Accounting Information Systems and Control Issues at Future Ltd - Case Study Example

Table of Contents Introduction 2 Background Information 2 Different Accounting Process 2 Inventory Management System 4 Recommendations 6 Conclusion 6 References 7 Introduction This report looks towards presenting the different areas of accounting information system and inventory control issues which Future Ltd needs to look at so that performance can be improved. Working on the different dimensions and having a well determined structure will help to reduce the overall risk for the business and maximize gains. Since, the business has grown over time so it is imperative that steps are taken in the appropriate directions. The report will present the background information regarding the situation, and then it will highlight the different accounting process which they need to adopt. The report will then look to present the inventory management system which can be followed and finally the recommendations which will help Future Ltd to ensure better productivity. This will thereby help to chalk out a path for the future through which development of the business would become possible. Background Information Future Ltd which deals in costumes, games and toys and in particular many small and medium sized electronic devises has seen their business grow. The business uses three mode of distribution i.e. directly to customers through depot, business units through depots and online distribution mechanism. The owner is concerned regarding the profitability of the business, the manner in which accounting process is carried out and leakages which the supply chain would present. This has forced the owner to look at alternatives and mechanism which would help to consolidate their business position and would provide an opportunity through which risk for the business would be reduced and gains will be increased. Different Accounting Process Future Ltd at the moment uses three mechanism of dealing with customers which results in three different type of transactions which needs to be compiled and managed so that funds due from the market is collected at the correct time and chances of bad debts is reduced. The three mechanisms are Customers directly visiting the depot and purchases the product on cash which needs to be recorded so that money is deposited into banks and there is proper entry regarding the cash inflow and goods outflow. Wholesaler and other business houses purchases the products on credit which needs to be accounted for so that cash can be collected from the customers at the appropriate time as per the credit terms. This would require having outstanding ledgers of different parties and reconciling it over a period of time so that money is collected from the market at the correct juncture. Online purchase where people directly pay for the products and the gods are dispatched from the central hub. This will require making entries in the sales book as money will be directly deposited in the bank accounts. The process would also require looking at having a proper supply chain network so that goods are dispatched to the correct customer within the schedule period and the inventory department has complete knowledge about it. The different mechanism which Future Ltd requires that the accounting information system is developed in such a manner that all the mechanism is accounted for so that the business is able to ensure better profitability. Future Ltd can look at combining all the mechanism and can develop the following accounting information system Identify Transactions: The management needs to identify the transactions which need to be recorded. In the present situation cash collected from customers needs to be accounted in the cash book, goods sold on credit has to be accounted by creating different ledgers of different customers and when cash is collected the same needs to be passed on to the cash book and subsequent ledger; and finally the cash deposited online needs to be reconciled with bank so that the customer details can be verified and the same can be matched with the goods which are sent to them (Abor & Biekpe, 2007). This will help to ensure that all the transactions are properly recognized and identified in the transactions. Record Transactions: The different transactions which are carried out needs to be recorded in the appropriate books so that all details can be easily found out. Cash received needs to be recorded in the cash books, cash collected from debtors needs to be recognized in the cash or bank book as per the payment made and cash deposited directly in bank through online process has to be accounted in the bank books so that all the ledgers show correct balances (Binks, Ennew & Reed, 2002). This will provide complete information of all the transactions which takes place and will help to gather maximum information at the quickest possible time. Prepare Report & Statement: The organization needs to prepare profit and loss statement, balance sheet and cash flow statement to ensure the profitability of the business (Peter and Milton, 2008). Recording all the transaction at the correct place and accounting for all the transaction will ensure that the profitability of the business can be easily identified. This will help to ensure whether the business is doing well or not and appropriate steps can be taken accordingly. Reconciliation Process: The business also has to look towards carrying out the reconciliation process where they have to look at make changes if the need arises. This will help to ensure that all the transactions are adjusted and changes are made which would thereby ensure correct profitability (Drever, 2006). This will help to provide correct useful information and would make the accounting process to be appropriate. Thus, Future Ltd needs to look at using the required accounting information system which consolidates their position and provides complete picture of the profitability and other core areas. This will help to reduce the risk and control the manner in which the business looks to revolve its cash and manage its debtors and creditors. Inventory Management System Future Ltd needs to design the required inventory management system through which control over inventory can be exercised and the stock loss can be minimized. This will require matching revenues with inventory outflow and developing a process which helps in better tracking and management of inventory. Some of the mechanism which Future Ltd can look at managing inventory is as Barcode: Future Ltd can use barcode for all their products which will ensure easy tracking and managing the inventory. Barcode will help to ensure that all inventory movement will be accounted through the process of barcode mechanism and will help to verify the inventory easily (Garfinkel and Rosenberg, 2005). This mechanism will also provide useful information regarding manufacturing, expiry, dispatch details and all other details through which stock loss can be minimized. Match physical stock with stock register: Matching physical stock with stock register on a continuous basis will provide an opportunity to keep track of the inventory from being misused. This will also help keep a check on stock and verification will reduce leakages (Kampstra, Ashayeri and Gattorna, 2006). This will thereby minimize stock loss and would also create the required fear among the concerned person regarding the different actions which might be taken if things are inappropriate and stock loss happens Having different register: Having different register like stock register, sales register, dispatch register, stock inward register will also help to monitor the stock. All the different register can be compiled and looked together to find out the manner in which the business has been able to control inventory (Simchi-Levi, Kaminsky and Simchi-Levi, 2009). This will provide an opportunity to check the inventory in hand and then comparing with the actual inventory the leakages can be found out. The different mechanism as suggested will help Future Ltd to reduce the risk associated with inventory management and will provide an opportunity to manage the resources in a better way. In addition to managing the risk associated with inventory steps needs steps has to be taken for better cash management which can be achieved through Monitoring: Continuous monitoring of the transaction which includes both cash and credit transactions will provide an opportunity to check the account balances, the cash flows and cash collection from debtors. This will aid towards strengthening the manner in which business decisions are taken and ensure better liquidity Reconciliation: The final value of outstanding should be reconciled on a continuous basis by debtors through external audit bodies so that the authenticity of the transaction can be gauged (Pike, Cheng & Chadwick, 2008). This will reduce the chances of error and multiply the overall role of carrying out business transactions. In addition to it reconciling the balances of cash book and bank book will also help to prevent leakages and ensure better and improved performance Thus, working on important areas and looking towards being more active and following a certain set of rules and principles will help to reduce errors and improve performance. Recommendations Based on the different areas which Future Ltd has to work so that better performance can be achieve it is important that they look at the following options Future Ltd has to look at improving the accounting information system where they need to recognize all transactions, record all transactions and prepare necessary financial statement so that profitability of the business can be understood (Diamond, 2004). To manage the cash flow and to reduce the chances of using funds in an incorrect way Future Ltd has to look at continuous monitoring and reconciling the statement from time to time so that all discrepancies can be found out. It there are any issues then it needs to be addressed at the same juncture and steps have to be taken to ensure that the guilty is punished. The organization has to look towards better inventory management system where they need to look towards using barcodes for managing inventories (Michael and McCathie, 2005). This will help to manage the inventories in a better way and will provide an opportunity through which physical inventory can be matched with the book inventory. The management has to further look towards having strategies which looks at improved supervision and monitoring so that the process provides the required gains and enables the business to be carried out on correct grounds. Conclusion The paper thereby presents the situation which Future Ltd is facing and the manner it needs to work in the future. The paper highlights the manner in which accounting information system needs to be developed and better inventory management system has to be developed so that better performance can be achieved. The paper has also brought forward the important core areas which they need to lay stress on so that productivity is improved and the chances of leakages and misuse of funds are controlled. References Abor, J., & Biekpe, N. 2007. Small Business Reliance on Bank Financing in Ghana. Emerging Markets Finance and Trade, 43(4), 357-395 Binks, M., Ennew, C., & Reed, G. 2002. Information Asymmetries and the Provision of Finance to Small firms. International Small Business Journal, 11, 35-36 Diamond, D. 2004. Financial Intermediation and Delegated Monitoring. Review of Economic Studies, 51, 393-414 Drever, M. F. 2006. Determinants of Liquidity for Australian Small and Medium-Sized Enterprises (SMEs). University of New England, Armidale Garfinkel, S. and Rosenberg, B. 2005. RFID Applications, Security and Privacy. Addison-Wesley Professional Kampstra , R., Ashayeri, J. and Gattorna, J. 2006. Realities of Supply Chain Collaboration. University of Wollongong, Australia: Centre for Supply Chain Research; and United Kingdom: Cranfield School of Management Michael, K. and McCathie, L. 2005. The Pros and Cons of RFID in Supply Chain Management. Proceedings of the 2005 International Conference on Mobile Business. Sydney, Australia. 623-629 Pike, R., Cheng, N., & Chadwick, L. 2008. Managing Trade Credit for Competitive Advantage: A study of Large UK Companies. The Chartered Institute of Management Accountants. London Peter S. Ross and Milton H. 2008. Financial Institutions and Markets”,11th Edition, McGraw Hill Simchi-Levi, D., Kaminsky, P. and Simchi-Levi, E. 2009. Designing and Managing the Supply Chain, McGraw-Hill Read More