll
register
Preparation of the disbursement
voucher by the clerk

8ACCOUNTING INFORMATION SYSTEMS
Weakness detected in each system
The purchasing clerk of the purchase system takes the sole responsibility of
carrying out all the functions of this system (Doan et al. 2017). All the steps starting
from the filing of documents to the preparation of purchase order, are done with the
help of purchasing clerk. This might increase the workload of the employee and he
might be demotivated to work after a certain period of time (Fisher, Garnsey and
Hughes 2016). Therefore, this can be considered to be one of the weaknesses of the
purchase system.
Another weakness is detected at the receiving department where the
receiving clerk is required to prepare the two hard copies of the receiving report
manually. This increases the human errors in the preparation of the report (Libby
2017). This might also bring about manipulations in the accounting figures due to
fraudulent activities of the employee.
The entire payroll process is also carried out manually and therefore it
increases chance of human errors. Due to this, the salaries of the respective
employees might get hampered and it might bring about partiality in the entire payroll
system (Libby 2017). The disbursement voucher is also prepared manually leading
to ambiguities and insecurities in the system. The entire system is reviewed by the
clerks of the respective departments which is also susceptible to errors.
Risks detected in each system
The manual system of accounting can bring about many risks in the process
of operation. Firstly, the entire process is lengthy and generally the customers have
very less time in their hands. Due to such a time consuming process, there can be
loss of valuable customers (Smith 2017). Secondly, the process might be stressful
for the clerks of the three respective departments as they are pressurised with such
workloads (Golabchi, Han and AbouRizk 2015). This decreases their efficiencies and
might also increase the attrition rate of these clerks. Thirdly, there is lack of security
in the process as the process is transparent to all the employees. All the employees
can easily see the accounting figures and manipulate them according to their own
preferences (Cherdantseva et al. 2016). Another risk is the risk in the detection of
errors. In a manual process, error detection is very difficult as it is not easy to detect
the stage in which the error has occurred.
The general ledger department receives the
disbursement voucher and payroll register
The payroll clerk receives the payroll
register and general ledger

9ACCOUNTING INFORMATION SYSTEMS
Conclusion
From the above report it can be concluded that there has been a convenient
and a simple system that is followed in the company, Adam & Co. The accounting
system of expenditure is segregated broadly into three departments, that is,
purchase, cash disbursement and payroll. This technique increases the accessibility
of the information to the respective authorities but at the same time decreases the
security of the system. In the paper, all the system processes are presented through
a flowchart in a stepwise manner. The weaknesses and the risks of the system are
predicted accordingly in the last section of the report.

10ACCOUNTING INFORMATION SYSTEMS
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