TUNKU PUTERI INTAN SAFINAZ SCHOOL OF ACCOUNTANCY

COLLEGE OF BUSINESS
UNIVERSITI UTARA MALAYSIA

FIRST SEMESTER SESSION 2021/2022

BKAS2013 ACCOUNTING INFORMATION SYSTEMS (E)

ASSIGNMENT 1

PREPARED TO:
MADAM RAUDAH BINTI DANILA

PREPARED BY:
GROUP 5
SAILA A/P ANANDAN 280802
NOR SUHADA BINTI AZIZAN 280815
NUR IRDINA IZZATY BINTI MOHD RIBDZUAN 280850
INTAN NADZIRAH HUDA BINTI ZAKIR 280899
NUR HUDA BINTI ROSLI 280936
 TABLE OF CONTENT
1.0 Introduction ............................................................................................................................. 1

2.0 Copies Of Source Documents Involved in The Transaction Cycle. ........................................ 2

3.0 Diagrams for The Chosen Transaction Cycle of The Business Entity..................................... 4

3.1 Sales Order Cycle .................................................................................................................... 4

3.1.1 Sales Order System - A Table of Entities and Activities ................................................ 5

3.1.2 Context Diagram for Sales Order System ...................................................................... 6

3.1.3 A Physical Data Flow Diagram for Sales Order System ................................................ 6

3.1.4 A Flowchart for Sales Order System .............................................................................. 7

3.2 Cash Receipt Cycle .................................................................................................................. 8

3.2.1 Cash Receipt System - A Table of Entities and Activities ............................................. 8

3.2.2 Context Diagram for Cash Receipt System .................................................................... 9

3.2.3 A Physical Data Flow Diagram for Cash Receipt System ............................................. 9

3.2.4 A Flowchart for Cash Receipt System ......................................................................... 10

4.0 The Strengths of Internal Control Procedures That Are Present in The Chosen Transaction
Cycle and Each of The Strengths Identified. .................................................................................... 11

5.0 Possible weaknesses in the transaction cycle examined and provide an appropriate argument
for each highlighted weakness. ......................................................................................................... 14

6.0 Risk Exposure(s) That Might Have Resulted from Each of The Internal Control Weaknesses
Identified In (5.0).............................................................................................................................. 16

7.0 Appropriate internal control procedure(s) associated with each of the weaknesses identified
in (5.0). ............................................................................................................................................. 18

8.0 Conclusion ............................................................................................................................. 20

1.0 Introduction

A revenue cycle is a recurring set of business activities and related information processing

operations associated with providing goods and services to customers as well as collecting cash in

payment for those sales. For a manufacturing firm, the revenue cycle will begin when the company

receives orders from customers and starts preparing the goods in accordance with the customer’s

order. There are a few manufacturers that have their own sales team that handles and supplies the

goods. After the goods have been delivered to the customer, the company will send an invoice and

then the customer will make a payment. The sales order procedure and the cash receipt procedure

are the two procedures that make up the revenue cycle. The sales order procedure is a flow that begins

with the customer's purchasing action and ends with the product's delivery. Meanwhile, when the

merchant gets money from an outside entity, such as a customer, the cash receipt method begins.

YNR Multi Enterprise is a sole proprietorship company that was established in 2005 and

owned by Puan Yusnita Binti Yahaya. The company is located in Butterworth, Pulau Pinang. After

9 years of operation, the business has been changed to a partnership company run by Ms. Syazwani

Binti Mohd Radzi to facilitate the application of Young Agropreneur grants under the FAMA agency.

The company has been producing multipurpose seasonings under the D'Yus brand since

2005, which aims to focus on the halal food industry and can also facilitate as well as speed up

consumers' cooking. The activities going on in this company include the manufacturing, production,

and sale of products. The company also has a workforce of nine people, which includes two

managers, one in the office administration and finance division, three people in the marketing

division, and three direct production staff.

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2.0 Copies Of Source Documents Involved in The Transaction Cycle.

1) Invoice 2) Receipt

3) Delivery Invoice 4) System Niagawan (key in order)

2
 5) System Niagawan (key in payment) 6) Inventory Stock Ledger

7) General Ledger 8) Transaction Receipt (payment from customer)

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3.0 Diagrams for The Chosen Transaction Cycle of The Business Entity

3.1 Sales Order Cycle

YNR Multi Enterprise is a company that produces multipurpose seasonings (Perencah

Serbaguna) using the D' Yus brand. The company has several agents as sellers of manufactured

products. So, customers can place orders either through an agent or directly in the store.

The sales process starts when the customer places an order through the agent and also the staff

at the YNR Multi Enterprise store. Then, all customer order forms will be managed by the sales

department clerk. After that, the system will send the sales invoice from the customer to the

production department clerk, namely the warehouse and also to the accounting department. This sales

invoice will be recorded in a sales order file which is located in “Niagawan” system which is

managed by the accounting department.

When the production department clerk receives the sales invoice, the production department

will prepare the ordered products. Once the product is ready, the products will be given to staff in

the sales department which is the agent along with the delivery invoice to be sent to customers who

place orders. The production department clerk will update the inventory file.

Sales invoices are received by the accounting department to bill the customers. Then, the

accounting department will prepare the receipt to bill the customer. The customer file is then updated

and sales will be recorded in the general ledger. Lastly, the receipt is sent to the customer.

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 3.1.1 Sales Order System - A Table of Entities and Activities

Sales Order System - Table of Entities and Activities

Entities Para Activities

Customer 1 1. Send their orders.

Sales department (clerk) 1 2. Process the customer order.

1 3. Send the sales invoice to production department.

1 4. Send the sales invoice to accounting department.

Accounting department (clerk) 1 5. Update the sales invoice in sales order file located
in “Niagawan” system

Production department (clerk) 2 6. Receive the sales invoice.

2 7. Prepare ordered products.

2 8. Sent the product to sales department.

2 9. Sent the delivery invoice to sales department.

10. Update the inventory file.

2

Accounting department (clerk) 3 11. Receive the sales invoice.

3 12. Bill the customer.

3 13. Update the customer file.

3 14. Record the sales in general ledger.

3 15. Sent the receipt to customer.

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 3.1.2 Context Diagram for Sales Order System

Sales order

customer Delivery Invoice Sales order

system
Receipt

3.1.3 A Physical Data Flow Diagram for Sales Order System

customer
Customer
order
Receipt
Sales
Sales Invoice
department

Sales
Invoice
Accounting Customer
Delivery
department File
Notice

Production
department General
Ledger

Inventory
file

6
3.1.4 A Flowchart for Sales Order System

Sales Department Accounting Department Production Department

Sales Update the

customer Sales Update
Invoice inventory
Invoice sales
file
order file

Inventory
Prepare file
Sales the
Customer Prepare
order file goods
order the
receipt

Delivery
Invoice
Prepare
sales Receipt
invoice

customer
Sales Invoice

Shipping

7
3.2 Cash Receipt Cycle

Customers of YNR Multi Enterprise will pay for the purchased products through online

banking after receiving the products. When customers sent their transaction receipt to the company,

the cash receipt system began. Simultaneously, the accounting department will update the amount of

cash received in the "Niagawan" system to reflect that the customer has made a payment to the

company. The general ledger will thereafter be generated by the acccounting department.

3.2.1 Cash Receipt System - A Table of Entities and Activities

Cash Receipt System - Table of Entities and Activities

Entities Para Activities

Customer 1 1. Sent their payment through online banking.

Accounting department (clerk) 1 2. Receive transaction receipt from customer.

1 3. Update the amount received in the “Niagawan”

system

1 4. Generate the general ledger.

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 3.2.2 Context Diagram for Cash Receipt System

Payment Bank

Customer Update
Payment Cash
receipt
system

3.2.3 A Physical Data Flow Diagram for Cash Receipt System

Transaction receipt
Customer

Accounting
Department
clerk
Transaction Receipt Account
receipt

General Ledger

Bank

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3.2.4 A Flowchart for Cash Receipt System

Accounting Department

Transaction
Customer Bank
receipt

Update
“Niagawan”
system

Prepare
Cash Receipt general
Account ledger

General
Ledger

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4.0 The Strengths of Internal Control Procedures That Are Present in The Chosen

Transaction Cycle and Each of The Strengths Identified.

How important are internal control procedures for a company or business? Internal controls

are procedures that enable a company to protect itself and achieve its goals by reducing risk. Internal

controls help to reduce risks and safeguard assets, as well as maintain record accuracy, increase

operational efficiency, and promote adherence to policies, rules, regulations, and laws.

Similarly, YNR Multi Enterprise has its own internal control procedure in place to protect

and manage its assets. YNR Multi Enterprise uses internal control measures to keep records safe,

ensure accurate financial reporting and compliance with all financial reporting standards, and ensure

that all operational criteria are satisfied.

First and foremost, according to the chosen transaction cycle which is the revenue cycle, it is

very important for a corporation to ensure that all activities related to the production function

smoothly in order to meet the profit target. Employees are required to not only perform efficiently

and compliantly with the work allotted to them, but they must also show the greatest devotion to one

another in order to meet production or profit targets. Generally, employees in almost every

organization just do the task that is assigned to them. In the product development process, they are

not at all reliant on one another. And it is because every firm has issues such as data inaccuracies,

packing faults, and even employee misunderstandings. On the other hand, YNR Multi Enterprise has

one of the most essential internal control forces that other companies lack which is interdependence

and cooperation amongst employees, regardless of job scope. For example, after packing a multi-

purpose chilli seasoning, the product will be turned over to the sales department, which will double-

check the packaging method and ingredient specifications before sending the items to the grocery

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store and supermarket. This isn't to say they aren't systematic; it just means they are more cautious

in the product manufacturing process in order to get the profit they desire.

Secondly, YNR Multi Enterprise conducts business according to established procedures and

policies. YNR Multi Enterprise' products, for example, have a ‘HALAL JAKIM’ and ‘MeSTI’

Certificate from the Ministry of Health Malaysia, which every business must have. This is one of the

important features a business has in order to attract customers and increase the revenue cycle.

Furthermore, all operations must be completed and documented in accordance with the policies and

internal control processes laid out in the company's rules and regulations. For example, once the

company has completed the goods ordered, it will issue a receipt to state the payment to be paid, and

the receipt will subsequently be placed in the monthly sales file. Customers who want to make a

reservation or an order must provide personal information such as their complete name, phone

number, email address, and identity card number, as mentioned in the company policy. Normally, a

corporation would not request the identity card number as personal information, but YNR Multi

Enterprise does so in order to check client records for possible criminal offences. YNR Multi

Enterprise retains the company's identity and performs internal controls such as safety procedures.

YNR Multi Enterprise also follows the procedure to send a verification code or messages once the

customer made an order through an online service. This will improve clients' ability to buy things in

bulk and their faith in the company.

YNR Multi Enterprisealso keeps track of all transactions with the correct paperwork. For

example, all sales paperwork will be manually and automatically entered into the merchant’s system

(‘Niagawan’). Together with that, YNR Multi Enterprise will also attach supporting documents

including invoices, billing, and shipping order receipts, cash collection notes, sales return notes, and

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some other related documents as well. As a result, the company will have both hardcopy and softcopy

transactions. This is due to the risk of missing or misplacing client information if the information is

entered manually. Moreover, it makes analyzing and evaluating the transaction easier, especially

when auditing the records. Apart from that, personal transactions, like withdrawals for personal

purposes, will also be kept separate from business transactions. YNR Multi Enterprise also remarked

on all the softcopy and hardcopy documents once they had done auditing records and practices to

keep all records following the month to expedite audit matters and have organized business records.

Indirectly, the process of preparing financial statements becomes easier which will be referred to by

other traders to analyze business performance.

To summarise, YNR Multi Enterprise's internal procedures are strong in terms of systematic

and collaborative organization, adherence to relevant policies and procedures, and proper

documentation. Because YNR Multi Enterprise has the finest internal control, this encourages the

company to continue conducting business in improved conditions.

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5.0 Possible Weaknesses in The Transaction Cycle Examined and Appropriate Argument

for Each Highlighted Weakness.

YNR Multi Enterprise has no segregation of duties. They have the same person in charge of

calculating the inventory and the same person managing the inventory, which leads to the failure to

distinguish between asset custody and record-keeping responsibilities. YNR Multi Enterprise has a

store supervisor who controls the inventory custody. With those abilities, it allows them to pick

products from the store and update the inventory ledger using the storage automated system. As a

result, the store supervisor may have stolen merchandise from the storage and concealed the theft by

manipulating inventory records.

Secondly, YNR Multi Enterprise lacks access control. Unauthorized and illegal access to the

firm's assets is prevented and detected via access controls. As we all know, YNR Multi Enterprise

makes their products at home, so there is no security such as fences, alarms, or guards. As a result

of the absence of protection, the accounting files are easily accessible to any of the company's

personnel. Thus, there is a potential that employees will tamper with the company's physical assets,

causing financial statements to be materially skewed. For example, an employee having access to

physical goods and inventory records may steal products and conceal the theft by altering the records,

or a person with access to both company’s bank account and accounting records could transfer cash

from the bank and conceal the crime by manipulating the cash and bank account.

Next, YNR Multi Enterprise does not rely on supervision as a compensating control even

though they have few personnel. This will cause the company to overlook the employees who

perform potentially incompatible functions. YNR Multi Enterprise company's mailroom is a point

of exposure. The person who opens the letter has access to both cash, the asset, and remittance

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advice, which is the record of the transaction. A dishonest employee could take advantage of this

situation to steal the inventory, cash it, and then destroy the remittance advice, leaving no trace of

the activity.

Finally, the shipping assistant of YNR Multi Enterprise fails to reconcile the products

received from the storage with the delivery invoice or shipping notification obtained from the sales

representative previously, which is the next possible vulnerability in the revenue cycle of YNR Multi

Enterprise. Without this crucial step, the organisation risks sending the wrong products and quantities

to clients, resulting in strained relationships.

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6.0 Risk Exposure(s) That Might Have Resulted from Each of The Internal Control

Weaknesses Identified In (5.0).

Firstly, because the cash receipts clerk performs the cash transaction job and has access to

the bank transaction account and general ledger cash account to record the transactions, they may

have been exposed to the risk of misuse of cash receipts. When a single person is responsible for

both asset ownership and control and record-keeping, there is a risk of fraud. To mask the

unauthorised removal of cash by transferring the small amount of cash in their bank account, the

clerk could make fake entries in the bank account.

Secondly, YNR Multi Enterprise may have been exposed to the embezzlement of inventory.

Because of the absence of protection such as fences and guards, employees of YNR Multi Enterprise

have easy access to accounting data that could result in company loss. Employees may steal

inventory from the warehouse and sell it for cash. Furthermore, the store supervisor may work jointly

with other employees to commit fraud by using the company's merchandise for personal reasons and

then altering the inventory records to hide the theft. As a result, the financial statements of the

company will be materially skewed.

Next, YNR Multi Enterprise is exposed to having employees who have potentially

incompatible functions, possibly committed fraud by stealing the company's inventory and financial

information. Even though the fraud will eventually be discovered when the company do the auditing,

however, by the time the company figures out what is wrong, the culprit may have committed the

offence multiple times and departed the company. Detecting crimes after they have occurred is

ineffective. The best remedy is to avoid it in the first place.

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 Finally, YNR Multi Enterprise may have been exposed to the risk of shipping incorrect

merchandise or quantity to customers. As a result, customer relations with the company may suffer,

resulting in a loss of future sales, and accounting issues may arise as a result of shipping consumers

the incorrect items or quantities. The products acquired from the storage are not matched by the YNR

Multi Enterprise shipping assistant with the delivery invoice or shipment notice obtained from the

sales representative previously. Even though human errors sometimes occur during the picking up

of things, YNR Multi Enterprise is at risk of delivering incorrect items or quantities to their clients.

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7.0 Appropriate internal control procedure(s) associated with each of the weaknesses

identified in (5.0).

In order to avoid those weaknesses in the company, YNR Multi Enterprise needs to form a

solid segregation of duties for internal control. Segregation of tasks is key in internal control that

aims to reduce the likelihood of mistakes or fraud. It will guarantee that no employee has the potential

to both commit and hide errors in terms of their work. Basically, the company hires the same person

in charge of calculating inventory and managing inventory based on the information given.

Generally, a company must segregate a few of primary incompatible duties such as custody of assets

and recording transactions. YNR Multi Enterprise should divide the responsibilities between those

who perform accounting procedures or control activities and persons which handle assets. Such

separation of employee arrangement could possibly decrease the risk of undiscovered errors and

minimize the potential for assets misappropriation.

YNR Multi Enterprise should instill high security since they produce their business products

at home, especially the alarm system to detect any intrusion around business areas. Apart from alarm,

there are more crucial things to do for internal control as most accounting software in the company

is easily exposed to all workers. Whenever a software is used in business, give any users access by

editing or deleting previous transactions. This could lead to concealment of theft. The business

owners should keep ADMIN permissions to the company’s accounting system plus limit user access

for only the sections which are required to their jobs. Apparently, chances of some individual

creating false entries could be traced up, reduced and no manipulating crime in the internal control

of a business.

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 Next, YNR Multi Enterprise should rely and increase their supervisory oversight in terms of

compensating controls. The owners can assign managers to observe and inquiry any employee that

performs well in any job given. Increasing supervisory reviews by seeing procedures conducted in

certain activities or questioning staff, strongly assist, identify and resolve areas of concern from the

administrative controls in a company. When there is fraud done by an employee or miscalculated

transaction, the company could easily trace the evidence. Hence, a quick solution is made to

encounter the weaknesses.

Lastly, the company needs to reconcile every product received delivery invoice and shipping

notification. To ensure the completeness of receipts, cash collection has to be reconciled on a daily

basis to the cash register or cash system. If YNR Multi Enterprise fails to do so, wrong products

could be sent to the customers and can affect the whole business transaction plus the profit.

Moreover, to aid in the conduct of reconciliations, records of any deposit transaction must be

documented and kept for future use. It can be performed on a daily or monthly basis while the

reconciling items that have been investigated and resolved will be retained.

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8.0 Conclusion

In conclusion, we had prepared a table of entities, context diagram, physical data flow diagram and

flowchart for sales order and cash receipt system for YNR Multi Enterprise’s revenue cycle. We get

the information to do those from interviews we have conducted. Based on our observation from this

company, we had detected some weaknesses in that cycle which were no segregation of duties, lacks

access control, does not rely on supervision as a compensating control and fails to reconcile the

products received from the storage with the delivery invoice. Therefore, recommendations have been

made to improve the sales order and cash receipt cycle to avoid problems from these two main cycles

to reduce risk and impact the company’s performance.

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