UNIVERSITY OF SAN JOSE-RECOLETOS

MAGALLANES ST., CEBU CITY

COLLEGE OF COMMERCE
DEPARTMENT OF ACCOUNTANCY

In partial fulfillment of the course,

ACCTG 10: AUDITING PROBLEMS 1

LOLO TINONG’S BAKERY, INC.

COMPANY BUSINESS CYCLE WALKTHROUGH

PRESENTED TO:
DR. CEDRIC VAL NARANJO, CPA

PRESENTED BY:
CASTILLON, RHENA LYN
JUDAYA, LYNDEE
TRANGIA, RHEA
VELASQUEZ, KARL JUSTINE

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I. COMPANY BACKGROUND

LOLO TINONG’S BAKERY

a. Brief History
Lolo Tinong’s Bakery, Inc. is a family-owned bakery with its famous tagline, “Once tasted,
always wanted.” It was established by the family’s patriarch, Faustino Lao Villo or Lolo Tinong,
in 1923, and has been continuously existing until today.

b. Major Customers
The bakery vastly relies on the buying public as its major customers. As for their future goal,
they are planning to extend their selling power to supply and are eyeing such big hotels,
department stores, and other establishments to be part of their major customers.

c. Major Products
It offers and caters all kinds of breads and sweets, from the day-to-day favorites, like their front
runner “pandesal”, down to their mass produced, cookies and crinkles.

c. Branches
As of 2019, the bakery has a wide array of branches all over the region, having 72 branches,
all over the three major provinces in the region namely; Cebu, Negros Island, and Leyte.

d. Major Investments / Major PPEs

Through the years of its existence, Lolo Tinong;s Bakery is able to maximize its earnings by
venturing into other businesses, as a kind of its investment, as well as having the fruits of its
booming existence in the bread industry. Among their investments and/or business extensions
are as follows:
1. Rolito Ventures – which offers commercial spaces rentals
2. RBV Realty – which offers both commercial and residential spaces rental
3. Big Blue Logistics – which caters rentals for logistics, trucks, and the like
4. Bread After Bread – an extension of their bakeshop offering packed sweets
5. Pinacoolada Ltd. – a refreshment and drinks stall

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II. ORGANIZATIONAL CHART

BOARD OF DIRECTORS

Blessilda B. Villo
PRESIDENT

Rolito D. Villo Nicole V. Escobido

VICE-PRESIDENT EXECUTIVE SECRETARY

Herbert Amora
GENERAL MANAGER

Bea Eleora V. Emeralde V. Lalinka V. Xedessa V.

Igot Hermosilla ADMINIS-
Yu Cuyos
TRATION
CHIEF CHIEF MARKETING RESEARCH MANAGER
OPERATIONS FINANCE MANAGER & DEV’T
MANAGER MANAGER MANAGER

Production / Accounting Brand HR Manager

Commissary Development

Budget Documentation
RDQ PR / / Records
Operations Advertising Custodian
Manager Treasury Promo

General
Construction Services
Marketing
Area Manager Analyst
Negros
Repairs & Liaison Officer
Maintenance
Area Accounting
Supervisor –
Area Manager Cebu/Leyte
Cebu/Leyte
Logistics
Area Accounting
Supervisor – Negros
Operations
Audit Negros

Operations
Operations Audit
Audit
Cebu/Leyte

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III. DOCUMENTATION OF WALKTHROUGH PROCESS

A. INVENTORY/PURCHASING CYCLE

RECEIVING OF STOCKS FROM SUPPLIERS

Ending Inventory
Sheet
INVENTORY
PURCHASER
CLERK

• prepares daily “Ending • checks inventory sheet

Inventory Sheet” for the • budgets quantity to be
Purchaser purchased
• prepares “Purchase
• receives P.O as reference PO Orders” for suppliers &
during delivery inventory clerk

PO

• checks delivery as per

Invoice
D.R./Invoice & P.O. RAW MATERIALS
(note: informs purchaser if there’s SUPPLIER
RECEIVING CLERK
discrepancy)
• updates inventory record
• delivers goods & • keeps inventory
• gives D.R./Invoice w/ P.O.
issues “Delivery records of various raw
to Acctg. Clerk
Receipt/Invoice” materials
• receives deliveries of
various raw materials
from suppliers
• receives P.O as reference
Invoice
during delivery
PO

ACCOUNTING
CLERK

• checks & confirms to

Purchaser about the
delivery
• updates accounting
records

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 RELEASING OF STOCKS FOR PRODUCTION

PRODUCTION TEAM INVENTORY RAW MATERIALS

LEADERS PER SHIFT CLERK RELEASING CLERK

• fills up “Stocks • checks request &

Requisition Form” for the availability of • accommodates
SRF SRF
request of stocks for stocks request
production • approves request

• releases stocks
• logs out all
outgoing stocks
• prepares daily
“Summary of Pull
Outs”

SRF

Summary
of Pull
Outs

• receives stocks ready

RAW MATERIALS
for production RECEIVING CLERK

stocks
• updates stock
cards and
records

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 TRANSFER OF FINISHED GOODS FROM PRODUCTION

PRODUCTION TEAM
LEADERS PER SHIFT

• assumes leadership
during production
P
R
O
D
U
C
T
I
O
N

finished goods P
R
O
• prepares 2 copies Dof
FINISHED GOODS
“Production Report”
U for Summary
RECEIVING CLERK
of Pull
the Finished Goods Outs
Clerk
• receives and checks
“Finished Goods” from
productions as per
Production Report
• logs in received goods
• files 1 copy of production
report

Production
Report

Production
Report FINISHED GOODS
INVENTORY CLERK RELEASING CLERK

• receives the report and • updates inventory

updates inventory records
records

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 B. SALES/REVENUE CYCLE

TRANSFER OF FINISHED GOODS TO STORES FOR SALE

INVENTORY CLERK - BRANCH TEAM AREA MANAGER

BRANCH LEADER

• monitors finished • checks and • approves

Requisition Requisition
goods stocks in Form confirms Form requisition form
the branch requisition form
• monitors sales
output in the
branch
• prepares finished
goods “Requisition Requisition
Form
Form”

DELIVERY FINISHED GOODS

IN-CHARGE RELEASING CLERK
Delivery

• checks and
Report
• prepares finished
reconciles goods for delivery
finished goods for to branch
delivery with the • prepares delivery
delivery report report of goods to
• delivers finished branches
goods to
branches

Delivery
Report

INVENTORY CLERK - BRANCH TEAM

BRANCH LEADER

• checks and • receives

reconciles finished
finished goods goods to
delivered facilitate sales
• receives finished
goods and
updates records

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 SALES PROPER

SALES LADY CASHIER

• receives cash • receives cash

payments from payments from
customers customers

INVENTORY CLERK - Sales

Record
BRANCH
• forwards sales
• confirms and records to
reconciles sales inventory clerk
with inventory • remits daily cash
sales to branch
team leader
Sales
Record

BRANCH TEAM
AREA MANAGER LEADER
Sales
Record
• receives sales
• receives, checks and
confirms daily sales record
summary • makes daily sales
• makes and submits summary
sales reports to area • receives cash sales
accounting officer from cashier and
remits it to area
accounting officer
Sales
Report

AREA ACCOUNTING
OFFICER

• receives cash makes

daily deposits
• reports to main
accounting

MAIN ACCOUNTING Sales

SUPERVISOR Report

• consolidates sales reports

• monitors cash deposits in
the bank

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C. SUPPORT DOCUMENTS

Purchase Order Delivery Receipt

Check Voucher Branch Income Statement

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IV. INTERNAL CONTROLS AND RECOMMENDATIONS FOR IMPROVEMENT

INTERNAL CONTROLS POSSIBLE RISKS RECOMMENDATIONS

1. Inventory order levels
are determined by
sales level monitoring.
Inventory clerks
monitors sales
demand for breads
and sends report to
commissary for the
basis of the quantities
of raw materials to be
ordered.
2. Raw material orders
are prepared weekly
Mondays by
purchaser.
3. Delivery of raw
materials is done
weekly every Friday to
be received by the raw
materials receiving
clerk.
4. Delivery of raw
materials to Negros
branch is done every
other week, and to
Leyte branch every
other second week.
5. On-site surprise
checks are done by
the commissary head
to every branch every
month. Owners
conducts on-site
surprise checks once
a year.
6. Branch raw materials
requisition is based on
a 40%-60% cost-profit
ratio allocation. Sales
with cost ratio of 40%
below are approved
for raw material
purchase to be
approved by the
finance head.

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7. Raw material
premixes are mixed
with anti-amag (anti-
mold) ingredients to
prevent mold growth
on finished goods and
prolonged freshness.
8. Expired and unsold
finished goods are
investigated
accordingly, the
persons responsible
and who’s to be
charged for. Upon
proof after
investigation, a 50-50
charge is allocated to
the person
responsible and the
management.
9. A first in first out
(FIFO) rule on sale of
finished goods to
prevent having
expired, unsold
breads.
10. Raw materials
delivered are received
by the raw materials
receiving clerk, and
the they are also sent
to the production by
the raw materials
releasing clerk
separately. Records of
both inventory clerks
are reconciled to
properly account and
update inventory
records.
11. Raw materials
processed in each
branch are reconciled
with the finished
goods produced to
prevent any
inconsistencies and
discrepancies.

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