Page 330 - Accounting Information Systems

CHAPTE R 6 The Expenditure Cycle Part II: Payroll Processing and Fixed Asset Procedures 301

Fixed Asset System categories of physical control activities specified in
the SAS 78/COSO control model.
Asset acquisition begins in the user department when
d. Prepare a system flowchart of a redesigned com-
the manager recognizes the need to obtain a new or
puter-based system that resolves the control weak-
replace an existing fixed asset. The user manually pre-
nesses that you identified. Explain your solution.
pares two copies of a purchase requisition, filing one
copy in the user department and sending one copy to 6. Orbits—Comprehensive Case (Manual
the purchasing department. The purchasing department
uses the purchase requisition to prepare three copies of and Stand-Alone PC System Includes Pur-
a purchase order. One copy of the purchase order is sent chases, Payroll, Fixed Assets, and Sales
to the supplier, one is sent to the accounts payable Order Processing)
department, and the last copy is filed in purchasing with
(Prepared by Jaime Hesser, William Levien, and Rachel
the purchase requisition.
Sapir, Lehigh University)
The accounts payable clerk receives the purchase
In 1997, J. D. Orbits opened a cell phone accessory man-
order from purchasing, the asset invoice from the ven-
ufacturing plant named Orbits. Although the company
dor, and a packing slip from the receiving dock after the
began its operations at the local level with only 40
assets arrive. The accounts payable clerk reconciles the
employees, 3 vendors, and 5 main customers, it experi-
purchase order with the packing slip and invoice. Then,
enced rapid success. By 2001, gross sales tripled and the
using a department PC, the clerk posts a liability to the
enterprise expanded its customer, vendor, and employee
accounts payable subsidiary ledger and records the asset
base, and it now serves all major cell phone manufac-
in the fixed asset inventory subsidiary ledger. The pur-
turers. Currently, Orbits employs more than 120 individu-
chase order and packing slip are filed in the accounts
als, including executives, directors, sales representatives,
payable department. Next, the clerk prepares a cash
office personnel, and production workers.
disbursement voucher, which she sends along with the
Customers: Orbits sells to the outlet stores of distrib-
invoice to the cash disbursement clerk. At the end of
utors such as Verizon, MCI, Cingular, and AT&T cellu-
the day, the clerk prints hard-copy summaries of the
lar phones in the tri-state area.
accounts payable and fixed asset inventory ledgers,
Materials and Suppliers: Manufacturing hands-free
which she sends to the general ledger department.
cell phone devices requires a number of different mate-
Upon receipt of the cash disbursements voucher and
rials, none of which is made in-house. Most parts are
invoice, the cash disbursements clerk, using the depart-
purchased from 25 vendors. The more complex compo-
ment PC, prepares a check and posts the relevant data to
nents used in the manufacturing process are purchased
the check register. The clerk then prints a hard copy of
through contracts with vendors. Raw materials are pur-
the check and sends it to vendor. The cash disburse-
chased from vendors according to price without a for-
ments voucher and invoice are then sent to the general
mal contract.
ledger department.
User department managers handle the asset mainte-
nance and disposal. They calculate depreciation and Accounting System
approve asset disposal for retired assets. Related to Orbits accounting system is comprised of manual proce-
these actions, the managers prepare depreciation and dures that are supported by stand-alone PC (not net-
asset disposal reports, which they send to the accounts worked) in several departments. Key elements of the
payable clerk, who updates the appropriate fixed asset sales order processing, purchasing, fixed assets, and pay-
inventory accounts. Finally, the general ledger depart- roll systems are described in the following paragraphs.
ment clerk receives and reconciles the vendor invoices,
cash disbursement vouchers, and account summaries. Purchases System
Using the department PC, the clerk posts to the respec-
The process begins in the purchasing and inventory con-
tive general ledger accounts and files the documents in
trol department. Using the department PC, a clerk moni-
the department.
tors the inventory levels in the digital inventory ledger.
Required When the inventory on hand falls below the reorder
a. Create a data flow diagram of the current system. point, the clerk prints two copies of a purchase requisi-
b. Create a system flowchart of the existing system. tion. The clerk sends one copy to the accounts payable
c. Analyze the internal control weaknesses in the department, where the accounts payable clerk files it in
system. Model your response according to the six the accounts payable pending file. The clerk hands the