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212 PART II Transaction Cycles and Business Processes
Revenue Cycle Procedures Finally, at the end of each day the system prepares
batch totals of all sales and cash receipts transactions
Premier’s revenue process is initiated when a customer
and posts them automatically to the control accounts in
places an order either online, by mail, or through a tele-
the digital general ledger.
phone representative. The order is then manually
entered into the computer system for mail or telephone
orders, while online orders are automatically entered Required
upon arrival. When the customer order is entered, the a. Create a data flow diagram of the current system.
system automatically performs an online credit check. If b. Create a system flowchart of the existing system.
credit is approved, the sales process continues. If credit c. Analyze the internal control weaknesses in the sys-
is denied, the process ends and the customer is notified tem. Model your response according to the six cate-
of the automatic rejection. gories of physical control activities specified in SAS
For approved order, the clerk manually prepares four 78/COSO.
hard copies of each sales order. One copy is entered into d. Prepare a system flowchart of a redesigned com-
the terminal in the sales department and filed. The puter-based system that resolves the control weak-
approved sale is automatically posted to the digital sales nesses you identified. Explain your solution.
journal. A second copy is sent to the billing department,
where it is further processed. A third copy is sent to 7. Bait ’n Reel Superstore
the warehouse. A final copy is sent to the customer as (Combination Networked
a receipt stating that the order has been received and
processed. Computers and Manual System)
At the warehouse, the sales order is used as a stock (Prepared by Matt Wisser, Lehigh University)
release, authorizing a warehouse clerk to physically Bait ’n Reel was established in 1983 by Jamie Roberts,
pick the requested items from the shelves. The clerk an avid fisherman and environmentalist. Growing up in
then manually prepares a bill of lading and packing slip, Pennsylvania’s Pocono Mountains region, Roberts was
which accompany the goods to the carrier. The ware- lucky enough to have a large lake right down the road,
house clerk then accesses the computer terminal and where he found himself fishing throughout the year.
creates a digital shipping notice for the billing depart- Unfortunately, he had to drive more than 15 miles to
ment. Finally, the clerk files the stock release hard copy purchase his fishing supplies, such as lines, hooks, and
in the warehouse. bait, among other things. Throughout his early adult-
From a terminal, the billing department clerk recon- hood, Roberts frequently overheard other fishermen
ciles the hard-copy sales order and the digital shipping vocalizing their displeasure at not having a local fishing
notice and prints two hard copies of an invoice. One store to serve their needs. Because of this, Roberts
copy is sent to the customer as a bill and the other is vowed to himself that he would open his own store if he
sent to the accounts receivable department. The clerk could ever save up enough money.
then files the sales order copy in the department. By 1983, he had sufficient funds and the opportunity
Upon receipt of the hard-copy invoice, the accounts arose when a local grocery store went up for sale. He
receivable clerk creates a digital record in the accounts purchased the building and converted it into the ‘‘Bait
receivable subsidiary ledger from his terminal. The ’n Reel’’ fishing store. His early business involved cash-
clerk then files the invoice copy in the department. only transactions with local fishermen. By the mid-
Customer payments and remittance advices come 1990s, however, the building expanded into a superstore
into the mail room. A clerk separates the documents that sold a wide range of sporting products and camping
and sends the remittance advice to accounts receivable gear. People from all over the county shopped at Bait ’n
and the checks to the cash receipts department. Reel as Roberts increased his advertising efforts,
Upon receipt of the remittance advice, the accounts emphasizing his ability to provide excellent service and
receivable clerk accesses the customer’s account in the the wide range of products. Roberts moved away from a
accounts receivable subsidiary ledger from a terminal cash-only business and began offering store credit cards
and adjusts the balance accordingly. The clerk files the to consumers and became a regional wholesaler to many
remittance advices in the department. smaller sporting goods stores.
The cash receipts clerk receives the checks and posts With the help of a friend, Roberts also installed a
them to the cash receipts journal from her terminal. The computer network. Although these computers did help
clerk then manually prepares a hard-copy deposit slip to automate the company’s business processes and
and sends it with the cash to the bank. facilitated the sharing of data between departments,