Page 175 - Accounting Information Systems

146 PART I Overview of Accounting Information Systems

this position. To try to keep sales levels up, he established a Future
reward incentive based on net sales. The new sales man- The new level of sales impresses Chuck and he wishes
ager, Bob Sellmore, was eager to set his career in motion to expand, but he also wants to keep uncollectibles to a
and decided he would attempt to increase the sales levels. minimum. He believes the amount of uncollectibles
To do this, he recruited new customers while keeping the should remain relatively constant as a percentage of
old clientele. After one year, Bob had proved himself to sales. Chuck is thinking of expanding his production
Chuck, who decided to introduce an advertising program line, but wants to see uncollectibles drop and sales sta-
to further increase sales. This brought in orders from a bilize before he proceeds with this plan.
number of new customers, many of whom Breezy had Required
never done business with before. The influx of orders
Analyze the weaknesses in internal control and suggest
excited Chuck so much that he instructed Jane Breezy, the
improvements.
finance manager, to raise the initial credit level for new cus-
tomers. This induced some customers to purchase more.
3. Whodunit?
Existing System (This case was prepared by Karen Collins, Lehigh
The accountant prepared a comparative income state- University)
ment to show changes in revenues and expenses over The following facts relate to an actual embezzlement case.
the last three years, shown in Exhibit A. Currently, Bob Someone stole more than $40,000 from a small com-
is receiving a commission of 2 percent of net sales. pany in less than two months. Your job is to study the
Breezy Company uses credit terms of net 30 days. At following facts, try to figure out who was responsible
the end of previous years, bad debt expense amounted for the theft, how it was perpetrated, and (most impor-
to approximately 2 percent of net sales. tant) suggest ways to prevent something like this from
As the finance manager, Jane performs credit checks. happening again.
In previous years, Jane had been familiar with most clients
and approved credit on the basis of past behavior. When Facts
dealing with new customers, Jane usually approved a low Location of company: a small town on the eastern shore
credit amount and increased it after the customer exhibited of Maryland. Type of company: crabmeat processor,
reliability. With the large increase in sales, Chuck thought selling crabmeat to restaurants located in Maryland.
that the current policy was restricting a further rise in sales Characters in the story (names are fictitious):
levels. He decided to increase credit limits to eliminate this
John Smith, president and stockholder (husband of
restriction. This policy, combined with the new advertis-
Susan).
ing program, should attract many new customers.
Susan Smith, vice president and stockholder (wife of
John).
EXHIBIT A
Tommy Smith, shipping manager (son of John and
BREEZY COMPANY
Susan).
COMPARATIVE INCOME STATEMENT
Debbie Jones, office worker. She began working
FOR YEARS 2005, 2006, 2007
part-time for the company six months before the theft.
2005 2006 2007 (At that time, she was a high school senior and was
Revenues: allowed to work afternoons through a school intern-
Net sales $ 350,000 $ 500,000 $ 600,000 ship program.) Upon graduation from high school
Other revenue 60,000 60,000 62,000 (several weeks before the theft was discovered), she
Total revenue 410,000 560,000 662,000 began working full-time. Although she is not a mem-
Expenses: ber of the family, the Smiths have been close friends
Cost of goods sold 140,000 200,000 240,000 with Debbie’s parents for more than 10 years.
Bad debt expense 7,000 20,000 36,000
Salaries expense 200,000 210,000 225,000 Accounting Records
Selling expense 5,000 15,000 20,000 All accounting records are maintained on a microcom-
Advertising expense 0 0 10,000 puter. The software being used consists of the following
Other expenses 20,000 30,000 35,000 modules:
Total expenses 372,000 475,000 566,000
1. A general ledger system, which keeps track of
all balances in the general ledger accounts and
Net income $ 38,000 $ 85,000 $ 96,000 produces a trial balance at the end of each month.