A-21

Appendix: Comprehensive Cases

CASE A.4: THE WOODEN NICKEL1

Background

The Wooden Nickel is a small retail clothing store

located in Stillwater, Oklahoma, across the street
from Oklahoma State University. The store was
opened in 1976 by K. Cohlmia and is run as a sole
proprietorship. The store specializes in casual clothing and caters to the upscale university student market. Stillwater has approximately 35,000 residents, so
the 18,000 students at the university have a tremendous impact on all retail stores in town.
The Wooden Nickel divides its inventory into a
mens department and a womens department. K.
strives to provide the type of clothing that is not
found in discount outlets. In fact, the store is the only
authorized supplier of Polo products in the city and
surrounding area.
At the current time, all accounting is done manually. The stores business can be divided into two
cycles: (1) spring and summer and (2) fall and winter.
Because of the cyclical nature of the business, it is
often necessary to borrow to cover the outlay for
purchases. This is then repaid as quickly as the revenue from the sales cycle permits. K. negotiates with
local banks to cover this need on a yearly basis.There
are currently nine employees (job descriptions are
presented in Fig. 1).
The store has a display area which covers the
entire front of a renovated older building. One centrally located electronic cash register is used for all
sales. The back of the building is divided into a large
office and a merchandise storage area. K. uses the
office for all of his ownership duties.The bookkeeper
also uses this office and the managers use it whenever the need arises. In addition, the safe is located in
the office. There is a rear entrance near the storage
area where goods can be unloaded.
Revenue Cycle

Regular Sales. The Wooden Nickel has yearly sales

of between $700,000 and $800,000. The store generates from 50 to 70 sales tickets each day, with an average of 2 items per ticket. The daily sales process is
discussed in detail below. While the majority of
the customers pay by cash, check, or credit card, they

Owner (K.)
Budgeting and purchasing
Advertising
Writing and controlling checks
Payroll
Bank statement reconciliation
Credit card process
Manager, Womens Department (Melanie)
Supervises salesclerks
Prepares work schedules
Merchandising
Assists with buying for womens department
Sales as needed
Handles alterations
Manager, Mens Department (Jay)
Supervises salesclerks
Prepares work schedules
Merchandising
Assists with buying for mens department
Sales as needed
Handles all vendor returns
Deposits to bank
Bookkeeper (Kim)
Prepares daily deposits
Posts accounts receivables
Prepares statements for customer accounts monthly
Receiving
Makes inventory tags
Filing
Sales as needed
Salesclerks
(56)
All sales functions (are not specifically assigned to a
department)
Assist with merchandising and inventory tagging
General housekeeping duties

Figure 1 Job Descriptions

This case was prepared by Patrick Dorr, School of Accounting, Oklahoma State University, and by Martha M. Eining,
University of Utah, as a basis for classroom discussion rather than to illustrate effective or ineffective handling of an accounting system. Reprinted with permission.
1

A-22

Case A.4: The Wooden Nickel

do have approximately 500 charge customers.

Historically, K. has allowed only customers he knows
personally to open charge accounts. The store has no
established policy for charge customers.
When a customer wishes to make a sale, the customer can give the merchandise to any available
salesclerk or take it to the cash register station. The
salesclerk completes two copies of a prenumbered
sales ticket. If a bank card is being used, a three-part
bank card receipt is also completed. The transaction
is then entered into the cash register by transaction
type:
Cash key. The sales ticket is validated on the back
with the date and amount.
Credit key/charge account. The sales ticket is validated as above.
Check key. The sales ticket and the check are validated.
Bank card key. Bank card receipt is validated.
The first copy of the sales ticket (and bank card
receipt if applicable) is given to the customer. The
second copy is placed in the cash register. The third
copy of the bank card receipt is filed by date in the
back office. The top copy of the sales ticket is presented in Fig. 2, and the bank card receipt is presented in Fig. 3.

48598

225 S. KNOBLOCK

377-8808
STILLWATER, OKLAHOMA 74074

________________________ 19 _______

Customer

Sold by
Qty.

Cash

Charge

Description

On Acct.

Paid Out

Price

Amount

Layaway Sales. When a customer chooses to put

an item on layaway, a special layaway form is completed (see Fig. 4). A minimum down payment of
25% is required to hold the merchandise. The balance is due in three equal payments over the next
three months. The sale is entered using the layaway
key on the register, and the form is validated with the
date and amount. The cash deposit is included in
the daily sales and handled as described in the sales
cycle.
Sales Returns. The stores policy is never to give a
cash refund when the item was paid for by cash or
check. Instead, it issues a credit for the merchandise
that has been returned. A three-part sales ticket is
prepared and marked as a return. If the original sale
was made on account, only two copies are prepared.
If the merchandise was purchased on a credit card,
then the refund is made through the credit card.
In this case, a bank card credit receipt must also be
prepared.
The sales return transaction is entered using the
sales return key on the register.After the ticket is validated, the original is given to the customer, the duplicate is placed in the cash register, and the third copy
is placed in a credit file which is kept near the cash

NO CASH REFUNDS
SALES TAX
TOTAL

Figure 2 Example Sales Ticket

register. The bookkeeper uses the second copy of

credit account returns to post the transaction to the
accounts receivable subsidiary cards. Even though
the amount of the sales return is actually a credit, it is
kept in the accounts receivable card to avoid the
necessity of setting up an accounts payable file.

A-23

Appendix: Comprehensive Cases

Figure 3
Example Bank
Card Receipt

When the customer returns to use the credit to

purchase an item, the credit is verified with the copy
which has been placed in the credit file. This copy is
then validated and put in the cash register. It is used
by the bookkeeper to offset the balance in the
accounts receivable subsidiary card.
Cash Receipts. The owner or one of the store managers opens the mail daily and separates the checks
or receipts. The manager prepares a sales ticket for
each receipt and then enters the checks into the register using the accounts receivable key. The sales
ticket is validated with the date and amount. The
checks are placed in the drawer and included in the
daily deposit. The bookkeeper posts the collections
from the information on the sales ticket to the individual accounts receivable cards. The same procedure is used for layaway payments.
End-of-Day Activity. At the end of the day, one of
the store managers rings out the register and reconciles the money and bank card receipts in the cash
drawer with the total on the register tape. The cash
register tape indicates totals by transaction type.
Figure 5 presents an example of the cash register
tape. The information from the cash register tape is
entered into the daily receipts reconciliation (see Fig.
6). One hundred dollars is kept in the cash register
drawer and becomes the next days beginning balance. The manager then places all other money,
copies of sales tickets and bank card receipts, the
register tape, and the reconciliation in the safe
overnight.

The following morning, the bookkeeper retrieves

all the items from the safe. The bookkeeper reconciles the register tape with the checks, cash, and bank
card receipts from the previous day.A daily deposit is
then prepared by the bookkeeper. The manager
delivers the deposit to the bank.
Finally, the bookkeeper uses the sales tickets to
post credit sales to the accounts receivable subsidiary
cards. Daily sales amounts from the daily receipts
reconciliation are entered into the sales journal at
this time. Figure 7 provides an overview of the daily
sales register.All paper documentation is then stored
in a file cabinet.
Expenditure Cycle

Purchasing. The owner plans the budget, breaking

the total amount down into retail dollars available
for each department based on projected sales. He
takes 8 to 10 buying trips per year. While on each trip
he comes in contact with at least 40 vendors who provide him with their own purchase orders. He uses
these purchase orders to make notations on what
items he would like to order, constantly trying to
maintain a running total so he doesnt exceed the
departments budgeted amount. The actual ordering
is not done until the owner returns to the store and
reviews the purchase orders. He then places the
order by sending a copy of the completed purchase
order to the vendor.A duplicate copy of the purchase
order is filed by vendor.
Receiving. All shipments are sent via UPS.
Shipments will typically arrive and be unloaded

A-24

Case A.4: The Wooden Nickel

Figure 4
LAYAWAY MERCHANDISE IDENTIFICATION TICKET

Example Layaway Form

Date ___________________________

No.

1931

Name
Address
City
Telephone _______________________________

Qty.

Clerk No. ___________________________

Description

Price

LAYAWAY

Sub Total

Agreement
Payments of $ _____________
MO.
To Be Made Every
WK.
Failure to make payment
for 30 days will cause
merchandise to be
replaced in stock and the
customer forfeiting all previous payments.
Date ___________________
Customers
Signature
Date

Old Balance

Tax
Layaway Fee
Total
Deposit
Balance

Amount Paid

New Balance

LAYAWAY

Location _______________________________ No. of Packages ____________________

No Exchanges or Cash Refunds
Customers Identification Stub

through the back entrance. However, sometimes they

will be delivered through the front. The bookkeeper
or owner unpacks the goods and compares the units

received with the packing list accompanying the shipment. If any discrepancies exist (i.e., errors in
amounts shipped), they are noted on the packing list

A-25

NET SL
W/TAX

Appendix: Comprehensive Cases

0031
2189.33

ITEMS

0065

NO SLE

0012

TRAIN

0000
0.00

CASH

0031
330.98

DAILY RECEIPTS RECONCILIATION

DATE
Cash

10-17

330.98

Checks

1097.03

0018
1097.03

Deposit total

1428.01

0003
285.82

Rec. on acct.

CARD

0006
410.67

Layaways rec. on acct.

W.N. charge cards

285.82

LAYAWY

0002
164.69

Visa/Mastercard

410.67

GC RED

0000
0.00

LAY RA

0003
69.86

PO

0000
0.00

RA

0001
30.00

MARK

0000
0.00

VOID

0000
0.00

RETURN

0000
0.00

CREDIT

0000
0.00

CHECK

CHARG

Private charges

Layaways

30.00
164.69
69.86

Discover Card

TAX

128.83

Figure 5
Example Cash Register Tape Totals

Am. Express Card

Paid outs

Figure 6 Example Daily Receipts Reconciliation

and then discussed by phone with the vendor. The
same procedure is used if any of the merchandise is
damaged. The vendor then issues a return authorization. This must be received before the merchandise is
returned.
The packing list is kept in an open file until
the invoice is received. Any information about discrepancies and/or damaged goods is transferred to
the invoice when it is received and the invoice is
adjusted accordingly. The packing list is then used by
the bookkeeper to make inventory tags. The salesclerks attach the tags to the merchandise in their
spare time.
Cash Disbursements. When the vendors invoice is
received, the packing list is pulled and checked for
discrepancies. Any problems are handled by phone;
the two documents are stapled together and filed by
due date. Most invoices carry a 2/10, net 30 discount.
About 10% of the mens clothing vendors and 90% of
the womens vendors offer cash discounts of 2%8%.
This cycle is summarized in the flowchart in Fig. 8.

A-26

Case A.4: The Wooden Nickel

Figure 7 Daily Sales Register

Date
10-17

Sales *1

Sales
Tax

2189.33 128.83

Charges*

Rec/Acct

Layaway*

Layaway
Rec/Acct

285.82

30.00

164.69

69.86

Cash
Refund

Freight

Deposit

Bank Card*

1428.01

410.67

* All figures include sales taxes. This is because the information from the cash register tape includes sales taxes.
1. Sales = cash (and check) receipts  receipts on account  layaway receipts + charge sales + layaway sales + bank card
sales.

All checks are prenumbered and controlled by

the owner. On the tenth of each month he pulls all
the invoices, issues the checks, and mails them.
All other bills are paid by the owner on the fifteenth
of each month. He also keeps track of the payroll,
which is paid on the first and sixteenth of the month.
He enters all amounts to the check register (see
Fig. 9).
Periodic Procedures

The bookkeeper prepares customer statements

by making a copy of the accounts receivable subsidiary cards illustrated in Fig. 10 on page A29. The
statements are mailed to customers at the end of
each month. At this point there is no real effort to
track accounts receivable balances, and no interest is
charged on accounts.
The owner reconciles the bank statement and
takes care of all bank card activity. A periodic inventory is completed on January 1 and July 1. All available employees assist with the inventory.
An outside accountant is retained to assist with
taxes and preparation of any financial reports which
may be needed. The store currently maintains a daily
sales register, a check register, and a file of accounts
receivable subsidiary cards. No other books are being
maintained.
The requirements for this case are divided to coincide with the major sections of the book. In addition,
the appropriate chapters are also identified.

Part One: Conceptual Foundations of

Accounting Information Systems

1. (Chapter 1) Identify the deficiencies in the current information system for the Wooden Nickel.
Discuss the information that you think would be
most important for internal decision making and for
external needs.
2. (Chapter 2) Develop and describe coding
schemes for tracking inventory in the Wooden
Nickel.
3. (Chapter 3) Develop a data flow diagram for the
sales cycle of the Wooden Nickel.
4. (Chapter 3) Prepare document flowcharts to
illustrate the current cycles presented for the
Wooden Nickel. Use the example presented for the
cash disbursements cycle as a guide.
5. (Chapter 5) Discuss how the use of a data base
system could improve the information available to
the owner and managers of the Wooden Nickel.What
problems would be encountered with the implementation of a data base system?
6. (Chapter 6) Draw an ER diagram to represent
a data base for the revenue and expenditure cycles,
built according to the REA data model.
Part Two: The Technology of Information
Systems

7. (Chapter 7 or 8) To what extent should the

Wooden Nickel computerize? What items should be
considered in the decision to computerize? Include a

A-27

Appendix: Comprehensive Cases

Figure 8 Flowchart of Cash Disbursement Cycle

discussion of the type of computer hardware and

the type of end-user software that you would suggest to the owner. Make sure that you justify your
suggestions.
8. (Chapter 8) Develop a proposal for K. to use
microcomputers to support his decision-making
process. What should be provided? What would you
suggest differently for the two store managers?

9. (Chapter 9) Describe and discuss different possibilities for using data communications at the
Wooden Nickel. For example, should it have network? If so, what kind? Should it use a point-of-sale
system? In your discussion, include both the positive
and negative aspects of each choice.

A-28

Case A.4: The Wooden Nickel

Date

Chk
Number

10-10

2946

Polimer Supply

10-10

2947

B. Distributer

10-15

2948

DK Advertising

Description

Purchases

Freight

Advertising

Selling
Expense

Repairs

Rent

Wages

Misc
Dr

Cr

286.70
1049.21
216.00

Figure 9 Check Register

Part Three: The Systems Development

Process

10. (Chapter 10) Prepare a feasibility analysis for

the computerization of the Wooden Nickel. Be sure
to consider the number of transactions and the needs
of the store. You should also include both the quantifiable and the nonquantifiable items.
11. (Chapter 10) Develop a plan to determine, in
detail, the information needs for the Wooden Nickel.
On the basis of the information in the case, indicate
the most important information needs for the
Wooden Nickel.
12. (Chapter 10) How could the Wooden Nickel
take advantage of reengineering? Consider the sales
cycle. How could this cycle be reengineered?
13. (Chapter 11) From the information needs discussed in Requirement 1, design one of the reports
that would be needed for the Wooden Nickel.
14. (Chapter 11) Design the input forms and
screens needed to capture the information for the
report designed in Requirement 13.
15. (Chapter 12) Develop a plan for K. to follow to
purchase hardware and software. Include all items
that he should consider in choosing vendors.
Part Four: Control and Audit of Accounting
Information Systems

16. (Chapter 13) Identify the internal control

weaknesses in the current operation of the Wooden
Nickel. For each weakness, offer possible solutions.
This will be easier if you provide the information by
the cycles discussed in the case.

17. (Chapter 13) How can the Wooden Nickel

achieve adequate segregation of duties considering
the size of the company?
18. (Chapter 14) Assuming that the Wooden
Nickel computerizes, set up a system of internal controls over the computer function.
Part Five: Accounting Information Systems
Applications

19. (Chapter 17) If you did not complete the document flowcharts for all cycles in Part 1, then you
should develop a document flowchart of the sales
(revenue) cycle for the current operation of the
Wooden Nickel.
20. (Chapter 17) Specifically identify the information needed for the revenue cycle. Develop documentation to show how this output would be
provided.
21. (Chapter 17) Identify the internal control
objectives that should be established for the Wooden
Nickels revenue cycle. Assuming that the Wooden
Nickel will computerize its revenue cycle, describe several internal control policies and procedures
that should be established to achieve each of these
objectives.
22. (Chapter 18) If you did not complete the document flowcharts for all cycles in Part 1, then you
should develop a document flowchart of the expenditure cycle for the current operation of the Wooden
Nickel.
23. (Chapter 18) Specifically identify the information needed for the expenditure cycle. Develop

A-29

Appendix: Comprehensive Cases

Figure 10
Example Accounts
Receivable Subsidiary
Card

225 SOUTH KNOBLOCK

STILLWATER, OKLAHOMA 74074
405/377-8808
Acct. #

1076

B.B. Customer
Nearby Street
Stillwater, OK 74078
Date

Description

10-1

Purchase

10-16

Received on Account

documentation to show how this output would be

provided.
24. (Chapter 18) Identify the internal control
objectives that should be established for the Wooden
Nickels expenditure cycle. Assuming that the

Debit

Credit

186.16

Balance
186.16

20.00

166.16

Wooden Nickel will computerize its expenditure

cycle, describe several internal control policies and
procedures that should be established to achieve
each of these objectives.