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MIDTERM OUTPUT FOR ACCTG.

18 ACCOUNTING INFORMATION
SYSTEMS:
A STUDY OF THE DISBURSEMENT CYCLE OF
PRECISION MACHINIST CORPORATION (PREMACOR)

Group Members:
Bacolod, Maria Aime V.
Bagto, Novelina C.
Caaveral, Jean Yvon P.
Cortes, Jannine B.
Dupay, Johanna Marie A.
Duyag, Rosalyn C.

Class Schedule:
MWF 1:00 2:00 pm

PART 2

BUSINESS PROCESS AND DOCUMENTATION ANALYSIS

2.1 COMPANY DESCRIPTION


COMPANY BACKGROUND
Everybody loves a success story. But
few stories
touch
the
heart
of
ordinary men
as much as
the story of
Jose
Morales.
How he built
one of the
finest precision engineering companies in Cebu is
truly an inspiring narrative for every underprivileged
soul who dreams big.
Born to destitution, life was lined with adversities for the young Morales. He was
forced to earn a living while studying in the city, taking whatever odd jobs he could find,
to augment the meagre or inadequate family income. The obstacles he had to face for
several years would have broken the spirit of men made of weaker stuff. But lifes trials
only made Morales more determined to overcome his poverty. What made Jose
Morales different from any cash strapped teenager was his unwavering belief that he
would one day be financially independent. He also knew that knowledge was the key to
reaching his goal.
After graduating from a metalworking course, Morales worked at an engineering
and research company for nine years until he realized that he would be better-off
managing his own business. In 1980, armed with a few thousand pesos, he established
the
Precision
Machinist
Corporation
(PREMACOR). He set-up his service shop in
a small run-down house and serviced the
machine parts needs of beverage, shipping
and mining industries in Cebu for a few years.

PREMACOR was later incorporated in 1984 to become a high precision machine


parts manufacturer that would service local and overseas customers. He later acquired
a foreign scholarship through the assistance of the Department of Trade and Industry
Cebu Provincial Office. This immersed him for a year in a German factory and opened
his eyes to future possibilities for his company. German technology fascinated him. In
the hands of German trainers, he developed a voracious appetite for knowledge on the
latest trends in precision engineering. Working at a foreign manufacturing plant provided
him with hands-on knowledge on modern machineries to increase work productivity and
allowed him to see the advantages in adopting a mind-set attuned to market needs. His
far along experiences working with Japanese clients molded or casted him to be more
flexible and quickly adjust to change. Sometime in 1987, PREMACOR started servicing
companies at the Mactan Economic Zone (MEZ). Today a huge share of PREMACOR
revenues comes from servicing these companies.
Unlike most local suppliers, the high and exacting standards of MEZ companies
never daunted Morales. Although in the beginning, he had to deal with several product
rejects, he knew that MEZ companies were willing to teach him what he needed to
learn. A hands-on manager, he had no qualms about learning new things even at his
age. In fact, Morales believes his company thrives on its openness to change, constant
improvement and modern work methods.
Through the years, PREMACOR acquired the capability and know-how
necessary to produce metal components within 5 micron accuracy, from ordinary heat
treated tool steel or ferrotic to the most difficult to cut tungsten carbide. Today, the
company manufactures high-precision Plastic Injection Moulds, Vacuum Forming
Moulds, Stamping Dies and Semicon Tooling Components. It operates a well-equipped
air conditioned tool room. Its workshop is stocked with the latest model, high-grade
machinery made by some of the worlds best-known manufacturers, a number of which
are capable of achieving single digit tolerances.
PREMACOR is now ISO certified, meaning that the company is up to par with
international standards. With its reputation for quality products and service, the
company currently gets a lot of attention from foreign companies. Recently, a foreign
firm is planning to tie up with his company to service Asia. Jose Morales has not only
achieved financial independence but also respect from international manufacturing
firms.
Despite his success, he still remembers his beginnings and has a soft spot for
the underprivileged members of society. He is presently employing metalworking
graduates from Don Bosco Technical School and Center for Industrial Technology and

Enterprise (CITE), making his factory a sort of finishing school for these young people
before they leave for better opportunities outside the country.
Now enjoying financial stability, he advises Filipino families to embrace
entrepreneurship as a means to improve their economic status. He believes that
entrepreneurship is the answer to poverty alleviation and should be inculcated at a
young age. Starting a business does not entail a lot of money as proven by Jose
Morales. A person only needs to specialize in a small area of the industry and make
money out of it. Morales showed that as soon as an entrepreneur makes a name for
himself by providing a track record for good quality products and excellent service, he
will attract bigger clients. Not only has Morales proven that anyone can overcome
poverty through entrepreneurship, but that supplying the needs of companies in Cebus
economic zones is good business.
COMPANY PROFILE
The company has been in existence since 1980, servicing at first the machine
parts needs of the beverage, shipping and mining industries. PREMACOR was
incorporated in 1984 to become a high precision machine parts manufacturer to service
local and overseas customers. In 1987, the company changed direction towards
precision engineering and started servicing companies at the Mactan Economic Zone
(formerly Mactan Export Processing Zone).
Through the years, PREMACOR has acquired the capability and know-how
necessary to produce metal components within 5 micron accuracy, from ordinary heat
treated toolsteel or ferrotic to the most difficult to cut tungsten carbide. The company
currently manufactures high precision Plastic Injection Moulds, Vacuum Forming
Moulds, Stamping Dies and Semicon Tooling Components. PREMACOR operates a
well-equipped air-conditioned tool room. Its workshop is stocked with the latest model,
high-grade machinery made by some for the worlds best-known manufacturer, a
number of which are capable to achieve single digit tolerances.
PREMACORs best assets are the competent and highly trained men who are
specialists in all machining disciplines and trained by foreign experts both locally and
abroad. These dedicated workers provide the highest quality of service for each
customer. The vision of PREMACOR is to be at the forefront of the metalworking
industry, maintaining updated and state-of-the-art machineries and equipment, run by
competent, highly skilled and dedicated individuals with an intense desire to produce
excellent services and goods.
CURRENT STANDING

With more than 30 years of experience and an impressive track record,


PREMACOR continuous to remain as Cebus leader in metalworking industry. This
success is said to be impossible without the backbone of the company, its employees.
In the current year, the main branch has 101 employees, well-trained and skilled
employees. The companys average annual revenue of the two branches, Mandaue and
main branch for the year 2014 and 2013 is P 49,000,000.00.
ORGANIZATIONAL CHART
To maintain an organized working environment, specification of each individuals
tasks is necessary. This act is commonly known as segregation of duties. By this,
specific duties and assignment of offices is done to achieve a systematic organization.
The entitys organizational chart is shown in Exhibit 1.
VISION
To be a leader in the industry producing metal products and components of
WORLD CLASS QUALITY
The vision of the company states what the company wants to achieve or
accomplish in the future.
MISSION
To create and maintain a facility with modern machineries and equipment run by
competent and dedicated individuals.
The mission of the company is a very important statement for this states the
actions needed to be done by the company itself to achieve its vision. To sum it up, the
mission of the company would entail the provision of machineries in line with the
modernization to cope with global competition.
QUALITY POLICY
We are committed to provide the best quality products and services and
continuously improve the system and ensure Total Customer Satisfaction
QUALITY OBJECTIVE

Defect-free Products
On-time deliveries
Cost Effective
Continuous Skills Upgrading
Maximize Man-Machine Uptime
There is a need for every entity to provide the best quality possible for it
determines the entitys market share. Quality products would be a good determinant of
how the entity operates. By achieving such quality, the entity would gain an edge over
its competitors.
PRODUCTS
PRECISION MACHINIST CORPORATION (PREMACOR) is an ISO 9001:2008
certified company providing quality metal products and components since year 80s. They
can do runs from prototype to production. They are committed in providing the best quality
products and services that meet customer satisfaction and continuously improve the system
to exceed customer expectation toward quality excellence.
The company was primarily founded for purpose of catering the automotive
industry. Later on, PREMACOR expanded its horizon to cover other industries focusing
on low-priced, high quality products. The company maintains a potent workforce of
competent, highly skilled and trained individuals who recognize and understand
customers needs and requirements. It has acquired a variety of press machines
ranging from 2 tons to 100 tons. From machine pressing, machining to packing every
step in its processes is guided by one principle maintain quality for total customer
satisfaction. In the present, they have been serving different industries within or outside
the Philippines such as:

Automotive
Ship-Building
Semiconductor
Medical
Beverage
Mechanical
Commercial

COMPETITIVE/OPERATIONAL CHALLENGES
In every business endeavour, certain risks are always involved. It is inherent for
such endeavours to face different challenges which are caused by different factors
present in the environment.

Precision Machinist Corporation is not an exception. The entity itself finds it hard
to overcome such challenges especially at times of recession. An important indicator of
this is found in the international economy. Considered as an indirect exporter and an
importer at the same time, their market share in the international market plays an
important factor in their daily operations.
The presence of competition is normal in any economic setting. An identification
of such competitors would be very much significant for the entity especially in their
decision making as to how they would do their part in the business world. With this, the
following are the competitors identified by the entity itself:

NSB Engineering
Machine System
G&S Machine Shop
Ebecor Engineering
Aside from the challenges found in their external environment, one challenge that
they consider as important is maintaining their stand regarding the quality that they
provide to the market. By such, continuous development of existing practices is a
necessity. Innovation, being the key to this, would help the entity to overcome this
particular challenge.

2.2 BUSINESS PROCESS OVERVIEW


Disbursement as defined is the act of paying out or disbursing money. It is the
nature of every business enterprise to disburse money or cash in order to support and
provide the needs of their daily operation. This includes paying of settlement of
obligations such as operating expenses, interest payments for loans and accounts
payable, payrolls, acquisitions of supplies, utilities and other expenses.
Performance management involves goal-setting activities and periodic reviews
by managers in the reporting hierarchy. Without defined policies and procedures that
are consistently enforced throughout the organization, performance management
strategies can fail to achieve their desired goal of improving product and service quality
for end-user customers. The company wants to achieve effective communication and
efficient use of resources.
PREMACORs accounting department personnel controls and thoroughly
examines all transactions before disbursing companys money. This would help in the

maximization of the companys available cash for investments and debt payments.
Thus, the payroll in charge ensures that cash is disbursed only upon proper
authorization of management, for valid business purposes, and that all disbursements
are properly recorded.
Photographs of setting in which cash disbursements process are used:

At Payroll Section with Ms.


Anie Marie Rivera, the
payroll in-charge.

Employees swipe cards.

Bundy Clock

At the Accounting department


with Mrs. Susana V. Acoymo, the
Accounting Manager.

Vouchers and
documents.

other

source

Normally just what like any other company, PREMACOR devotes most of their
cash for investment and acquisition of new equipment, machineries and other materials
which would improve the quality and efficiency of their production. They usually import
materials from other countries due to the fact that several of the materials needed are
costly and limited if bought within the country. They usually purchased in bulk to save
cost of importation and other costs. This utilization of available cash for investment as
stated above would help the company retain or improve its name in the industry, as well
as be more capable of competing towards its entrants.
Information technology has impacted accounting processes in a very good way. It
is difficult to find anybody doing manual accounting with paper and pencil these days.
Since accounting is about dealing with information, primarily business information, any

advances in this area will have a positive impact in the accounting department, from the
old days of the battery operated calculator to the fast computers of today. Besides the
equipment, accountants appreciate the software. Software can help accountants in their
daily tasks, such as paying bills, recording transactions and reporting. The program
keeps all data organized and in a centralized location.
Based on the observations of the proponents, the client uses different database
software in every department such as, Human Resources Management System
(HRMS) for payroll section and Peachtree for accounting department. The client used
desktop as their hardware type but there were no specific brand used. Furthermost of
the desktops used is the boxed-type one. The operating system used for all of their
computer units is Windows XP. However, there was no commercial enterprise system
used by the client. Just like any rationalized company the client is using internet since
they are paying their taxes electronically and this serves as their medium of
communication to their suppliers abroad. Thus, internet helps the company to reach out
and be known to their prospective customers through the portfolio placed in the
companys website, as well as be updated of the current issues affecting the operation
of their company.
The client has been using HRMS for payroll for convenience since 2010. It was
purchased for P120, 000.00 per unit. The payroll clerk find the system very appropriate
since the payroll could be processed accurately with lesser time consumed. HRMS
serves as one of the clients internal control since employees couldnt conceal and
manipulate their absences and late easily.
In the accounting department, Peachtree has been used as the accounting
system of the company for almost 13 years. It was on 2002 when the company decided
to shift their accounting system from Mytech to Peachtree. This system was been
outsourced. Like any accounting system, it would keep the department be updated for
their dues and payables, as well as organized the documents.

2.3 NARRATIVE DESCRIPTION OF THE CLIENTS OPERATING


SYSTEM
CASH DISBURSEMENT CYCLE:
Payroll for Employees:
The payroll process starts when the employees time-in using their swipe cards
located at the main entrance of the production place. After swiping in, the employees
should place their respective swipe cards at the holder placed below the swiping

machine. Similarly upon swiping out, swipe cards are given to the on duty guards for
safe keeping. The company has three schemes of paid-employees which are weekly
payment, every 5th or 20th day of the month payment and every 15 th or 30th day of the
month payment. Cut-off period for payroll will be done one day before the payment
period. On the cut-off date, the payroll in-charge uploads its logs or time-ins
information to the accounting software which is the Human Resource
Management System (HRMS). This will be accompanied with the form TRE15
which will be generated directly to the software folder and automatically endorse
it to the Daily Time Record. Then, the software will generate a ledger which
accumulates all the information regarding the employee records such as leaves,
absences, overtimes, under-times and so on. Afterwards, it will be compute which
includes mandatory deductions such as Phil Health, Pag-ibig and SSS. Finally,
the software produces a payroll register. The payroll register will be checked by
the Human Resource department. After which, this document will be submitted to
the accounting manager for approval. Lastly, the salaries will be paid in cash.
Loan from a Bank:
For investment purposes, the company obtain a loan from a bank, Metrobank.
Loans are initiated by the Board of Directors for the purpose of acquiring machineries
to be used in business operations. With regards to the loans payment, the accounting
manager will receive a statement from the Metrobank attached therewith the bill
for the period. The accounting manager will send check for payment as approved
by VP Finance; otherwise, send a documents stating thereto the automatic debit of
the companys account.
Petty Cash Disbursement for Miscellaneous Expense:
Petty cash fund is established for little expenses incurred by the company.
However, per internal control of the company, an expense greater than five hundred
pesos (500.00) shall be made with check payments. A designated employee prepares
a prenumbered voucher, which is recorded with detailed information and authorized
by a separate designated employee to ensure segregation of duties. Here, both
preparer and authorizer rely on supporting documents (e.g., bills, invoices, and
receipts) to justify the expense. The voucher is forwarded to the petty cash
custodian who verifies the voucher and supporting documents to ensure
authenticity and dual authorization and then disburses the cash under
acknowledgment. In the case of advance payments, invoices and receipts would
arrive after payment has been made and be reconciled to the amounts advanced.
If any unused cash remains from the paid petty cash voucher, it is added back into
the petty cash fund by issuing a prenumbered and approved replenishment

voucher. The petty cash custodian signifies the cash has been received and is
included in the petty cash. Once a week, petty cash is replenished. All vouchers are
sorted and summed up with respect to each type of expense and recorded in the
system. At this point, the suspense account and physical cash should be equal. The
petty cash fund is replenished by the amount of total expenditures incurred during the
month.
Accounts Payable
Internal expenses are one of the scope of our work. Some of these internal
expenses are paid in cash and others are paid in some future time thus incurring a
liability, specifically accounts payable. As we gather information about the operations of
the business, the researchers found out that the company uses Peachtree accounting
software for their system. Since, the task involves the observation of the operation flow
of the system with respect to disbursement, the process below will discuss right away
about it. The accounts payable disbursement process starts from the moment the
vendor/supplier send its vendor's invoice to the company as well as receiving the
billing statements of the utilities used. The Accounts payable in-charge will enter
the vouchers to be ready for the matching process with the documents such as
voucher, purchase order and receiving report. These will then be submitted to the
accounting department for review and match the documents stated. Afterwards, the
accounting manager will then approved and paid the transactions.

2.4 TABLE OF ENTITIES AND ACTIVITIES

ENTITIES

PARA

1. Send vendor invoices.

Suppliers / Vendors

Employees

ACTIVITIES

101

2. Swipe their cards at the


swiping machine located at the
main
entrance
of
the
production area.

Payroll in-charge

3. Uploads the logs or time-in


information which is generated
directly to the accounting
software which is the Human
Resource
Management
System (HRMS).

4. Processes the logs or time in


information
from
folder
according to payment scheme.

5. Updates the Daily Time


Record (DTR), it is where she
approves overtime, place the
code of the shift or change
schedule.
6. Process in the ledger which
accumulate
information
regarding
or
related
to
employees records.

7. Computes the time


deductions in payroll
Philhealth,
PAG-IBIG
company loans.

8. Generates payroll register.

Assistant Petty Cash


Custodian

9. Prepares
the
necessary
vouchers before sending those
to the petty cash custodian.

Petty Cash Custodian

10. Verifies the voucher and


supporting
document
to
ensure authenticity and dual
authorization
and
then
disburses the cash under
acknowledgement.

and
like
and

Accounts Payable
Officer

11. Signifies the cash has been


received and is included in the
petty cash.

12. Ensures that vouchers and


supporting documents are
appropriately cancelled or
perforated to avoid duplication
of payments.
13. In-charge of consolidating
documents such as invoices,
purchase orders, and receiving
reports before sending those
said attachments to the
accounting department.

Purchasing Manager

14. Makes purchase order/s.

Accounting Manager

15. Checks source documents


before sent for approval to the
VP-Finance.

16. Receives bill of the loan from


the bank.

1
Human Resource Head

17. Sends check for payment,


otherwise, send a note stating
automatic debit of the
companys account.
18. Approve payment of salary.

19. Checked the payroll register.

Board of Directors

20. Initiate loans.

Vice President - Finance

21. Approves any disbursements.

2.5 SYSTEMS FLOWCHART


START

Payroll Flowchart

Time-In

PAY

END

YES
Upload the Logs

Approved?

NO
Process the Folder
According to
Payment Scheme

Submit a copy to
Accounting Department

Review and
Recheck

Update the Daily


Time Record
YES
Create Ledger and
Compute
Deductions

Generate Payroll
Register

Approved?

NO

Submit a copy to
Human Resource

Petty Cash Reimbursement


Flowchart

START

Attach the
following:

Fill-In the
Reimbursement
Form

1. Receipts
2. Receiving
Report
3. And other
relevant
documents

Submit a copy to
Accounting for
Approval

Approved?

YES

REIMBURSE

END

NO

Review and
Recheck

Resubmit for
Approval

Loan Payment Flowchart


START

Billing
Statement from
Metrobank

Submit a copy to
Accounting Manager for
Payment Scheme

Payment Terms

Cash

Automatic Debit
from Savings
Account

START

Invoice from
Supplier and
Utilities Bill

END

Accounts Payable
Flowchart

END

PAY
Voucher
Entered
Voucher

YES
Matched?

Matching
Process

Purchase
Order

Receiving
Report

NO

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