Page 275 - Accounting Information Systems

246 PART II Transaction Cycles and Business Processes

Problems

1. UNRECORDED LIABILITIES 3. DOCUMENT PREPARATION
You are auditing the financial statements of a New York Create the appropriate documents (purchase requisition,
City company that buys a product from a manufacturer purchase order, receiving report, inventory record, and
in Los Angeles. The buyer closes its books on June 30. disbursement voucher), and prepare any journal entries
Assume the following details: needed to process the following business events for
Jethro’s Boot & Western Wear Manufacturing Com-
Terms of trade FOB shipping point
pany (this is a manual system).
June 10, buyer sends purchase order to seller
a. On October 28, 2005, the inventory subsidiary
June 15, seller ships goods
ledger for Item 2278, metal pins, indicates that the
July 5, buyer receives goods
quantity on hand is 4,000 units (valued at $76), the
July 10, buyer receives seller’s invoice reorder point is 4,750, and units are on order. The
economic order quantity is 6,000 units. The sup-
plier is Jed’s Metal Supply Company (vendor num-
Required ber 83682). The customer number is 584446. The
a. Could this transaction have resulted in an current price per unit is $0.02. Inventory records
unrecorded liability in the buyer’s financial are kept at cost. The goods should be delivered to
statements? Inventory Storage Room 2.
b. If yes, what documents provide audit trail evidence b. On November 8, the goods were received (the
of the liability? scales indicated that 4,737 units were received).
c. On what date did the buyer realize the liability? c. On November 12, an invoice (number 9886) was
d. On what date did the buyer recognize the liability? received for the above units, which included freight
of $6. The terms were 1/10, net 30. Jethro’s likes to
New assumption:
keep funds available for use as long as possible
Terms of trade free on board destination without missing any discounts.
e. Could this transaction have resulted in an
unrecorded liability in the buyer’s financial
statements? 4. FLOWCHART ANALYSIS
f. If yes, what documents provide audit trail evidence Examine the diagram for Problem 4 and indicate any
of the liability? incorrect initiation and/or transfer of documentation.
g. On what date did the buyer realize the liability? What problems could this cause?
h. On what date did the buyer recognize the liability?

5. ACCOUNTING RECORDS
AND FILES
2. INVENTORY ORDERING
Indicate which department—accounts payable, cash dis-
ALTERNATIVES bursements, data processing, purchasing, inventory, or
Refer to Figure 5-16 in the text, which illustrates three receiving—has ownership over the following files and
alternative methods of ordering inventory. registers:
Required a. open purchase order file
a. Distinguish between a purchase requisition and a b. purchase requisition file
purchase order.
c. open purchase requisition file
b. Discuss the primary advantage of alternative two d. closed purchase requisition file
over alternative one. Be specific.
e. inventory
c. Under what circumstances can you envision man-
agement using alternative one rather than alterna- f. closed purchase order file
tive two? g. valid vendor file