Page 186 - Accounting Information Systems

CHAPT E R 4 The Revenue Cycle 157

SHIP GOODS. Before the arrival of the goods and the verified stock release document, the shipping
department receives the packing slip and shipping notice from the receive order function. The packing
slip will ultimately travel with the goods to the customer to describe the contents of the order. The ship-
ping notice will later be forwarded to the billing function as evidence that the customer’s order was filled
and shipped. This document conveys pertinent new facts such as the date of shipment, the items and
quantities actually shipped, the name of the carrier, and freight charges. In some systems, the shipping
notice is a separate document prepared within the shipping function.
Upon receiving the goods from the warehouse, the shipping clerk reconciles the physical items with
the stock release, the packing slip, and the shipping notice to verify that the order is correct. The ship
goods function thus serves as an important independent verification control point and is the last opportu-
nity to detect errors before shipment. The shipping clerk packages the goods, attaches the packing slip,
completes the shipping notice, and prepares a bill of lading. The bill of lading, as shown in Figure 4-3, is
a formal contract between the seller and the shipping company (carrier) to transport the goods to the cus-
tomer. This document establishes legal ownership and responsibility for assets in transit. Once the goods
are transferred to the carrier, the shipping clerk records the shipment in the shipping log, forwards the
shipping notice and the stock release to the bill-customer function as proof of shipment, and updates the
customer’s open order file.

BILL CUSTOMER. The shipment of goods marks the completion of the economic event and the point
at which the customer should be billed. Billing before shipment encourages inaccurate record keeping
and inefficient operations. When the customer order is originally prepared, some details such as inventory
availability, prices, and shipping charges may not be known with certainty. In the case of back-orders, for
example, suppliers do not typically bill customers for out-of-stock items. Billing for goods not shipped
causes confusion, damages relations with customers, and requires additional work to make adjustments to
the accounting records.
To prevent such problems, the billing function awaits notification from shipping before it bills. Figure 4-1
shows that upon credit approval, the bill-customer function receives the sales order (invoice copy) from the
receive order task. This document is placed in an S.O. pending file until receipt of the shipping notice, which
describes the products that were actually shipped to the customer. Upon arrival, the items shipped are recon-
ciled with those ordered and unit prices, taxes, and freight charges are added to the invoice copy of the sales
order. The completed sales invoice is the customer’s bill, which formally depicts the charges to the customer.
In addition, the billing function performs the following record keeping–related tasks:
Records the sale in the sales journal.
Forwards the ledger copy of the sales order to the update accounts receivable task.
Sends the stock release document to the update inventory records task.
The sales journal is a special journal used for recording completed sales transactions. The details of sales
invoices are entered in the journal individually. At the end of the period, these entries are summarized into a
sales journal voucher, which is sent to the general ledger task for posting to the following accounts:

DR CR
Accounts Receivable—Control XXXX.XX
Sales XXXX.XX

Figure 4-4 illustrates a journal voucher. Each journal voucher represents a general journal entry and
indicates the general ledger accounts affected. Summaries of transactions, adjusting entries, and closing
entries are all entered into the general ledger via this method. When properly approved, journal vouchers
are an effective control against unauthorized entries to the general ledger. The journal voucher system
eliminates the need for a formal general journal, which is replaced by a journal voucher file.

UPDATE INVENTORY RECORDS. The inventory control function updates inventory subsidiary
ledger accounts from information contained in the stock release document. In a perpetual inventory
system, every inventory item has its own record in the ledger containing, at a minimum, the data depicted