The Analysis of Internal Controls on Revenue and Expenditure Cycle in PT. LEVINA - Binus e-Thesis
BINUS UNIVERSITY INTERNATIONAL
BINUS UNIVERSITY
Accounting Major Sarjana Ekonomi Thesis
Semester Even Year 2008
THE ANALYSIS OF INTERNAL CONTROLS ON REVENUE AND
EXPENDITURE CYCLE IN PT. LEVINA
Leonny Ariesa 0800765876
Abstract
Objectives This research intended to observe and examine the revenue and expenditure
cycle implemented in PT. LEVINA as well to analyze, assess, and identify potential weaknesses in the revenue and expenditure cycle, and the internal controls related with those cycles of the company using COSO’s Internal Control-Integrated Framework. Moreover, it provides specific recommendations based on the framework to overcome the discovered potential weaknesses.
Method The method of analysis used in this study is by assessing the current revenue
and expenditure cycle implemented in the company, along with the internal controls applied within the cycles. Subsequently, the potential weaknesses will be identified which then generates the specific recommendations. The data-collection methods used are literature and field research.
Results & Conclusions The current revenue and expenditure cycle of PT. LEVINA are
still comprised with potential weaknesses such as structural weaknesses, documentation and business activities (procedures) weaknesses, and Internal Control (IC) weaknesses. Hence, as the company business keeps growing, it is important to focus more on its RC and EC system as well as the IC in order to achieve the most effective and efficient methods in operating the business. As the result, the company could become more profitable.
Keywords: Accounting Information System (AIS), Revenue Cycle (RC), Expenditure Cycle (EC), Internal Control (IC)
Preface
First of all, the author would like to dedicate her gratitude to Jesus Christ, for the blessing throughout the completion of this thesis. This thesis entitled The Analysis of
Internal Controls on Revenue and Expenditure Cycle in PT. LEVINA, was prepared
and designated to fulfill the final requirement for a completion of undergraduate degree on Accounting Major, School of Accounting, Bina Nusantara International University.
This thesis is a final project that had been planned and prepared during the undergraduate study period. It is expected to provide valuable knowledge for the readers so that likely further research in this particular topic can be conducted and may contribute to the development of this study.
The author would like to thank the following people: 1.
Mr. Ruben Garcia Berasategui, for his dedication in this thesis supervision and for giving the author such meaningful inputs and feedbacks during the supervisory period.
2. Mr. Dezie L. Warganegara – former Head of Accounting School of Bina Nusantara International, for his support and dedication throughout these semesters.
3. Mr. Marko Himawan – Head of Accounting School of Bina Nusantara International, for his support and advices.
4. Mrs. Syahda Tedjanegara – President/Owner of PT. LEVINA, who gives the opportunity to conduct the study.
5. The staffs in PT. LEVINA, for their time and valuable information for the thesis.
6. The author’s families for their continuous support, love, and prayer for the completion of the degree, especially for grandma and dad.
7. The author’s top friends for the endless companionship, advices, love, and support.
8. Binus International Accounting students batch 2008 for the friendship, especially for Jacqeline, Sally, and Pratiwi.
9. Dian Chanderawati, for the companionship and her tremendous contribution, care, and support for the completion of thesis.
10. Aldo Pradana, for his love, care, reminders, and supports. It means a lot for the author.
11. Everyone who has supported the author for the degree completion.
Jakarta, July 14, 2008 Author
Leonny Ariesa
Table of Contents
Page Cover Page……………………………………………………………………. i Title Page……………………………………………………………………... ii Certificate of Approval……………………………………………………….. iii Statement of Examiners……………………………………………………… iv Abstract………………………………………………………………………. v Preface………………………………………………………………………... vi Table of Contents…………………………………………………………….. viii List of Figures………………………………………………………………... xii
CHAPTER 1 INTRODUCTION…………………………………………..
1
1.1 Background …………………………………………………
1 1.2 Scope of Analysis…………………………………………....
3 1.3 Aims and Benefits ………………………………………......
3
1.4 Research Methodology……………………………………… 5
1.5 Thesis Structure……………………………………………... 6 CHAPTER 2 THEORETICAL FOUNDATION…………………………..
8
2.1 Accounting Information System (AIS)………………………
8
2.1.1 Definition of AIS………………………………………
8 2.1.2 Objectives of AIS……………………………………...
13
2.2 Revenue Cycle (RC)…………………………………………
14 2.2.1 Definition of RC……………………………………….
14
2.2.2 Objectives of RC………………………………………
15 2.2.3 Documents related to RC……………………………...
15 2.3 Expenditure Cycle (EC)……………………………………..
17 2.3.1 Definition of EC……………………………………….
17
2.3.2 Objectives of EC………………………………………
19 2.3.3 Documents related to EC……………………………...
19
2.4 Internal Control (IC)…………………………………………
20 2.4.1 Definition of IC………………………………………..
21
2.4.2 Objectives of IC……………………………………….
48 CHAPTER 4 FINDINGS AND DISCUSSION……………………………
42
3.1.4 Organizational Structure and Job Related Activities (Responsibilities)………………………………………
43 3.1.4.1 Organizational Structure……………………...
44 3.1.4.2 Job Related Activities (Responsbilities)……...
44 3.2 The RC of PT. LEVINA……………………………………..
47 3.3 The EC of PT. LEVINA……………………………………..
50 4.1 Current RC System in PT. LEVINA………………………...
33 3.1.2 General Operations…………………………………….
50
4.1.1 Documents Used in the Cycle…………………………
50
4.1.2 Business Activities (Procedures) in the Cycle…………
58 4.1.2.1 Sales Order Entry Activity…………………...
58 4.1.2.2 Shipping Activity…………………………….
59 4.1.2.3 Billing Activity……………………………….
37 3.1.3 Vision and Mission…………………………………….
3.1.1 Historical Background…………………………………
22
28 2.6 Data Flow Diagram (DFD)…………………………………..
2.4.3 Types of IC……………………………………………
23
2.4.4 IC on the RC and the EC………………………………
24 2.4.5 COSO’s Internal Control-Integrated Framework……..
25
2.5 Flowchart……………………………………………………. 26 2.5.1 Definition of Flowchart………………………………..
26 2.5.2 Types of Flowchart…………………………………….
29 2.6.1 Definition of DFD……………………………………..
33
29
2.6.2 Elements of DFD………………………………………
30 2.6.3 DFD Context…………………………………………..
32 2.6.4 DFD Level-zero………………………………………..
32 CHAPTER 3 COMPANY PROFILE………………………………………
33
3.1 General Overview……………………………………………
60
4.1.2.4 Cash Collection……………………………....
4.4 Specific Recommendations…………………………............. 86 4.4.1 Recommended Organizational Structure……………...
79 4.3.2.1 The RC System……………………………….
80 4.3.2.2 The EC System……………………………….
81 4.3.3 Internal Control (IC) Weaknesses……………………..
82 4.3.3.1 The RC System……………………………….
82 4.3.3.2 The EC System……………………………….
84
86
79
4.4.2 Recommended Documentation and Business Activities (Procedures)……………………...
88 4.4.2.1 The RC System……………………………....
88 4.4.2.2 The EC System……………………………....
96
4.4.3 Recommended Internal Control……………………… 105
4.4.3.1 The RC System……………………………... 105
4.3.2 Documentation and Business Activities (Procedures) Weaknesses…………………………………………….
78 4.3.1.2 The EC System……………………………….
61 4.1.3 Internal Control (IC) related to the RC………………..
71 4.2.2.1 Ordering Activity…………………………….
64
4.2 The Current EC System in PT. LEVINA……………………
66
4.2.1 Documents Used in the Cycle…………………………
66
4.2.2 Business Activities (Procedures) in the Cycle…………
71
78 4.3.1.1 The RC System……………………………….
4.2.2.2 Receiving and Storing Activity………………
72 4.2.2.3 Payments of Goods…………………………..
73 4.2.3 Internal Control (IC) related to the EC………………..
76 4.3 Potential Weaknesses………………………………………...
78
4.3.1 Structural Weaknesses…………………………………
4.4.3.2 The EC System……………………………... 105
CHAPTER 5 CONCLUSION AND RECOMMENDATIONS…………… 106
5.1 Conclusion…………………………………………………... 106
5.2 Overall Recommendations…………………………………… 107
5.3 Limitations…………………………………………………... 108
5.4 Avenue for Further Research……………………………….. 108 REFERENCES………………………………………………………………. 109 CURRICULUM VITAE……………………………………………………... 112
List of Figures
No. Figure Page
2.1 Logical Flow of an AIS Process…………………….………………
11
2.2 Five Interrelated Components of COSO’s Internal Control Model…
26 2.3 Basic Flowchart Shapes……………………………………………..
28 2.4 Four Basic Elements of DFD……………………………………….
31
3.1 PT. LEVINA Organizational Chart…………………………………
44 3.2 Context Diagram- PT. LEVINA’s RC System……………………...
48 3.3 The Context Diagram of PT. LEVINA’s EC System……………….
49
4.1 Flowcharts- Documents Used in the RC System……………………
55
4.2 Flowcharts- Documents Used in the RC System (Cont.)……………
56
4.3 Flowcharts- Documents Used in the RC System (Cont.)……………
57 4.4 Level 0 DFD- PT. LEVINA’s RC System………………………….
63
4.5 Flowcharts- Documents Used in the EC System……………………
68
4.6 Flowcharts- Documents Used in the EC System (Cont.)……………
69
4.7 Flowcharts- Documents Used in the EC System (Cont.)……………
70 4.8 Level 0 DFD- PT. LEVINA’s EC System…………………………..
75 4.9 Recommended Organizational Structure for PT. LEVINA………...
87 4.10 Recommended Transfer of Goods Proof…………………………...
89
4.11 Recommended RC Documents Flowcharts for PT. LEVINA………
91
4.12 Recommended RC Documents Flowcharts for PT. LEVINA (Cont.)………………………………………………………………
92
4.13 Recommended RC Documents Flowcharts for PT. LEVINA (Cont.)………………………………………………………………
93
4.14 Recommended RC Documents Flowcharts for PT. LEVINA (Cont.)………………………………………………………………
94
4.15 Recommended RC Documents Flowcharts for PT. LEVINA (Cont.)………………………………………………………………
95 4.16 Recommended Purchase Requisition……………………………….
97 4.17 Recommended Purchase Order……………………………………..
99
4.18 Recommended Receiving Report…………………………………... 101
4.19 Recommended EC Documents Flowcharts for PT. LEVINA……... 102
4.20 Recommended EC Documents Flowcharts for PT. LEVINA (Cont.)……………………………………………………………… 103
4.21 Recommended EC Documents Flowcharts for PT. LEVINA (Cont.)……………………………………………………………… 104