Page 286 - Accounting Information Systems

C H A P TER 5 The Expenditure Cycle Part I: Purchases and Cash Disbursements Procedures 257

Purchases System categories of physical control activities specified in
SAS 78/COSO.
Green Mountain Coffee purchases beans and blends
from manufactures and then sells them to customer d. Prepare a system flowchart of a redesigned computer-
based system that resolves the control weaknesses
stores. Sara is in charge of inventory management in the
you identified. Explain your solution.
warehouse. From her PC, she reviews the inventory
ledger to identify inventory needs. When items fall to
their pre-established reorder point, she prepares a pur- 9. USA Cycle Company (Manual
chase requisition. She keeps a copy in her department Procedures and Stand-Alone PCs
for use later, files one in the open purchase requisition
(Prepared by Kim Hancy, Lehigh University)
file, and sends a copy to accounts payable. At the end
USA Cycle Company is one of the fastest-growing
of the day, she uses the purchase requisitions to prepare
bicycle distributors in the United States, with headquar-
a four-part purchase order. One copy is filed, two copies
ters in Chicago, Illinois. Their primary business is dis-
are sent to the supplier, and one copy is sent to Fayth in
tribution of bicycles assembled in China, but they also
the accounts payable department. When the goods
have a smaller, custom-order business for which they
arrive, Sara inspects and counts them and sends the
build bicycles from parts purchased from various sup-
packing slip to accounts payable. Using a PC, Sara
pliers. Their product line includes mountain, road, and
updates the inventory subsidiary ledger and, at the end
comfort bikes as well as a juvenile line with up to 24-
of day, sends an account summary to Vic in the general
inch frames. They also distribute BMX bicycles as well
ledger department.
as tricycles and trailer bikes. In addition, they distribute
After checking that the purchase requisition and pur-
various bicycle accessories such as helmets, clothing,
chase order exist to support the packing slip, Fayth files
lights, and spare parts for all of the models they carry.
the documents in the accounts payable pending file. The
Established in 1985, the company’s first warehouses
supplier’s invoice is mailed directly to Fayth, who
were in Illinois and Wisconsin and supplied retail bicycle
checks it against the documents in the pending file.
outlets primarily in the Midwest. One year ago, USA
Using a computer system, she updates the accounts pay-
Cycle Company expanded, adding two additional facili-
able subsidiary ledger and records the transaction in the
ties in Sacramento, California, and Redmond, Washing-
purchases journal. She then files the purchase requisition,
ton, to meet the growing demand for their bicycles. They
purchase order, packing slip, and invoice in the open
now also sell customized bicycles direct to retailers
accounts payable file. At the end of the day, she prepares
through the Internet as well as by conventional means.
a journal voucher, which is sent to Vic in the general
The company’s expansion to the West Coast was
ledger department. Using a separate computer system,
coupled with a planned increase in reliance on suppliers
Vic updates the control accounts affected by the transac-
in China. Although this resulted in decreased costs,
tions and files the summary and journal vouchers.
some problems regarding inventory levels arose
because of unexpected delays in shipping, primarily at-
Cash Disbursements System Summary tributable to miscommunication and shipping condi-
Fayth reviews the open accounts payable file for items tions. Because the company does not want to carry
due for payment, waiting until the last date to make a excess inventory, they are sometimes forced to seek
payment and still take advantage of the discount. local suppliers at an increased cost.
From her PC, she then updates (closes) the appropriate Initially, USA Cycle Company was a family-owned
accounts payable subsidiary record, prints a two-part business. In need of capital, however, the company
check, and records the payment in the check register went public when they added the two facilities on the
file. At the close of day, Fayth mails the check to the West Coast. The number of employees rose from 100 to
supplier, files a copy, and prepares a journal voucher, 200 during the expansion.
which goes to Vic. Vic records the transaction in the USA Cycle Company uses limited computer technol-
affected general ledger accounts and files the journal ogy to process business transactions and record
voucher. accounting data. Each of its facilities is similarly config-
ured: The various departments in the facility employ
Required manual procedures that are supported by non-networked
a. Create a data flow diagram of the current system. PC. Because this type of configuration does not permit
b. Create a system flowchart of the existing system. departments to share data digitally, most interdepart-
c. Analyze the internal control weaknesses in the mental communication is accomplished via hard-copy
system. Model your response according to the six documents.