M REYES Act.2 [PDF]

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NAME: MISHIEL L. REYES



SECTION: A22



DATE: February 26,2020



ACCOUNTING INFORMATION SYSTEM



MINI CASE STUDY: EXPENDITURE CYCLE



INTERNAL CONTROL The following is a description of manufacturing company’s purchasing procedures. All computers in the company are networked to a centralized accounting system so that each terminal has full access to a common database. The inventory control clerk periodically checks inventory levels from a computer terminal to identify items that need to be ordered. Once the clerk feels inventory is too low, he chooses a supplier and creates a purchase order from the terminal by adding a record to the purchase order file. The clerk prints a hard copy of the purchase order and mails it to the vendor. An electronic notification is also sent to accounts payable and receiving, giving the clerks of each department access to the purchase order from their respective terminals. When the raw materials arrive at the unloading dock, a receiving clerk prints a copy of the purchase order from his terminal and reconciles it to the packing slip. The clerk then creates a receiving report on a computer system. An electronic notification is sent to accounts payable and inventory control, giving the respective clerks access to the receiving report. The inventory control clerk then updates the inventory records. When the accounts payable clerk receives a hardcopy invoice from the vendor, she reconciles the invoice with the digital purchase order and receiving report and prepares a paper cash disbursements voucher. The cash disbursements voucher and invoice are placed in the open accounts payable file in a filing cabinet until the due date. The clerk also updates the accounts payable subsidiary ledger and records the liability amount in the purchase journal from the department computer terminal. The accounts payable clerk periodically reviews the cash disbursement file for items due and, when they are identified, prepares a check for the amount due. Finally, using the department terminal, the clerk removes the liability from the accounts payable subsidiary file and posts the disbursement to the cash account.



Required: Analyze the internal control weaknesses in the system. List at least 5 internal control weakness. Model your response according to the table below:



INTERNAL CONTROL WEAKNESS



RECOMMENDATION



(What went wrong?) Segregation of duty: The inventory clerk is the one To separate inventory control department who made and prints the purchase order. from purchasing department. It was supposed to be the purchasing department making the purchase order. Access: The receiving department received a copy To limit the access only to a blind copy of the of the purchase order and print it out. purchase order. It was supposed to be a blind copy which is send to the receiving department. Accounting Records: The receiving department did The receiving department should file to the not sent a copy to be filed in the open/closed PO open/closed PO file in order for the file. purchasing department update the status by closing out the PO.



Independent Verification: The AP department clerk The general ledger must do its function and did not sent any journal voucher to the general this function verifies that the total ledger department. obligations recorded equal the total inventories received and that the total reductions in AP equal the total disbursements of cash.