Page 279 - Accounting Information Systems

250 PART II Transaction Cycles and Business Processes

nonperishable goods such as canned goods and paper Elizabeth, New Jersey. Spice Is Right currently employs
products. They also maintain a one-day inventory of pro- over 100 people, has dozens of suppliers, and trades in
duce and other perishable products in the warehouse hundreds of ethnic and exotic foods from all over the
where they can quickly restock the shelves when neces- world.
sary. At close of business each evening the warehouse Recently, Spice Is Right has been receiving com-
clerk reviews the market shelves for items that need to be plaints from customers and suppliers about billing, ship-
replenished. The clerk restocks the shelves and adjusts ping, and payment errors. Management believes that
the digital stock records accordingly from the warehouse these complaints stem, in part, from an antiquated com-
PC. At this time the clerk takes note of what needs to be puter system. Spice’s current information system
reordered from the suppliers and prints purchase orders includes manual procedures supported by independent
from the PC. Depending upon the nature of the product (non-networked) PC in each department, which cannot
and urgency of the need, the clerk either mails the pur- communicate with each other. Document flows between
chase order to the supplier or orders by phone. Phone the departments is entirely in hard-copy form. The fol-
orders are followed up by faxing the purchase order to lowing is a description of their expenditure cycle at the
the supplier. Boston headquarters office.
When the goods arrive from the vendor the ware-
house clerk reviews the packing slip, restocks the ware-
house shelves, and updates the stock records from the Purchasing Process
PC. At the end of the day the clerk prepares a hard-copy
The purchasing agent monitors the inventory levels
purchases summary from the PC and sends it to the
by reviewing the inventory subsidiary ledger from
treasury clerk for posting to general ledger.
his department computer. He decides which items need
The vendor’s invoice is sent to the accounting clerk.
to be replenished and selects a supplier. He then enters
She examines it for correctness and files it in a tempo-
this information into the computer terminal to create
rary file until it is due to be paid. The clerk reviews the
a digital purchase order. The computer terminal gener-
temporary file daily looking for invoices to be paid.
ates three hard copies of the purchase order. The pur-
Using the accounting department PC, the clerk prints a
chasing agent sends one copy to the supplier, one copy
check and records it in the digital check register. She
to the accounts payable department where it is filed
then files the invoice and mails the check to the supplier.
temporarily, and files the third copy in the purchasing
At the end of the day she prints a hard-copy journal
department.
voucher from the PC, which summarizes the day’s cash
When the goods are received, the receiving depart-
disbursements, and sends it to the treasury clerk for post-
ment inspects and verifies them using the packing slip,
ing to the general ledger.
which is attached to the goods. The receiving clerk
Using the department PC, the treasury clerk posts the
manually prepares two hard copies of a receiving report.
journal voucher and purchases summary information to
One copy accompanies the goods to the warehouse for
the appropriate general ledger accounts.
storage. The receiving clerk sends the second copy to
the purchasing agent who uses it to update the inventory
Required subsidiary ledger and to close the open purchase order.
a. Create a data flow diagram of the current system.
The purchase agent then files the receiving report in the
b. Create a system flowchart of the current system. department.
c. Analyze the internal control weaknesses in the
system. Model your response according to the six
categories of physical control activities specified in Accounts Payable and Cash
SAS 78/COSO.
Disbursements Procedures
The accounts payable clerk receives the supplier’s
2. Spice Is Right Imports (Stand-Alone PC-
invoice and reconciles it with the purchase order in the
Based Accounting System) temporary file. From her computer terminal the clerk
Spice Is Right was established in 1990 in Boston where records the purchase in the purchases journal and
they began importing exotic spices and cooking sauces records the liability by creating a cash disbursement
from India and China. They distribute these specialty voucher. The clerk then updates the inventory control
foods to ethnic food shops, cafes, and restaurants across and accounts payable control accounts in the general
the country. In addition to their Boston headquarters ledger. The purchases order and invoice are then filed
and warehouse, the company has a distribution center in in the department.