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Study of Expenditure Cycle and Conversion Cycle of Paradise Industries Assessment Answer

Assessment Details and Submission Guidelines
T1 2020
Unit Code
Unit Title
Strategic Information Systems for Business and Enterprise
Assessment Type
Individual assignment
Assessment Title
Case Study  Paradise Industries
Purpose of the assessment (with ULO Mapping)
Students are required to:
  • Critically evaluate the purpose and role of accounting information systems in today’s business environment (ULO 1).
  • Articulate the various transaction cycles, financial reporting, management reporting systems and e-commerce systems to technical and non-technical stakeholders (ULO 2).
  • Appraise the risks inherent in computer-based systems/ERP, including the role of ethics and the various internal control processes that need to be in place (ULO 4).
20% of the total assessments
Total Marks
Word limit
Not more than 2,500 words
Submission Guidelines
  • All work must be submitted on Blackboard by the due date along with a completed Assignment Cover Page.
  • The assignment must be in MS Word format, no spacing, 12-pt Arial font and 2 cm margins on all four sides of your page with appropriate section headings and page numbers.
  • Reference sources must be cited in the text of the report, and listed appropriately at the end in a reference list using Harvard referencing style.


Assignment Specifications

After working at several accounting and consultancy firms for more than a decade, you have recently decided to start your own consultancy business. A friend of your wife introduces you to Paradise Industries, a manufacturer of high-precision machine tools based at Adelaide. Paradise Industries employs a centralised computer system with distributed terminals in the departments. The company recently have a number of operational problems and the managing director of the company has engaged you to assess its systems and processes.

Expenditure Cycle

When an inventory item falls to the recorder point, a purchase requisition is automatically generated and printed on the terminal in the purchasing department. The purchasing clerk select suppliers and prepare a purchase order. One copy of the purchase order is sent to the supplier and another copy is sent to the receiving department. The purchasing clerk then adds a record to the open/closed purchase order file through an update program in the data processing department.

When the receiving clerk receives the delivery from the supplier, the clerk reconciles the items with the packing slip and the purchasing order. After the reconciliation, the receiving clerk prepares a hard-copy receiving report recording the quantity and quality of the goods received. One copy of the receiving report accompanies the items to the warehouse and another copy is filed in the receiving department. Using the department terminal, the receiving clerk adds a record to the digital receiving report file. The system then automatically closes the purchase order. Upon receiving the items, the warehouse clerk updates the inventory subsidiary ledger through the terminal in the warehouse.

When the supplier’s invoice arrives, the accounts payable clerk adds a record to the supplier invoice file, which in turn triggers the system to automatically set up a liability in the accounts payable subsidiary ledger based on the financial information contained in the invoice. The system then automatically updates all affected general ledger accounts.

The computer system scans the accounts payable subsidiary ledger every day for items due to be paid and print the cheque. The cheque is sent to the supplier and a copy is sent to cash disbursements where it is filed. The system then adds a record to the cheque register file and removes the liability in the accounts payable subsidiary ledger. Finally, the system automatically updates the general ledger accounts.

Conversion Cycle

The production process is triggered by a quarterly forecast of expected sales, which goes to the production planning and control clerk. From the clerk’s terminal, the production planning and control clerk updates the digital production schedule to include the batches of products to be produced during the next quarter. Drawing upon the bill of materials and routing sheet files, the system automatically prepares the digital work orders move tickets and material requisitions and sends them to the work centre supervisor’s terminal on a weekly basis.

The work centre supervisor accesses the digital documents and print hard-copy work orders, move tickets and material requisitions. The supervisor distributes the move tickets and two copies of the material requisitions to each work centre in the production process.

Staff members submit the two copies of material requisitions to the warehouse in exchange for the materials. If additional materials are needed beyond the standard quantity, the supervisor issues additional material requisitions. As the production is completed in each work centre, the staff members send the move ticket to cost accounting to the mark the completion of that phase of the production batch. Staff members also record labour time spent on each batch on hard-copy job cards, which they send to cost accounting. Finally, upon completion of the batch, the work centre supervisor closes the open work order file.

The warehouse clerk files one copy of the material requisition and updates the materials inventory file from the terminal in the warehouse office. The clerk then sends a second copy of the material requisition to cost accounting. At the end of the day, the clerk prepares a digital journal voucher and posts it to the general ledger control accounts.

The cost accounting clerk accesses the digital work orders and set up a work-in-process account for the production batch. The clerk also receives move tickets, job tickets, and material requisitions throughout the production process and use the documents to post in work-in-process subsidiary ledger. At the end of each day, the cost accounting clerk prepares a digital journal voucher and posts to general ledger control accounts to reflect the status of work-in-process and to record transfers of work-in-process to finished good inventory.


Prepare a report to the managing director of Paradise Industries to evaluate the processes, risks and internal controls for Paradise Industries’ expenditure and conversion cycle. In your report, you need to include the following items:

  • System flow chart of expenditure cycle
  • System flow chart of conversion cycle
  • Analysis of physical internal control weaknesses in the expenditure cycle
  • Analysis of the risks exist in the conversion cycle and the changes needed to reduce the risks


Flow chart analysis


In the modern business world, strategic information system is designed to response business initiatives to provide a competitive advantage. Strategic information system is of key importance to obtain a successful and efficient operation of an organization. It is a form of information system which is integrated with the business strategies and structure. To withstand in this competitive corporate world, strategic information system is develop to support and increase the strength of organization. In present situation, it becomes the backbone of organization. So strategic information system can be any type of information system that implement information technology to help an organization reduce the competition disadvantage, or gain competition advantage or meet other strategic enterprise objectives. In the given case of Paradise Industries, a company which manufacturer a high precision machine tool and located at Adelaide. This report is considering the role of strategic information system and also study the expenditure cycle and conversion cycle of Paradise Industries. This report also analysis of physical internal weaknesses in the expenditure cycle and the risk exists in conversion cycle and the changes needed to reduce the risk. 

Expenditure cycle of Paradise Industries

The entire expenditure cycle of Paradise Industries is divided into company’s 4 department. The department is handled by their respective employees. The department are mentioned below:

  1. Purchasing department 
  2. Receiving department 
  3. Account payable department
  4. Currency exchange department

Expenditure cycle of Paradise Industries is a part of business activities and data related process is corporate with the purchase of and payment for goods and service. 

The expenditure cycle of an organisation is based on three activities which are

  • Firstly, ordering of raw material for supplies and services.
  • Secondly, receiving the goods, supplies and services.
  • Thirdly, paying for the goods, supplies and services.

Each department of expenditure cycle of Paradise Industries is interlinked with each other which means they work on the data that is provided by previous department. The currency exchange department clerk’s work is based on the data given by the account payable department clerk. When a list of stock item falls at the recorder point then in the purchasing department, a purchasing requisition is automatically generated and printed on the terminal (Corpuz, and Barnes, 2010).

Purchasing department 

Selection of buyers and the quality of raw material is comes under the responsibility of purchasing department clerk of Paradise Industries

After pursuing this comes, he/she generates a purchase order copy.

One copy of purchase order is sent to receiving department and another copy is sent to the supplier.

Receiving department 

Now receiving department clerk receives the material from the suppliers and recheck the items with purchase order and the packaging slip. 

After this rechecking, clerk generates a hard copy receiving report which is consist of record of quantity and quality of the goods received.     

Now one copy is filed in the receiving department only and another copy is sent to the warehouse. Then record it to the digital receiving report file by the clerk (Karnawati, et al. 2009).

The system automatically closes the purchase order.

When warehouse clerk receives the item, he/she updates the list of stock subsidiary ledger through the terminal in the warehouse.

Account payable department 

When supplier’s invoice arrives, adds a record to the suppliers invoice file by the account payable clerk which in turn trigger the system to automatically set up a liability in the account payable subsidiary log based on the financial information contained in the invoice. 

Currency exchange department

Now the computer system check the account payable subsidiary log every day for items due to the paid and print the cheque. Then one copy of this cheque is the currency exchange department clerk where it is filled and another is sent to the suppliers. 

Finally, the system automatically updates the general log account. Flow chart of expenditure cycle

Flow chart of expenditure cycleFlow chart of expenditure cycle

Image 1 – Flowchart showcasing the expenditure cycle of the current business organization

Conversion cycle of Paradise Industries 

Cash conversion cycle is a metric that represents the time, it takes for Paradise Industries to convert its investment in inventory and other resources into cash flows from sales. 

It is study that an organization is work upon forecast for the quarter that is 3 months planning which goes to the production planning and control clerk. 

  • The purchasing department collects the raw material which is required for 3 months product production (Lenssen, et al. 2009).
  • The system prepares the digital work order move tickets and material requisition and sends them to the work center supervisor’s terminal on weekly basis. 
  • The move ticket and two copies of material requisition is distributed to each work center in the production process by the supervisor.
  • Staff members send material requisition copies to the warehouse in exchange for the materials.
  • The production is completed in each work centre, the staff members send the move ticket to cost accounting to the mark the completion of that phase of the production batch. 
  • Staff members also record the labour spent time on each batch on the job cards which they send to cost accounting department.
  • At the end of each day, cost accounting clerks generates digital journal voucher and posts to general log control account to reflect the status of each day and to record transfers of work in progress to finished good inventory (Achampong, 2010).       Flow chart of conversion cycle

Flow chart of conversion cycle             

Image 2 – Flowchart showcasing the conversion cycle of the current business organization

Analysis of internal control weaknesses in expenditure cycle

For operating business activities of Paradise Industries which is related to buy goods and services, company needs to design a department that is purchasing system. All the other activities are connected to expenditure cycle directly or indirectly. So weakness in this cycle may affects all the other business activities which ultimately leads to overall business of an organization. It can be say that expenditure cycle is a crucial aspect in the effective and efficient management of the inventory system. Purchasing system is set up after the series of step that is raising the purchase request, receiving the goods and finally paying. There are high chances of weak internal control of an organization as in this cycle money related things exists (Corpuz, and Barnes, 2010). To make sure the proper internal control system in an organization of the company, they must contain appropriate control and control must be provided at the adequate place.

In the current case of Paradise industries today, some weaknesses are still exist in an organization which leads to affect the efficiency of the business (Chan, Huff, Barclay, and Copeland, 2017). After having certain control agreement in an organization, there are still various shortcoming in the current system that increases the risk of weaknesses in the current system of internal control. 

After audit analysts research of Paradise Industries, it is evaluated that certain weaknesses are present in the current system of expenditure cycle. These are shown as:

Weakness in the purchasing department- After viewing the activities of Paradise Industries, buying and selection of quality of raw material are falls under the responsibility of purchasing department officer. Finalizing the buyer and the quality of raw material is completely done by purchasing officer. No other additional investigation is implemented in this task of purchasing officer. So there is a chances might arises that while doing the respective activity of purchasing, the officer may making some personal benefit out of this. There is ahigh probability that it will create a naturally biased buying event for the company. This activity is not monitored and increases the loopholes in the organization system that ultimately leads to fraudulent activities. 

Weakness in the receiving department- In this case of Paradise Industries, receiving the goods, search for raw material and make manual and computerized report are fall under the responsibility of receiving department officials. Now it is clear that officials have too much work load which may increase the risk of frauds and errors. Performance of various activities by an individual staff create weakness in the system. Secondly, the work of receiving department is depends on the data provided by the purchasing department and on the copy of the invoice distributed by the seller if any error is generated at the initial level it will continue to next department. It cannot investigate the fraud may have been committed at initial level in terms of quality and price (Yaokumah, and Brown, 2014).

Weakness in the account payable department- debt portfolio is very important in creating the market value of the organization. Debt disbursement is vulnerable to the risk of misappropriate and fraud. For the business organization it is essential to create an adequate internal control system and set rules for the disbursement of funds. The internal control system recognizes the weakness in the internal control. Paying all the vender invoice generated to purchase inventory is falls under the responsibility of account payment official (Sledgianowski, and Luftman, 2015).  There is no additional official to complete the task of payment agreement made by the official. Secondly, the account payment employee work is solely depends upon the document provided by the purchasing department. There are no external controls to ensure the accuracy of the documents originally produced. 

Analysis of existence of risk in the conversion cycle and steps are taken to reduce the risk 

 In the business cycle of Paradise Industries, they faces various risk at various stages. Some risk the company faces are mentioned below:

Operational risk- This risk is related to the production equipment. An organization must employ the qualified personnel to handle the operating equipment to reduce the operational risk. If the company cannot reduce this type of risk then it will affect the whole business of the organization (Henderson, and Venkatraman, 2019).

Here, in the case of Paradise Industries, has not implement any security system at the time of risk. Company must need to design a plan B in the event of disaster. Risk reduction leads to reduction in the severity of loss. Secondly, outsourcing is another way of reducing the risk up to some extent. Outsourcing agents may have strong capability to reduce or mange the risk until it occurs. In the current scenario, for security issues the company’s management may implement outsource (Ferguson, et al. 2016).

Liquidity risk- When the money provided by the bank is exceeds the customer request then it will lead to arise this type of risk. Inappropriate financing for a company’s normal activities and contraction of market for goods and services are the main type of risk a company faces. In this case, company collects enough money to incur its debt and perform daily activities. For settling this type of risk cost estimation technique is used and necessary precaution is taken by the company.

In the current case of Paradise Industries, liquidity risk is increase as organization’s quarterly production has been pre planned and all the material requirement is met at the beginning of the quarter so because of that large amount of capital is blocked due to acquisition of shares. So because of this organization process is slow down and increases the need of additional resource. To reduce the risk companies must use the correct tools for the volume of economic orders.Developed payroll system to reduce the liquidity risk.

Developed payroll system to reduce the liquidity risk.

Documentation risk- Protecting the right document is an important aspect for success in operating the system. Proper implementation of their timeline and clear the evidence is required to be accessible. The current manual installation must be completed in accordance with various procedure. Any type of error or mistake in the system would lead to dynamic loss for Paradise team (Hax, and Majluf, 2014).

To achieve the best appetite, proper steps are taken to minimize this type of threat. In the modern technological world, modern software can reduce this type risk. For instance, by integrate any method with the system software tool, it will show the truth is in the data of accounting (Rothaermel, 2016).

Credibility risk- In this case of Paradise Industries, there are no rules set up for specific payment mode of creditor. This type of risk can be reduce by correct payment mode. In determining the market value of the company, debt portfolio is very important aspect so to maintain that is very necessary. Higher debt cost arise due to wrong debts. 

To reduce this type of risk, company should prioritize their budget later to prevent any type of failure. The following graph should be obey to lower down this type of risk. reduction of risk

Technological risk- In this digitally advanced world, nothing is permanent. This type of risk is taken into consideration when the company start a project then it must bring profit in multiple aspect to withstand in the long run. Technology becomes very powerful in the current scenario (Authority, and Bowker, 2019).

In the given case of Paradise Industries, it is mentioned above that they plan for entire quarter so any change in the technology will affects the need of market. Companies should not save too much to operate in the face of changing market needs. To eliminate or reduce the risk each type of risk must be treated differently (Stybel, 2012).

Forecasting risk- To withstand in market adequate prediction is necessary. Company predict the desired target and guide its production department. High level of personnel employee is required to predict the future market appropriately. There is no possibility that this aspect is not important to this organization. In the present case, they forecast for entire quarter which challenges the accuracy of the company. It is important to create prediction for short term so because of that company can achieve the target on time (Jaques, Bygrave, and Lee, 2011).


After considering all the details, it is concluded that by integrating the technology with the business activities can lead to develop a huge profit for the Paradise Industries. Strategic information system helps to obtain information that is relevant to the affected area as quickly as possible. Extensive security is needed to protect the data which is available online for Paradise Industries.  It provides the competitive advantage and strengthen the business of an organization.      

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