Page 238 - Accounting Information Systems

CHAPT E R 4 The Revenue Cycle 209

bookstore, mainly selling used books that were donated Books’ business processes and internal controls. The
and obtained from flea markets. When the doors first revenue cycle is described below:
opened, Walker’s wife, Lauren, was the only employee
during the week and Curtis worked weekends. At the Revenue Cycle
end of the first fiscal year, Walker Books had grossed
$20,000 in sales. Sales Order Processing System
As the years passed, Curtis Walker quit the law The sales order process begins when a customer calls in
firm and began concentrating fully on his bookstore. his or her order to an experienced sales representative,
More employees were hired, more books were traded who then manually transcribes the necessary customer
in, and more sales were attained each year that information, ISBN, and quantity and type of books
passed. During the mid-1990s, however, Walker was requested onto a formal customer order document.
faced with two problems: many large, upscale book- Because of recent problems the company has been hav-
stores were being built in the area, and the use of the ing with uncollectable accounts, Walker Books has set
Internet for finding and ordering books was becoming up a computer terminal in the department for the sales
cheaper and more popular for current customers. In representative to check the customer’s credit with an
1995, Walker’s sales started to decline. Deciding to online credit bureau. If the credit rating falls below the
take a risk because of the newfound competition, he sales representative’s expectations, the transaction is
closed his doors to the neighborhood, invested more disallowed; if the sales representative concludes, how-
money to expand the current property, and trans- ever, that the credit rating is acceptable, he proceeds to
formed his company from simply selling used books manually prepare five hard copies of the sales order.
to being a distributor of new books. His business Once prepared, one copy of the sales order is sent
model was to obtain books from publishers at a dis- over to the warehouse to be used as the stock release.
count, store them in his warehouse, and resell them to Another copy of the sales order, the shipping notice, is
large bookstore chains. sent to the shipping department. Two of the copies
Walker Books, Inc., has rapidly become one of the (invoice and ledger copies) are sent to the billing depart-
largest book distributors in the country. Although they ment, and the final copy of the sales order is stapled
are still at their original location in Palo Alto, Califor- to the corresponding customer order, which is then filed
nia, they distribute books to all 50 states and because of in the sales department. Once the documents are sent
that, the company now sees gross sales of about to their designated locations, the sales representative
$105,000,000 per year. When Mr. Walker is asked manually updates the hard-copy sales journal to record
about his fondest memory, he always responds that he the transaction. At the end of the day the sales represen-
will never forget how the little bookstore, with two tative manually prepares a hard-copy journal voucher
employees, has expanded to now have more than 145 and sends it to the general ledger department.
employees. When the warehouse clerk receives the stock release
Under his current business model, all of Walker’s cus- copy, he reviews the document for clerical accuracy. He
tomers are large-chain bookstores who themselves see then manually records the appropriate decrease in inven-
many millions of dollars in revenue per year. Some of tory in the hard-copy inventory subsidiary records that
these customers, however, are now experiencing problems are maintained in the warehouse. Once recorded, he
with Walker Books that threaten their business relation- picks the goods and sends them and the stock release
ship. Such problems as books being ordered but not sent, document to the shipping department. At the end of day,
poor inventory management by Walker causing stock- the warehouse clerk prepares a hard-copy account sum-
outs, and the inability of Walker to provide legitimate mary that he sends to the general ledger department.
documentation of transactions have become common. The shipping clerk receives the shipping notice from
One potential source of these problems rests with the sales department and the stock release and goods
Walker’s antiquated accounting system, which is a com- from the warehouse. The clerk reconciles the documents
bination of manual procedures supported by stand-alone with the books being shipped and, if all is correct, the
PC work stations. These computers are not networked clerk creates a digital bill of lading record using the
and cannot share data between departments. All interde- shipping department PC. The computer automatically
partmental communication takes place through hard- prints out a hard copy packing slip and bill of lading,
copy documents. which accompany the goods to the carrier. The shipping
You have been hired as an independent expert to notice is then sent to the billing department and the
express an opinion on the appropriateness of Walker stock release is filed in the shipping department.