AIS255 ACCOUNTING INFORMATION SYSTEM

ASSIGNMENT
SEMESTER MARCH – JULY 2021

CASE STUDY 1 (THE REVENUE CYCLE)

Blue Wave Nursery focus in providing nursery and landscaping services in East Cost of
Malaysia. Blue Wave Nursery starts business in 2019 and experience in plant nurturing, plant
nursery management and landscaping business. Blue Wave Nursery’s customers are primarily
small garden centres, government, and private agencies as well as individual customer who
looking for nursery and landscaping expertise. The following is a description of Blue Wave
Nursery’s cash receipts procedure.

Customer cheques and remittance advices comes into the mail room. A clerk separates the
documents and sends the remittance advices to accounts receivable and the cheque to the
cash receipt department.

Upon receipt of the remittance advices, the accounts receivable clerk access the customer’s
accounts in the account receivable subsidiary ledger from a terminal and update the balance
accordingly. The clerk files the remittance advices in the department based on the name of
customer.

The cash receipts clerk receives the cheques and posts them to the cash receipts journal from
his terminal. The clerk then manually prepares a hard-copy deposit slip and sends it with the
cash to the bank.

Required:

Prepare a document flowchart of the above cash processing system.

(10 marks)
CASE STUDY 2 (THE EXPENDITURE CYCLE)

LEO Manufacturer (LEO) is a manufacturing company which manage all departments purchase
request by using its own ordering system. In the beginning of year, all Department Head will
identify their department’s annual budget requests, the types of equipment and their estimated
cost. This budget will be approved by the Board Of Directors. It there is a need to purchase the
equipment, the department heads will prepare a purchase requisition for equipment and
forwards it to the Purchasing Department. The ordering system functions as follows:

PURCHASING
Upon receiving a purchase requisition, the Purchasing Clerk verifies that the person requesting
the item to purchase is a Department Head. The Purchasing Clerk then selects the appropriate
vendor by searching the vendor catalogues on file. The Purchasing Clerk then phones the
vendor, requesting price quotation, and gives the vendor a verbal order. A prenumbered
purchase order (PO) is then processes with an original copy of PO is sent to the vendor, a copy
to the receiving department and a copy files in the open requisition file. When the Purchasing
Clerk is orally informed by the Receiving Department that the items have been received, the
Purchasing Clerk transfer the purchase order from the unfiled file to the filed file. Once a month
the Purchasing Clerk reviews and follows up on the unfilled file.

RECEIVING
The Receiving Department received a copy of the PO. When equipment is received, the
Receiving Clerk stamps the PO with the date receive and if applicable, in red pen, records any
difference between the quantity on the purchase and quantity received. The Receiving Clerk
forwards the stamped PO and equipment to the requisitioning Department Head and orally
notifies the Purchasing Department.

ACCOUNTS PAYABLE
On receipt of a PO, the Accounts Payable Clerk files the PO in the open purchase order file.
When a vendor invoice is received, the invoice is matched with the applicable PO, and a
payable is set up by debiting the equipment account of the department requesting the items.
Unpaid invoice and PO are filed by due date, and at due date, a cheque is prepared. The
invoice and PO are files by PO number in a paid invoice file, and then the cheque is forwarded
to the Treasurer for signature.

TREASURER
Cheques received daily from the accounts payable department are sorted into two groups,
those greater than RM10,000 and those RM10,000 and less. Cheques for RM10,000 and less
are machine signed. The Cashier maintains the key and signature plate to the cheques-signing
machine and maintains a record of usage of the cheque-signing machine. All cheques over
RM10,000 are signed by the Treasurer.

Required:

1. Describe TWO (2) internal control weaknesses relating to the expenditure cycle of LEO
Manufacturer for each of the following functions:
i. Purchasing
ii. Receiving
iii. Accounts Payable
iv. Treasurer
2. Explain possible risk to operations of LEO Manufacturer due to weaknesses found in
Question 1.

3. Recommend possible solution to LEO Manufacturer on all weaknesses highlighted.

Present answer using the following format:

Business Weaknesses Suggested Solutions

Functions
1. 1.
Purchasing
2 2.
1. 1.
Receiving
2. 2.
1. 1.
Accounts Payable
2. 2.
1. 1.
Treasurer
2. 2.

(40 marks)
TOTAL: 50 MARKS

END OF QUESTIONS