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In 1989, Robert Smith opened a small fruit and vegetable market… bookmark_border

Accounting Information Systems

10th Edition
Hall + 1 other
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Publisher: Cengage Learning,

ISBN: 9781337619202 star_border
Chapter 4, Problem 1ICC

Textbook Problem 639 views keyboard_arrow_up

In 1989, Robert Smith opened a small fruit and vegetable market in Bethlehem,
Pennsylvania. Originally, Smith sold only produced grown on his family farm and
orchard. As the market’s popularity grew, however, he added bread, canned goods,
fresh meats, and a limited supply of frozen goods. Today, Smith’s market is a full
range farmers’ market with a strong local customer base. Indeed, the market’s
reputation for low prices and high-quality draws customers from other Pennsylvania
cities and even from the neighboring state of New Jersey. Currently, Smith’s market
has 40 employees. These include sales staff, shelf stockers, farm laborers, shift
supervisors, and clerical staff. Recently, Smith has noticed a decline in profits and
sales, while his purchases of products for resale have continued to rise. Although the
company does not prepare audited financial statements, Robert Smith has
commissioned your public accounting firm to assess his company’s sales procedures
and controls. Smith’s market revenue cycle procedures are described in the following
paragraphs:

Revenue Cycle

Customers push their shopping carts to the checkout register where a clerk processes
the sale. The market has four registers, but they are not dedicated to specific sales
clerks because the clerks play many roles in the day-to-day operations. In addition to
checking out customers, sales clerks will stock shelves, unload delivery trucks, or
perform other tasks as demand in various areas rises and falls throughout the day.
This fluid-work demand makes the assignment of clerks to specific registers
impractical.

At the beginning of the shift, the shift supervisor collects four cash register drawers
from the treasury clerk in an office in the back of the market. The drawers contain
$100 each in small bills (known as float) to enable the clerks to make change. The
supervisor signs a log indicating that he has taken custody of the float and places the
drawers into the respective cash registers.

Sales to customers are for cash, check, or credit card only. Credit card sales are
performed in the usual way.

The clerk swipes the card and obtains online approval from the card issuer at the
time of sale. The customer then signs the credit card voucher, which the clerk places
in a special compartment of the cash register drawer. The customer receives a receipt
for the purchase and a copy of the credit card voucher.

For payments by check, the clerk requires the customer to present a valid driver’s
license. The license number is added to the check and the check is matched against a
“black” list of customers who have previously passed bad checks. If the customer is
not on the list, the check is accepted for payment and placed in the cash register
drawer. The clerk then gives the customer a receipt.

The majority of sales are for cash. The clerk receives the cash from the customer,
makes change, and issues a receipt for the purchase.

At the end of the shift, the supervisor returns the cash register drawers containing the
cash, checks, and credit cards receipts to the treasury clerk and signs a log that he has
handed in the cash drawers. The clerk later counts the cash and credit card sales.
Using a stand-alone PC, he records the total sales amounts in the sales journal and the
general ledger sales and cash accounts. The treasury clerk then prepares a deposit
slip and delivers the cash, checks, and credit card vouchers to the local branch of the
bank two blocks away from the market.

Required

a. Create a data flow diagram of the current system.

b. Create a system flowchart of the existing system.
 c. Analyze the physical internal control weaknesses in the system. Model your
response according to the six categories of physical control activities specified
in the COSO internal control model.
d. Describe the IT controls that should be in place in this system.

a.

To determine keyboard_arrow_up

Prepare the data flow diagram for the current system.

Explanation of Solution keyboard_arrow_up

Data Flow Diagram:

A data flow diagram can be defined as a systematic method to represent the data flow
in a system or a process. This diagram also offers the information regarding inputs and
outputs of the process or an entity.

The data flow diagram for the current system:

Fig (1)

The above figure represents the data flow diagram of sales order of Company S.
According to the system, customers can pay for the sales with the help of credit card,
cash or check. When the sales clerk approves the payment, then the receipt is
generated and provided to the customers. Then the company deposits the amount into
the bank and records the same into the books of accounts. Then the deposit slip
generated at the time of cash deposit is documented.

b.

To determine keyboard_arrow_up

Prepare the system flowchart for the existing system.

keyboard_arrow_up
Explanation of Solution

The system flowchart for the existing system:

Fig (2)
The above figure represents the system flowchart of market sales of Company S.
According to the system, customers can pay for the sales with the help of credit card,
cash or check. When the sales clerk approves the payment, then the receipt is
generated and provided to the customers.

The shift supervisor checks the cash in or out log and prepares the credit card voucher
in case of credit card payment. Then the company deposits the amount into the bank
and records the same into the books of accounts. Then the deposit slip generated at the
time of cash deposit is documented.

c.

To determine keyboard_arrow_up

Describe the physical internal control weaknesses.

Explanation of Solution keyboard_arrow_up

The weaknesses of physical internal control are given below:

• There must be more accountability and responsibility as the sales clerk has
access to the cash drawers. As anyone can access the cash drawer, then there
might be a case in which the cash can be withdrawn by any of the employees
from the cash drawer.
• The cash register tape must be compared with the physical cash in order to
determine any discrepancies.
• The shift supervisor basically logs the cash drawer in and out. The supervisor
does not maintain a document which consists of cash returned or received.
• The treasury clerk has the authority to manage the flow of assets and record the
sales and flow of cash into the books of accounts.

d.
 To determine keyboard_arrow_up

Describe the IT controls that should be considered in the system.

Explanation of Solution

The IT controls that should be considered in the system are given below:

• Input controls: It involves edit controls which helps the organization to find out
the clerical errors exist in the input data. It also checks the input data to validate
the accounts of the customers.
• Processing controls: It determines the errors which represent the mismatch in
the accounts. It involves password controls which restricts the users to access the
data. In order to protect the digital files, backup procedures are prepared under
processing controls.
• Output controls: It provides security for the reconciliation of journal vouchers
and the general ledgers.

Chapter 4,
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Chapter 4 Solutions
Accounting Information Systems Show all chapter solutions add

Ch. 4 - What document initiates the Ch. 4 - Distinguish between a packing

sales process? slip, a shipping...

Ch. 4 - What function does the Ch. 4 - The general ledger clerk
receiving department serve... receives summary data...

Ch. 4 - What are the three Ch. 4 - What are the three rules that
authorization controls? ensure that no...

Ch. 4 - At which points in the revenue Ch. 4 - What is the purpose of physical
cycle are... controls?

Ch. 4 - How can we prevent inventory Ch. 4 - Distinguish between an edit

from being reordered... run, a sort run, and...

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