Page 284 - Accounting Information Systems

C H A P TER 5 The Expenditure Cycle Part I: Purchases and Cash Disbursements Procedures 255

Upon receiving the purchase order, the inventory con- Pennsylvania’s Pocono Mountains region, Roberts was
trol clerk uses a terminal to access the open requisition lucky enough to have a large lake right down the road,
file and closes the record. In addition, the program auto- where he found himself fishing throughout the year.
matically creates a digital pending open purchase record. Unfortunately, he had to drive more than 15 miles to
Shortly after receiving the purchase order, the vendor purchase his fishing supplies, such as lines, hooks, and
will send out both the goods and a packing slip to Pre- bait, among other things. Throughout his early adult-
mier’s receiving department. After the receiving clerk hood, Jamie frequently overheard other fishermen
has both the purchase order and the packing slip, he vocalizing their displeasure at not having a local fishing
physically inspects the condition of the goods and store to serve their needs. Because of this, Roberts
checks that both the type and quantity received are cor- vowed to himself that he would open his own store if he
rect. Upon completion of the inspection, the clerk man- could ever save up enough money.
ually creates three hard copies of a receiving report. By 1983, he had sufficient funds and the opportunity
One copy is filed in the department. The second copy is arose when a local grocery store went up for sale. He
sent to accounts payable for reconciliation. The third purchased the building and converted it into the ‘‘Bait ’n
copy is sent to the inventory control department. Reel’’ fishing store. His early business involved cash-
When the inventory control department obtains the only transactions with local fishermen. By the mid-
receiving report, the clerk uses the purchase update pro- 1990s, however, the building expanded into a superstore
gram to access the pending open purchase record and that sold a wide range of sporting products and camping
closes it out. In addition, the clerk updates the inventory gear. People from all over the county shopped at Bait ’n
file by posting the amounts received to the various in- Reel as Roberts increased his advertising efforts, empha-
ventory records affected. sizing his ability to provide excellent service and the
When the accounts payable department clerk wide range of products. Roberts moved away from a
receives the invoice from the supplier, he matches it to cash-only business and began offering store credit cards
the supporting purchase order and receiving report to consumers and became a regional wholesaler to many
received from the purchasing and receiving depart- smaller sporting goods stores.
ments, respectively. The clerk manually reconciles all With the help of a friend, Roberts also installed a
three documents and prepares an accounts payable computer network. Even though these computers did
record from the department terminal. help to automate the company’s business processes and
Finally, at the end of each day, the inventory control facilitated the sharing of data between departments,
department and the accounts payable department create a much interdepartmental communication continued to be
hard-copy inventory summary and accounts payable jour- via hard-copy documents.
nal voucher, respectively, reflecting the effects of all of the Revenue increased sharply during the four years after
day’s transactions. These documents are sent to the general the implementation of the computer system. In spite of
ledger department, where they are reconciled and posted to this, Roberts had some questions about the quality of pro-
their specific control accounts within the general ledger file. cesses, as many of the subsidiary accounts did not match
the general ledger control accounts. This didn’t prove to
Required
a. Create a data flow diagram of the current system. be a material problem, however, until recently when the
computers began listing supplies on hand that were not
b. Create a system flowchart of the existing system.
actually on the shelves. This created problems as custom-
c. Analyze the internal control weaknesses in the ers became frustrated by stock-outs. Roberts knew some-
system. Model your response according to the six thing was wrong, but he couldn’t put his finger on it.
categories of physical control activities specified in You have been hired by Roberts to evaluate Bait ’n
SAS 78/COSO.
Reel’s processes and internal controls and make recom-
d. Prepare a system flowchart of a redesigned computer- mendations for improvement. Bait ’n Reel’s expendi-
based system that resolves the control weaknesses ture cycle is described in the following paragraphs.
you identified. Explain your solution.

7. Bait ’n Reel Superstore (Combination Expenditure Cycle
Networked Computers and Manual Purchases System
System) The process begins when the purchasing manager
(Prepared by Matt Wisser, Lehigh University) checks the inventory subsidiary ledger on his computer
Bait ’n Reel was established in 1983 by Jamie Roberts, terminal each morning. When inventory is deemed to
an avid fisherman and environmentalist. Growing up in be too low, he reviews the valid vendor file, also from