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252     PART II       Transaction Cycles and Business Processes

                 4. Walker Books, Inc. (Manual System with      to provide legitimate documentation of transactions
                 Minimal PC Support)                            have become common.
                                                                   One potential source of these problems rests with
                 (Prepared by Matt Wisser, Lehigh University)
                                                                Walker’s antiquated accounting system, which is a com-
                 Walker Books, Inc., is one of the fastest-growing book
                                                                bination of manual procedures supported by stand-alone
                 distributors in the United States. Established in 1981 in
                                                                PC workstations. These computers are not networked
                 Palo Alto, California, Walker Books was originally a
                                                                and cannot share data between departments. All interde-
                 side project of founder and current president Curtis
                                                                partmental communication takes place through hard-
                 Walker, who at the time was employed by a local law
                                                                copy documents.
                 firm. Because reading was much more than just a hobby
                                                                   You have been hired as an independent expert to
                 of his, he decided to use some of his savings to buy an
                                                                express an opinion on the appropriateness of Walker
                 abandoned restaurant and convert it into a neighbor-
                                                                Books’ business processes and internal controls. The
                 hood bookstore, mainly selling used books that were
                                                                expenditure cycle is described next.
                 donated and obtained from flea markets. When the
                 doors first opened, Walker’s wife, Lauren, was the only
                 employee during the week and Curtis worked week-  Expenditure Cycle
                 ends. At the end of the first fiscal year, Walker Books  Purchases System
                 had grossed $20,000 in sales.                  The purchases process begins with the purchasing
                   As the years passed, Curtis Walker quit the law  agent, who monitors the levels of books available via a
                 firm and began concentrating fully on his bookstore.  computer terminal listing current inventory. Upon notic-
                 More employees were hired, more books were traded  ing deficiencies in inventory levels, the agent manually
                 in, and more sales were attained each year that passed.  generates four hard copies of a purchase order: one is
                 During the mid-1990s, however, Walker was faced  sent to accounts payable, one is sent to the vendor, one
                 with two problems: many large, upscale bookstores  is sent to the receiving department, and the last is filed
                 were being built in the area, and the use of the Internet  within the department.
                 for finding and ordering books was becoming cheaper  Vendors will generally ship the products within five
                 and more popular for current customers. In 1995,  business days of the order. When goods arrive in the
                 Walker’s sales started to decline. Deciding to take a  receiving department, the corresponding packing slip
                 risk because of the newfound competition, he closed  always accompanies them. The receiving department
                 his doors to the neighborhood, invested more money  clerk unloads the goods and then reconciles the packing
                 to expand the current property, and transformed his  slip with the purchase order. After unloading the goods,
                 company from simply selling used books to being a  the clerk manually prepares three hard copies of the
                 distributor of new books. His business model was to  receiving report. One copy goes with the goods to the
                 obtain books from publishers at a discount, store them  warehouse, another is sent to the purchasing depart-
                 in his warehouse, and resell them to large bookstore  ment, and the final copy is filed in the receiving depart-
                 chains.                                        ment. In the warehouse, the copy is simply filed once
                   Walker Books, Inc., has rapidly become one of the  the goods are stored on the shelves. In the purchasing
                 largest book distributors in the country. Although they  department, the clerk receives this copy of the receiving
                 are still at their original location in Palo Alto, California,  report and files it with the purchase order.
                 they distribute books to all 50 states and because of that,  When the accounts payable department receives the
                 the company now sees gross sales of about $105,000,000  purchase order, it is temporarily filed until the respec-
                 per year. When Mr. Walker is asked about his fondest  tive invoice arrives from the vendor. Upon receipt of
                 memory, he always responds that he will never forget  the invoice, the accounts payable clerk removes the pur-
                 how the little bookstore, with two employees, has  chase order from the temporary file and reconciles the
                 expanded to now have more than 145 employees.  two documents. The clerk then manually records the
                   Under his current business model, all of Walker’s  liability in the hard copy accounts payable subsidiary
                 customers are large-chain bookstores who themselves  ledger. Finally, the clerk files the purchase order and
                 see many millions of dollars in revenue per year. Some  invoice in the open accounts payable file in the depart-
                 of these customers, however, are now experiencing  ment. At the end of the day, the clerk prepares a hard-
                 problems with Walker Books that threaten their busi-  copy journal voucher and sends it to the general ledger
                 ness relationship. Such problems as books being or-  department.
                 dered but not sent, poor inventory management by  Once the general ledger department receives the
                 Walker causing stock-outs, and the inability of Walker  journal voucher, the clerk examines it for any obvious
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