CASE STUDY – BELL STUDIO

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Executive Summary

This report is all about the analysis of the Bell studio which is a wholesaler of the art items

based on Adelaide. Here we are supposing to some fact that this organisation has accounting

system which is centralized with connecting many locations by networking. This report is a

deep analysis of the expenditure cycle process of the organisation. We all know that

expenditure system consist three major system in it called as purchases systems, cash

disbursement system and the payroll system. There is many part of this report taking first part

explain the overview and concept of the system with their DFD data flow diagrams will be

discussed in the final report section. We have to discuss here weakness and risk of the system

and also flowchart of three concept of expenditure cycle.

Table of Contents
Executive Summary...........................................................................................................2

Introduction of this report..................................................................................................4

Purchase System DFD........................................................................................................4

DFD of Payroll System....................................................................................................10

System Flowchart of Purchases System...................................................................................12

System Flowchart of Cash Disbursements System..................................................................14

System Flowchart of Payroll System.......................................................................................15

Weaknesses and Risks......................................................................................................16

Conclusion........................................................................................................................17

References........................................................................................................................18
Introduction of this report

Here we discuss about what is the main objective of this report. So I am explaining here that

the main, objective is to explain expenditure cycles that enable to convert companies cash

into the human resources and raw material for exceptional growth.

We have a case study called Bell Studio which is an Adelaide-based wholesaler of art

supplies. Bell Studio sources its inventories from manufacturers in Australia, China, Japan

and New Zealand. The company has a centralised accounting system with networked

terminals at different locations. So how the bell studio manage all the work flow of the

company we have to conceptualize here for the same. This whole cycle is all about to

ordering art supplies from different vendors those are manufacturer’s of these supplies and

get supplies from them in a conceptual manner. This paper is all about describe the whole

expenditure cycle of the particular Bell studio organisation with the revolution of relevant

weakness and risk of the system. As a chief operator of the company i have to evaluate the

risk, process and internal control for its expenditure cycle.

Purchase System DFD

Figure 1 showing Purchase System DFD

 Inventory Subsidiary Ledger Valid Vendor File

Vendor
AP Pending File

Inventory level

Monitor inventory records

Account Payable Department

Purchase order copy 1

Digital purchase order records

Receiving report copy 2

Prepares Digital Purchase Order

Purchase order copy 2

Updates digital AP subsidiary ledger

Purchasing Department
Receives Goods
Updates Inventory Control Access
Receiving reports copy

Updates AP Control Access

Receiving File

Sends invoice

Sends invoice
Inventory Warehouse

Inventory Subsidiary Ledger

Cash Disbursement Department

Updates inventory records

First in the morning purchase clerk checks the inventory subsidiary ledger at his/her

computer terminal. When the quantity of an item is deemed to be too low, the clerk

selects a vendor from the valid vendor file and prepares a digital purchase order. The

clerk prints two hard copies: one copy is sent to the vendor, and the other is filed in the

purchasing department.

The order contains details of art supplies and quantities required. The purchase

department selects vendors by using the centralized system of vendors or any other

standard operating procedure established by the Bell Studio.

 The vendors are selected and a purchase order receipt is created and forwarded to that

vendors. Another copy of the purchase receipt order goes to the inventory control

department to notify it that goods are on order. Digital purchase order record is added to

the purchase order file.

When the goods arrive in the receiving department, the receiving clerk inspects them and

reconciles the items against the information in the digital purchase order and the packing

slip. The clerk then manually prepares two hard copies of the receiving reports.

One of these accompanies the goods to the inventory warehouse, where the clerks shelves

the goods and updates the inventory subsidiary ledger from his/her computer terminal.

The clerk then files the receiving report in the department.

The other copy of the receiving report is sent to the accounts payable department, where

the accounts payable clerk files it until the supplier’s invoice arrives.

When the purchase department pull the report from his/her temporary system ,he prints

the hard copy of PO and update all the three documents

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.

Therefore, we have to send a empty copy of the file is going to sent to Receiving Goods

functions.

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 This particular

organization has not yet received any supply or incurred any financial accountability. In that

regard, 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 bill entry in the

reference if any pending inventory-related accountability and bills.

In the next stage company receives goods in their inventories so they can generate

reports on that

These goods are then arranged with the packing slip of their information and Digital

Purchase Order (DPO). The copies of the document include the data on quantity and prices

of the items received. The main objective of these report is to enable the 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 Bell Studio organization has

received these goods from their respective vendors and realized its accountability to pay for

the received goods.

Now with the finishing of this process, the accounts person which is payable clerk

needs to redefine the exact values of the account up to the time the invoice is received. When

the estimate is materially improper, an adjustment of the entry needs to be undertaken to

rectify the mistakes, Since the bill of the received invoice is the main cause of the AP

techniques and processes, clerks need to evaluate all the liabilities that have not been

recorded during the time-end-closing. Upon the arrival of the inventories, the AP clerks

reconcile the relevant financial data with the PO and the receiving report in the available

pending file. This is known as three-way matching that verifies the quantity that has been

obtained and its respective prices(Jarrah, 2018). During this moment, the clerk progressively

updates the Digital Account Payable (DPO) subsidiary ledger, Account payable controls

account and the inventories controls account in the general ledger. Lastly, an involve, PO and

receiving report are then transferred

Figure 2 showing Cash Disbursements Systems Data Flow Diagram

 AP Department Document Receipts

Updates Documents Identification of Liability Due

Receiving Preparation of cheque for invoice account Treasurer

Signature

Mailing
Cheque Copy Invoice File

Receiving Report File Vendor

In the expenditure cycle, the evaluation of cash disbursement flow is vital. When the

clerk receives the bill of the particular documents from the A P Department, refilling is done

now they are waiting for the due dates of the payments. When the due date comes, the clerk is

tasked with the accountability to prepare a cheque to the invoiced account. This particular

cheque is then sent to the company’s department for signing and mailing to the vendor.

Afterwards, updating the cheque accounts, AP second job is to check ledger and. lastly, all

records are now sending to the to the receiving department for designing of the invoices, than

getting receiving reports, having copies of cheque and having copies of PO.

DFD of Payroll Department

Figure 3: Payroll System Data Flow Diagram

 Time Cards
Employees Hour’s records Payroll Department

Check
Reviews and submits
Supervisors

Time Card data Central Payroll System

Digital Employee Record

Payroll register

Payroll register Cheque file

Reviews and submits

Supervisor Department Employees

AC Department Prepares cash disbursement vouchers

Reviews General ledger department

Cheque file Write Cheques Deposits

Imprest bank

This system is specially design to the collect data of working hours of the employee by filling

their time card in the system. Than the supervisor of the company keenly revise the data

filling by the employee if they found relevant than they send to the payroll department. This
payroll system is interconnected with the central system which is located to the PD from

where clerk may give their inputs and take paycheques

In the payroll department, the clerk possibly gives their time cards or working hours and

sends the employees’ payment by the cheques to their concern supervisors for distribution

and tells them to review again. After this process, the main job of the clerk is to sends a copy

of the payroll register to the AP department. If there is any other composing of the time

cards ,than they also sends to the payroll department.

The clerks then revise the main register and redesign manually the voucher of cash

disbursement. Afterwards, the clerk has to sends the payroll register and the manually written

voucher to the G L D and the clerk writers a financial cheque which is really a cheque from

company to the payroll and then stakes the cheque in the impress account at the Bank.
Purchases System’s system Flowchart

The flowchart of system’s composes of the inventory control whereby the inventory level is

monitored (Zhang and Fang, 2013). During the any situation of the predetermined point, the

clerk has to mail a purchasing requisition. Whereby single copy is transferred to the purchase

department and the second sent to the available purchase requisition file(Milan, Bebber and

Eberle, 2015). Here we are considering the fact that the provision of the authorization

functions in the inventories controls department is separated from the purchase department

that executes the transactions.

This process follows the purchase requisition, sorting by vendors and preparation of the PO

for every vendor in the purchasing department. In this process, two copies of the PO are
transferred to the vendor and the second copy is transferred to the inventory department for

filing with available purchasing requisition. The material that resourced from the vendors is

then rearranged with the second copies of the PO. When the manually checking and

inspection process is complete, the clerk who is receiving then generate different reports that

state the condition and quantity of the inventories(Nakamoto, 2017). When two copies are

received one copy of the receiving reports is send to the inventory department accompanied

with the manually prepare inventory. The second copy is going to the purchase department

and the clerk of this department is then able to rearrange it with the available PO.

In the AP department, the clerk finally receives the coming invoice where all the information

is rearrange with the available pending document file. So a record of the particular

transactions in the journal purchases and coming points, including the AP‘s second ledger is

then prepared. This can generate a record of the purchasing, whereby the clerk of AP

department sends the generated documents, receiving reports and available payable

subsidiary files. In this process, digital account should be updated with the second ledger is

done including all accounts in the inventory department and AP department by the

computers. In the final process clerk sent invoices to the CB department along with the PO

copies and receiving reports.

System Flowchart of Cash Disbursements System

In the company, the accounts payable clerk checks and reviews the available voucher payable

files to denote the item due and transfers the relevant vouchers and documents in the cash

disbursement department. In this department, the clerk then receives the relevant voucher

packets and conducts a review on them for clerical effectiveness and completeness (Pautsar,

Ayunovani and Surahman, 2016). In every disbursement, the clerk presents three records and

counter-checks the records, amount, pertinent data and voucher numbers in the register. After
that, the check together with any other supportive documents proceeds to the cash

disbursement department treasurer for signing.

Afterwards, the clerk then returns the cheque copies and voucher packets to the accounts

payable department whereby one of the cheque copies is filed. Lastly, a summary of the

relevant entries of the cheque register is then prepared by the clerk and transfers the journal

voucher to the GL department. In the AP department, the AP clerk eliminates the liabilities

through the recording of the cheque numbers in the vouchers register and files the vouchers

packets in the secure voucher files.

System Flowchart of Payroll System

The payroll system’s flowchart stipulates the procedures of payroll authorization that

calculating the hours which is worked by the relevant employees in the company(Sirotkin,

2012). This information is so important that has to be reviewed by the concern supervisors

before it will be sent to the payroll department from production and personnel sources. In

this cycle period, the clerk reconciles the relevant data, distributes the payment cheques and

calculates the payrolls. After that, the counting of the costs is done, and information

concerning the amount of time the employees spend on a single job is evaluated from

production. The account payable clerk obtains a summarized data from the payroll

departments and approves the deposit of cheques by the cash disbursement department. This

amount is them deposited in the imprest account at the Bank.

Weaknesses and Risks

 Failing to conduct enough research is a major weakness of the purchases

systems(Thite and Sandhu, 2014). This department in the Bell Studio 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.

 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(Yang, 2014). The company risks to be subjected to

security concerns by being lax in one sector and being strict on the other.

 The system suffers minimal accounting accuracy and risks more check-writing

mistakes. Moreover, the department does not fundamentally enhance its efficiency in

operations. Many forms of businesses suffer the problems of incompetency when it

comes to technology (Yuliyanto, 2018). Another 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. These unique codes will limit the chances of

employees explaining the code and lie in someone’s data. The system lacks a proper

handbook with definite procedures for checking in or out and entry of the payroll

data.

Conclusion

In conclusion, this report is details of the Bell Studio’s expenditure procedures. This is so

relevant in the business and rectifying the acquisition of finished products and raw materials.

We already know that 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. The C B system, purchases system and the payroll system clearly

depicts the flow of information, documents, accounts and journals significant for auditing,

enhancing the maintenance of records the supporting internal decisions concerning financial

obligations and mitigation of possible risks.

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