Page 230 - Accounting Information Systems

CHAPT E R 4 The Revenue Cycle 201

4. SEGREGATION OF FUNCTIONS consecutively numbered sales invoices, and the return
slips. The assistant manager prepares a daily reconcilia-
Which, if any, of the following situations represent
tion report for the store manager’s review.
improper segregation of functions?
The manager reviews cash, check, and bank card sales
a. The billing department prepares the customers’ and then prepares the daily bank deposit (bank card sales
invoices, and the accounts receivable department invoices are included in the deposit). The manager makes
posts to the customers’ accounts.
the deposit at the bank and files the validated deposit slip.
b. The sales department approves sales credit memos The cash register tapes, sales invoices, and return slips
as the result of product returns, and subsequent are forwarded daily to the central data processing depart-
adjustments to the customer accounts are performed ment at corporate headquarters for processing. The data
by the accounts receivable department.
processing department returns a weekly sales and com-
c. The shipping department ships goods that have been mission activity report to the manager for review.
retrieved from stock by warehouse personnel.
Required
d. The general accounting department posts to the gen-
eral ledger accounts after receiving journal vouchers a. Identify six strengths in the Jem Clothes system for
that are prepared by the billing department.
controlling sales transactions.
b. For each strength identified, explain what problem(s)
5. CMA 688 5–2 Jem Clothes has avoided by incorporating the strength
Internal Controls in the system for controlling sales transactions.
Jem Clothes, Inc., is a 25-store chain concentrated in the
Use the following format in preparing your answer.
northeastern United States that sells ready-to-wear
clothes for young men and women. Each store has a full- 1. Strength
time manager and an assistant manager, both of whom 2. Problem(s) Avoided
are paid a salary. The cashiers and sales personnel are
typically young people working part-time who are paid 6. INTERNAL CONTROL
an hourly wage plus a commission based on sales vol- EVALUATION
ume. The accompanying flowchart for Problem 5 depicts
the flow of a sales transaction through the organization Identify the control weaknesses depicted in the flow-
of a typical store. The company uses unsophisticated chart for Problem 6.
cash registers with four-part sales invoices to record each
transaction. These sales invoices are used regardless of 7. STEWARDSHIP
the payment type (cash, check, or bank card). Identify which department has stewardship over the fol-
On the sales floor, the salesperson manually records lowing journals, ledgers, and files.
his or her employee number and the transaction
a. Customer open order file
(clothes, class, description, quantity, and unit price),
totals the sales invoice, calculates the discount when b. Sales journal
appropriate, calculates the sales tax, and prepares the c. Journal voucher file
grand total. The salesperson then gives the sales invoice d. Cash receipts journal
to the cashier, retaining one copy in the sales book.
e. Inventory subsidiary ledger
The cashier reviews the invoice and inputs the sale.
f. Accounts receivable subsidiary ledger
The cash register mechanically validates the invoice,
g. Sales history file
automatically assigning a consecutive number to the
transaction. The cashier is also responsible for getting h. Shipping report file
credit approval on charge sales and approving sales paid i. Credit memo file
by check. The cashier gives one copy of the invoice to j. Sales order file
the customer and retains the second copy as a store copy
k. Closed sales order file
and the third for a bank card, if a deposit is needed.
Returns are handled in exactly the reverse manner, with
the cashier issuing a return slip. 8. CONTROL WEAKNESSES
At the end of each day, the cashier sequentially For the past 11 years, Elaine Wright has been an em-
orders the sales invoices and takes cash register totals ployee of the Star-Bright Electrical Supply store. Elaine
for cash, bank card, and check sales, and cash and bank is a very diligent employee who rarely calls in sick and
card returns. These totals are reconciled by the assistant staggers her vacation days throughout the year so that
manager to the cash register tapes, the total of the no one else gets bogged down with her tasks for more