1

< BACHELOR ACCOUNTING>

< JAN 2021>

< BBAS 4103 >

< ACCOUNTING INFORMATION SYSTEM 1 >

MATRICULATION NO : <960828016204001>

IDENTITY CARD NO. : <960828016204>

TELEPHONE NO. : <018-4654028>

E-MAIL  : <KERTTANA28@GMAIL.COM>

LEARNING CENTRE : <JOHOR>

 2

                                                    Content                                                  
Pages              

1.0 Introduction of the selected company………………………………….         3

2.0 Discussion on expenditure cycle business activities

in the selected company………………………………………………. 4-9

          
  3.0 Description on possible issues to occur in purchasing
and cash disbursement activities in the selected company………………… 9-11

4.0 Suggestion for internal control system to prevent

the possible issues to occur………………………………………. 11-13

5.0 Summary ……………………………………………………………………. 13

 3

1.0 G&S Electrical Services was in-cooperated year 1996 which located at No. 28, Beladau,

Taman Puteri Wangsa, 81800 Ulu Tiram, Johor which strives to be the best in its class by

offering and providing electrical services with regard to the standard of workmanship and

knowledge, safe working procedures, practices and policies and the installation of quality

apparatus. The company’s main activity is installing, maintain and repair electrical systems in

order to ensure proper working order and safety. Expert to perform including diagnosing

electrical and electronic trouble, prepare wiring diagrams, installing cables and wires and

performing other tasks which may be deemed necessary to ensure proper power solutions.

G&S Electrical Services offer services in term of electrical which their priority to provide a

quality services to the customers. There are several core businesses that we provide to the

customers such as electrical automation, studio, electrical repair service motor AC DC, power

transformer, generator, air conditioner service, control panel, soft starter, inventor, closed-

circuit-television (CCTV), power factor correction, auto gate system, lighting, power and

electrical distribution system in buildings/ industries and so on.

KEY FINANCIAL HIGHLIGHTS

Annual growth percentages for latest two years in local currency MYR. Absolute financial

data is included in the purchased report.

Net sales revenue 1.84%

Total operating revenue 1.84%
Net profit (Loss) for the Period -38.76%
Total assets -8.68%
Total equity -82.18%
Net profit margin -2.36%
Return on Equity (ROE) 38.44%
2.0 Monitor inventory records. A purchase requisition is a document that an employee within

organization creates to request a purchase of goods and services. The company begins the

process by asking for internal permission. Employees in the company makes an order request
 4

if a need arises for certain goods or services. The manager in charge of purchase of the

company notified that the employee has made an order request once they receive the

requisition. When inventories drop to a predetermined reorder point, a purchase requisition is

prepared and sent to the prepare purchase order function to initiate the purchase process.

Example of purchase requisition:

G&S ELECTRICAL SERVICES

N0.28 JALAN BELADAU TAMAN PUTERI WANGSA 81800 ULU TIRAM

PURCHASE REQUISTION

Requisition No. 1079 Date: 20 Jan 2021

Vendor Name: A0/003 JIA SHENG EELCTRICAL

Vendor Deliver to
Name: xx Name: xx
Address: xx Address: xx
Phone/Tel: xx Phone/Tel: xx
Email: xx Email:

Item Code Item Description Quantity Price Total RM

I/001 PVC PVC 20 18.00 360.00
I/002 Cable 95mm Black 20 24.00 480.00
I/003 Fluorescent Light Bulb Box 40 8.00 320.00
I/004 Halogen Bulb 20 set 15 6.50 97.50
I/005 Ceiling Fan Panasonic 1 120.00 120.00
Total 1,377.50
Prepared by: Reviewed by: Approved by

Chit Chit Chit

Prepare Purchase Order. The prepare purchase order function receives the purchase

requisitions, which are sorted by vendor. Then, the purchase order (PO) is prepared by

employee for the vendor. A copy of the PO is sent to the vendor. A copy is sent to the set-up

account payable (AP) function for filling temporarily in the AP pending file, and a blind copy
 5

is sent to the receive goods function, where it is held until the inventories arrive. The last

copy is filled in the open/closed purchase order file. Example of purchase order:

G&S ELECTRICAL SERVICES

N0.28 JALAN BELADAU TAMAN PUTERI WANGSA 81800 ULU TIRAM

PURCHASE ORDER

JIA SHENG ELECTRICAL PURCHASE ORDER

NO 110 JALAN BAKAWALI, No: 19734

JOHOR JAYA, Date: 25 Jan 2021

81100 JOHOR BAHRU, Terms: 30 days

JOHOR.

Item Code Item Description Quantity Price Total RM

I/001 PVC PVC 20 18.00 360.00
I/002 Cable 95mm Black 20 24.00 480.00
I/003 Fluorescent Light Bulb Box 40 8.00 320.00
I/004 Halogen Bulb 20 set 15 6.50 97.50
I/005 Ceiling Fan Panasonic 1 120.00 120.00
Total 1,377.50

Terms & Conditions

1. Mention PO number in invoice.

2. We reserve the right to reject goods that are not in good order or conditions as determined by our quality

control.

3. Delivery: All goods to be delivered within 14 days from date of PO.

Prepared by Approved by

Chit Chit

Example of blind copy:

G&S ELECTRICAL SERVICES

N0.28 JALAN BELADAU TAMAN PUTERI WANGSA 81800 ULU TIRAM

PURCHASE ORDER

No: 19734 Date: 25 Jan 2021

Vendor Name: A0/003 JIA SHENG EELCTRICAL Terms: 30 Days

Vendor Deliver to
Name: xx Name: xx
Address: xx Address: xx
 6

Phone/Tel: xx Phone/Tel: xx
Email: xx Email:

Item Code Item Description Quantity

I/001 PVC PVC 20
I/002 Cable 95mm Black 20
I/003 Fluorescent Light Bulb Box 40
I/004 Halogen Bulb 20 set 15
I/005 Ceiling Fan Panasonic 1

Prepared by Approved by

Chit

Receive Goods. When a delivery arrives. The receiving clerk compares the purchase order

number referenced on the supplier’s packing slip with the open purchase order file to verify

that the goods were ordered. The receiving report also contains space to identify the persons

who received and inspected the goods as well as for remarks concerning the quality of items

received. Goods arriving from the vendor are reconciled with the blind copy of the PO. The

purpose of the blind copy is to force the receiving clerk to count and inspect inventories prior

to completing the receiving report. Upon completion of the physical count and inspection, the

receiving clerk prepares a receiving report stating the quantity and condition of the

inventories. One copy of the receiving report accompanies the physical inventories to goods

storeroom for safekeeping. Another copy is filed in the open/closed PO file to close out

purchase order. A third copy of the receiving report is sent to the AP department, where it is

filled in the AP pending file. A fourth copy of the receiving report is sent to inventory control

for updating the inventory records. The last copy is placed in the receiving report file. In the

case of damaged or poor-quality goods, a debit memo is prepared after the supplier agrees to

take back the goods or to grant price reduction. The debit memo records the adjustment being

requested. The company’s accounts payable department will approve vendor invoices after

the company receives the goods. Accounting employees match the vendor invoice, receiving
 7

report and the original order form to ensure they have received all the goods they requested in

working order.

Example of receiving report:

G&S ELECTRICAL SERVICES

RECEIVING REPORT NO.16734

Vendor: A0/003 Date: 20 Jan 2021

Purchase Order No: 19734 Deliver: Vendor

Item Code Item Description Quantity Condition

I/001 PVC PVC 20 Good
I/002 Cable 95mm Black 20 Good
I/003 Fluorescent Light Bulb Box 40 Good
I/004 Halogen Bulb 20 set 15 Good
I/005 Ceiling Fan Panasonic 1 Good

Receive by: Deliver to:

Setup Account payable. The AP clerk would send a copy of the supplier’s invoice control.

After recording the liability, the AP clerk transfer all source documents such as PO, receiving

report and invoices to the open AP file. This file is organized by payment due date and

scanned daily to ensure that debts are paid on the last possible date without missing due dates

and losing discounts. The AP clerk summarizes the entries in the purchase journal for the

period and prepare a journal voucher for the general ledger function. The journal entry for

example:

DR CR

Inventory 1,377.50

Account Payable 1,377.50

 8

The general ledger functions receive a journal voucher from the AP department and an

account summary from inventory control. The general ledger functions posts from the journal

voucher to the inventory and AP control accounts and reconciles the inventory control

account and the inventory subsidiary summary. The approved journal vouchers are then

posted to the journal voucher file.

The cash disbursements process begins in the AP department by identifying items that have

come due. The AP function reviews the open AP file for such items and sends payment

approval in the form of a voucher with supporting documents to the cash disbursement

department. The cash disbursement clerk receives the voucher and reviews the documents for

completeness and clerical accuracy. The clerk prepares a check and records the check

number, amount, voucher number. The negotiable portion of the check is mailed to the

supplier and a copy of it is attached to the voucher as proof of payment. The clerk marks the

documents in the voucher packets paid and returns them to the AP clerk. Finally, the cash

disbursements clerk summaries the entries made to the check register and sends a journal

voucher with the following journal entry to the general ledger department:

DR CR

Account Payable XXXX.XX

Cash XXXX.XXX

Example cash disbursement journal:

Cash Disbursement Journal

Date Ref Description Ledger Amount Account payable Cash purchases

2021

Jan 5 1265 Cash purchase GL 3200 250 250

Jan 15 1589 Supplier A AP 16 650 650
Jan 20 1722 Supplier B AP 17 350 350
Total 1,250 1,000 250
 9

Update AP Record. Upon receipt of the voucher packet, the AP clerk removes the liability by

debiting the AP subsidiary account or by recording the check number and payment date in the

voucher register. The voucher packet is filed in the closed voucher file, and an account

summary is prepared and sent to the general ledger function. Finally, the general ledger

function receives the journal voucher from cash disbursement and the account summary from

AP. These numbers are reconciled with the AP summary, and the AP control and cash

accounts in the general ledger are updates accordingly.

3.0 There are five possible issues to occur in purchasing and cash disbursement activities.

First, the company has not received the supplier’s invoice containing the financial

information needed to record the transaction. The company will thus defer recording the

liability until the invoice arrives. This common situation creates a slight lag a few days in the

recording process, during which time the company’s liabilities are technically understand. As

a practical matter, this misstatement is a problem only at period-end when the company

prepares financial statements. To close the books, the accountant will need to estimate the

value of the obligation until the invoice arrives. If the estimate is materially incorrect, an

adjusting entry must be made to correct the error. Because the receipt of the invoice typically

triggers AP procedures, accountants need to be aware that unrecorded liabilities may exist at

period-end closing. Next, the possible occur issue is improper inspection of assets. When

goods arrive from the supplier, sometimes receiving clerks fail to inspect the items for proper

quantities and condition such as damage, spoilage and so on. Inventory errors can cause the

ending inventory balance to be incorrect, which in turn affects the cost of goods sold profits.

Financial statement impact of inventory errors, one should be aware of the types of errors that

occur in purchasing activities. For this reason, the receiving clerk receives a blind copy of the

original PO from purchasing. A blind PO has all the relevant information about the goods

being received expect for the quantities and prices. To obtain quantities information, which is
 10

needed for the receiving report, the receiving personnel are forced to physically count and

inspect goods. If the receiving clerks were provided with quantity information via an open

PO, they may be tempted to transfer this information to the receiving report without

performing a physical count. Inspecting and counting the items received protects the

company from incomplete orders and damaged goods. Furthermore, theft of assets is one of

possible issue to occur in purchasing and cash disbursement activities. Receiving departments

are sometimes hectic and cluttered during busy periods. In this environment, incoming

inventories are exposed to theft until they are securely placed in the warehouse/storeroom.

Improper inspection procedures coupled with inadequate supervision can create a situation

that is conducive to theft of inventories in transit. One of the leading causes of employee theft

is lack of internal controls and absence of strong leadership, as determined by a study

performed in 2010 by Association of Certified Fraud Examiners. A variety of motives may

lead to an employer stealing from company. For example, an employee is suffering

financially and therefore decides to steal, regardless of the potential consequences. In other

instances, some employees feel they are underpaid or passed over for a promotion. Besides,

fraudulent in purchase transaction is one of the issues occur in purchasing activities. A

company must limit access to documents that control its physical assets. For example, an

individual with access to purchase requisition, purchase orders and receiving reports has the

ingredients to construct a fraudulent purchase transaction. With the proper supporting

documents, a fraudulent transaction can be made to look legitimate to the system and could

be paid. Furthermore, most common types of asset misappropriation and may include billing

or payroll schemes, expense reimbursement schemes, check tampering and more. For

example, employee could overpay a vendor or send money to the wrong supplier on purpose.

When the supplier returns the excess amount, employee keeps the money for personal use.

Employees may also set up phony vendors in the company’s account payable system and
 11

make payments to themselves. Last possible issue to occur is an authorized maker is a

person with the power to create and sign checks for a company. In this scheme, the

authorized maker creates a check payable to himself or one that pays his expenses such as

personal bills: credit cards, utilities, telephone and so on, later altering the payee name in the

accounting records to make the disbursement look like it was made to an authentic vendor.

4.0 There are several suggestions for internal control system to prevent the possible issues to

occur. Ensure segregation of duties, keep purchasing tasks separated by capability and

responsibility to ensure no single person has total access to or control over purchasing

activities. This avoids any conflict of interest while preserving accountability and enhancing

transparency. Make sure different people are in-charge of purchase approval, receiving

goods, invoice payment approval/disbursement, financial records management, inventory

management. Failing to segregate these duties can lead to unauthorized purchases, fraud or

theft, charges made against the wrong budgets, additional waste and expense due to duplicate

payments and chasing exception. Next suggestion to prevent the possible issues to occur is

restricting access, proper inventory control begins with access restriction. Only the

employees that need access to the inventory area to perform their job duties should be

allowed in inventory storage areas. Keep inventory out of the main work and traffic areas of

the building, If the inventory warehouse is off the beaten path, only employees that work in

the area should eb there. There is no excuses and no exceptions. Secure the inventory at its

entrance and exit points, use any combination of locked doors, electronic key card readers,

surveillance cameras and security personnel. Even if the inventory is kept away from the

main areas of the building, the motivated fraudster will still find an excuse to enter these

areas, so security is important. Furthermore, there is some debate regarding the number of

signatures required on a check. It is useful to require two signatures on checks, especially

for purchases over a certain amount. This amount will vary with the company’s budget, the
 12

accountant may be able to determine how much is significant. Even though checks require

two signatures, three or four people might have check signing authority to ensure that two

signers are available to make disbursement. The number of authorized signers should be kept

to a minimum, while ensuring that daily business is not unnecessarily hampered. The purpose

of this internal control is to make sure that there are deliberate decisions made about who to

pay, how much to pay and when to process payment. Documentation is another internal

control that can help reduce fraud. If sales receipt and preparation of the bank deposit are

documented in the books, the business owner can look at the documented daily or weekly to

verify that the receipts were deposited into the bank, Also should be alert to new vendors as

billing-scheme embezzlers setup and make payments to fictitious vendors, usually mailed to a

po box. Besides, be aware of the human factor where unhappy employees in accounts

payable are almost a prerequisite for accounts payable fraud. Keep an eye on morale there

and ensure that pay, benefits and other issues are addressed so that these employees don’t

have reason to complain. The company try not to hire temporary employees for transaction

jobs. Technology is an invaluable aide for sifting through the account payable entries. The

company processes a large volume of transactions through account payable, its almost a

necessity. They can use accounting, database and spread sheet software to go through account

payable quickly and accurately, looking for signs of trouble. For instance, can merge the files

for employees and vendors to scan for matching addresses, phone numbers, bank account

number and other identifiers.

5.0 In conclusion, the expenditure cycle is the set of activities related to the acquisition of and

payment for goods and services. These activities include the determination of what needs to

be purchased, purchasing activities, the receipts of goods and payments to suppliers. In the

expenditure cycle, the primary external exchange of information is with suppliers/vendors.

The primary objective in the expenditure cycle is to minimize the total cost of acquiring and
 13

maintaining inventories, supplies and the various services the company needs to function.

The basic expenditure cycle activities which is ordering materials, receiving materials,

approving supplier invoices and cash disbursements. Furthermore, internal controls are the

plans or programs implemented to safeguard the company’s assets, ensure the integrity of its

accounting records, and deter and detect fraud and theft. Those who are willing to commit

fraud do not discriminate. It can happen in large or small companies across various

companies and geographic locations. Occupational fraud can result in huge financial loss,

legal costs and ruined reputations that can ultimately lead to the downfall of a company.

Having the proper plans in place can significantly reduce fraudulent activities from occurring

or cut losses if a fraud already occurred. Making the company policy known to employees is

one of the best ways to deter fraudulent behaviour. Through with the policy and enforcing the

noted steps and consequences when someone is caught is crucial to preventing fraud. The

cost of trying to prevent fraud is less expensive to a business than the cost of the fraud that

gets committed. Internal control plays an important role to prevention and detection of issues

in purchase and cash disbursement activities. Finally, the linkages between the buyer’s

expenditure cycle and the seller’s revenue cycle activities have important implications for the

design of both parties accounting information system.