Page 285 - Accounting Information Systems

256 PART II Transaction Cycles and Business Processes

his terminal, to select vendors for items to be purchased. sent to the vendor for payment. The invoice, purchase
Once a vendor is found, he prepares an electronic ver- order copy, receiving report, and check copy are filed
sion of the purchase order, in addition to two hard cop- in the department.
ies of the purchase order. One hard copy is sent to the Required
vendor immediately, while the other is filed in the
a. Create a data flow diagram of the current system.
department. Immediately after this event, the electronic
b. Create a system flowchart of the existing system.
version of the purchase order is sent out to two termi-
nals: one in the receiving department and one in the c. Analyze the internal control weaknesses in the
accounts payable department. system. Model your response according to the six
categories of physical control activities specified
When the clerk in the receiving department receives
in SAS 78/COSO.
the electronic purchase order, he reads over it once to
make sure it seems correct. When the goods arrive, he d. Prepare a system flowchart of a redesigned computer-
based system that resolves the control weaknesses
makes a detailed inspection of them and reconciles the
you identified. Explain your solution.
goods to the corresponding information contained in the
electronic purchase order. If everything looks correct,
the clerk manually prepares two hard copies of the 8. Green Mountain Coffee Roasters, Inc.
receiving report. One of these copies accompanies the
goods to the inventory control/storage department, (Manual Procedures and Stand-Alone PC)
where the clerk updates the inventory subsidiary account (Prepared by Ronica Sharma, Lehigh University)
from his terminal; it is then filed after the goods are Green Mountain Coffee Roasters, Inc., was founded in
placed on the shelves. The other copy of the receiving 1981 and began as a small cafe in Waitsfield, Vermont,
report is sent to the accounts payable department. roasting and serving premium coffee on the premises.
Upon receipt of the receiving report, the accounts Green Mountain blends and distributes coffee to a vari-
payable clerk matches it to the respective electronic pur- ety of customers, including cafes, delis, and restaurants,
chase order on his terminal. He then updates the and currently has about 6,700 customer accounts reach-
accounts payable subsidiary ledger from his terminal to ing states across the nation. As the company has grown,
reflect the transaction. The clerk temporarily files the several beverages have been added to their product line,
receiving report until the invoice arrives from the ven- including signature blends, light and heavy roasts,
dor. Typically, vendors provide a photocopy of the orig- decaffeinated coffee and teas, and herbal teas. Green
inal purchase order along with the invoice so any Mountain Coffee Roasters, Inc., has been publicly
discrepancies can immediately be identified. When the traded since 1993.
accounts payable clerk receives the invoice and purchase Green Mountain Coffee has a warehouse and manu-
order copy, he pulls the receiving report from the tempo- facturing plant located in Wilton, Vermont, where it pres-
rary file and reconciles the three documents. At this ently employees 250 full-time and part-time workers.
time, the clerk updates the accounts payable control and The company receives its beans in bulk from a select
the inventory control accounts in the general ledger on group of distributors located across the world, with their
his terminal. The clerk the sends the invoice, receiving largest supplier being Columbia Beans Co. Green Moun-
report, and the purchase order copy to the cash disburse- tain Coffee also sells accessories that complement their
ments department. products, including mugs, thermoses, and coffee contain-
ers that they purchase from their supplier, Coffee Lovers,
Inc. In addition, Green Mountain purchases paper prod-
Cash Disbursements System ucts such as coffee bags, coffee cups, and stirrers, which
Upon receipt of the documents from the accounts pay- they distribute to their customers.
able department, the cash disbursements clerk pre- Green Mountain’s accounting system consists of
pares a check for the invoiced amount. Once this is manual procedures supported by stand-alone PC located
completed, he updates the check register, accounts in various departments. Because these computers are
payable subsidiary account, and the general ledger not networked they cannot share data digitally, and all
from his terminal. The three documents, along with interdepartmental communication is through hard-copy
the check, are then passed on to the assistant treasurer. documents.
As an additional control, the assistant treasurer Green Mountain is a new audit client for your CPA
reviews the supporting documents and makes a photo- firm and as manager on the assignment you are examin-
copy of the check for record-keeping purposes. The ing their internal controls. The expenditure cycle is
treasurer then signs the check, which is immediately described in the following paragraphs.