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.

Cañaveral, 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 life’s 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 world’s 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 Cebu’s economic zones is good business.

COMPANY PROFILEThe 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 world’s best-known manufacturer, a number of which are capable to achieve single digit tolerances.

PREMACOR’s 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 Cebu’s 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 company’s 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 individual’s 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 entity’s 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 ProductsOn-time deliveries

Cost EffectiveContinuous Skills Upgrading

Maximize Man-Machine Uptime

There is a need for every entity to provide the best quality possible for it determines the entity’s 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.

PRODUCTSPRECISION MACHINIST CORPORATION (PREMACOR) is an ISO 9001:2008

certified company providing quality metal products and components since year 80’s. 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 CHALLENGESIn 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.

PREMACOR’s accounting department personnel controls and thoroughly examines all transactions before disbursing company’s money. This would help in the maximization of the company’s 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 other source documents.

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 company’s 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 client’s internal control since employees couldn’t 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 CLIENT’S 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 15th 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 company’s 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 ACTIVITIES

Suppliers / Vendors 1. Send vendor invoices.

Employees 101 2. Swipe their cards at the swiping machine located at the main entrance of the production area.

Payroll in-charge 1

1

1

1

1

1

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 employee’s records.

7. Computes the time and deductions in payroll like Philhealth, PAG-IBIG and company loans.

8. Generates payroll register.

Assistant Petty Cash Custodian

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

Petty Cash Custodian 1

1

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

11.Signifies the cash has been received and is included in the petty cash.

Accounts Payable Officer

1 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 1 14.Makes purchase order/s.

Accounting Manager 1

1

1

1

15.Checks source documents before sent for approval to the VP-Finance.

16.Receives bill of the loan from the bank.

17.Sends check for payment, otherwise, send a note stating automatic debit of the company’s account.

18. Approve payment of salary.

Human Resource Head 1 19. Checked the payroll register.

Board of Directors - 20. Initiate loans.

Vice President - Finance 1 21. Approves any disbursements.

2.5 SYSTEMS FLOWCHART

Payroll Flowchart

Generate Payroll Register

Submit a copy to Human

Resource

START

Time-In

Upload the Logs

Process the Folder According to

Payment Scheme

Update the Daily Time Record

Create Ledger and Compute Deductions Approve

d?

YES

NO

Submit a copy to

Accounting Department

Review and Recheck

Approved? NO

YES

PAY END

END

Petty Cash Reimbursement FlowchartSTART

Submit a copy to

Accounting for Approval

Approved?

YES

NO

REIMBURSE

Review and Recheck

Resubmit for Approval

Attach the following:

1. Receipts2. Receiving

Report3. And other

relevant documents

Loan Payment FlowchartSTART

Fill-In the Reimbursement

Form

Billing Statement from

Metrobank

Submit a copy to Accounting Manager for

Payment Scheme

Payment Terms Cash

Automatic Debit from Savings

Account

END

Accounts Payable Flowchart

START

Invoice from Supplier and Utilities Bill

Voucher Entered

Matching Process

Voucher

Purchase Order

Receiving Report

Matched?

YES

NO

PAY

END