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Auditing The Revenue Cycle Review Questions
Auditing The Revenue Cycle Review Questions
Review Questions:
4. What are the three rules that ensure that no single employee or department processes a transaction in its entirety?
Response: The three rules that ensure segregation of functions are as follows:
a. Transaction authorization should be separate from transaction processing.
b. Asset custody should be separate from asset record keeping.
c. The organization structure should be such that the perpetration of a fraud requires collusion between 2 or more individuals.
8. How is the record’s primary key critical in preserving the audit trail?
Response: The primary key provides the link between the magnetic records stored on a computer disk and the physical source documents
and business events that they represent. In database systems the primary key of one table’s record is the embedded foreign key in related table
records. For example, the invoice primary key (Invoice Number) is a foreign key in the related line item detail records, thus forming an audit trail.
10. Why does billing receive a copy of the sales order when the order is approved but does not bill until the goods are shipped?
Response: The billing department’s receipt of the sales order occurs in most instances before the goods are actually shipped; thus, the
economic event is not complete. Since credit checks need to result include credit already extended for orders not yet shipped, the billing
department (and other departments) receive copies of the sales order once credit is approved. Of course, some of the goods may not be available to
ship; thus, the customer is not billed until the shipping department sends the shipping notice to the billing department.
12. In a manual system, after which event in the sales process should the customer be billed?
Response: Billing occurs after the product is shipped to the customer (and the shipping department sends a shipping notice to the billing
department).
13. What is a bill of lading?
Response: A bill of lading is a formal contract between the seller and the shipping company (carrier) to transport the goods to the customer.
The bill of lading establishes legal ownership and responsibility for assets in transit.
15. Where in the cash receipts process does supervision play an important role?
Response: Supervision plays an important role in the mail room where both the check (asset) and remittance advice (accounting record) are
in the hands of one person. Mail room fraud can result, which involves stealing the check and destroying the remittance advice to cover the theft.
16. List the revenue cycle audit objectives derived from the “existence or occurrence” management assertion.
Response:
Verify that the accounts receivable balance represents amounts actually owed to the organization at the balance sheet data.
Establish that revenue from sales transactions represent goods shipped and services rendered during the period covered by the financial
statements.
17. List the revenue cycle audit objectives derived from the “completeness” management assertion.
Response:
Determine that all amounts owed to the organization at the balance sheet date are reflected in accounts receivable.
Verify that all sales for shipped goods, all services rendered, and all returns and allowances for the period are reflected in the final
statements.
18. List the revenue cycle audit objectives derived from the “accuracy” management assertion.
Response:
Verify that revenue transactions are accurately computed and based on current prices and correct quantities.
Ensure that AR subsidiary ledger, the Sales Invoice file, and the Remittance file are mathematically correct and agree with the general
ledger accounts.
Discussion Questions
1. Distinguish among the sales, billing, and accounts receivable departments. Why can’t the sales or accounts receivable departments prepare the
bills?
Response: The principles of segregation of duties apply to these departments.
The sales order department (included in the sales department in the text) is responsible for taking the customer order and placing it into a
standard format. This department records information such as the customer’s name, address, account number, quantities and units of each item,
discounts, freight preferences, etc. The sales order processing may, in some instances, play a role in verifying or determining the promised
shipping date. The billing department receives a copy of the sales order from the sales department. Upon receipt of the shipping notice and the
stock release documents, the billing department prepares the sales invoice, which is the customer’s bill reflecting charges for items shipped, which
may be different from items ordered, taxes and freight and any discounts offered. The sales order department should not prepare the bills because
the salespeople may bill their favorite clients less than they should be billed. The salespeople place the order and thus start the wheels in motion
for inventory to be shipped. Further, the salespeople should not be allowed to determine how much the customers pay for their inventory, because
they may be tempted to charge lower prices and receive kickbacks.
The accounts receivable department receives the sales orders and posts them to the accounts receivable subsidiary ledger. As remittance
advices are received, they are posted to the customer’s account in the accounts receivable subsidiary ledger. The accounts receivable department
should not be allowed to prepare the bills because this department has custody over the accounts receivable assets. It records customer payments
and tracks customers’ unpaid bills. If it was allowed to prepare the bills, it might not bill certain customers and receive a kickback from the
customers for the free goods.
3. How could an employee embezzle funds by issuing an unauthorized sales credit memo if the appropriate segregation of duties and authorization
controls were not in place?
Response: An employee who has access to incoming payments, either cash or check, as well as the authorization to issue credit memos may
pocket the cash or check of a payment for goods received. The employee could then issue a credit memo to the customer’s account so that the
account does not show a balance due.
4. What task can the accounts receivable department engage in to verify that all checks sent by the customers have been appropriately deposited
and recorded?
Response: The company should periodically, perhaps monthly, send an account summary to each customer listing invoices and amounts
paid by check number and date. This form allows the customer to verify the accuracy of the records. If any payments are not recorded, the
customer can notify the company of the discrepancy. These reports should not be handled by the accounts receivable clerk or the cashier.
5. Why is access control over revenue cycle documents just as important as the physical control devices over cash and inventory?
Response: Access control to the billing and accounts receivable records that are part of the revenue cycle is just as important as the physical
control devices over cash and inventory because these records affect the collectibility of an asset—accounts receivable—that should eventually be
converted into cash. If these records are not adequately controlled, inventory may not be ultimately converted into the cash amount the firm
deserves.
6. For a batch processing system using sequential files, describe the intermediate and permanent files that are created after the edit run has
successfully been completed when processing the sales order file and updating the accounts receivable and inventory master files.
Response: After the edit program tests each record for clerical or logical errors, it writes the correct records to a clean transaction file and
the records with errors to an error file. Both of these files are considered intermediate or temporary files. The error file is considered to be a
temporary file because the records will be resubmitted after they have been reviewed and corrected. The clean transaction file is considered to be
an intermediate file because it will be sorted and written to a new tape. The old, unsorted transaction file will not be used in further processing
once a sorted transaction file is made.
7. Why has the use of magnetic tapes as a storage medium declined in recent years? What are their primary uses currently?
Response: Both tapes and disks can be used as the physical storage medium for such systems. However, the use of tapes has declined
considerably in recent years. For day-to-day operations, tapes are inefficient because they must be physically mounted on a tape drive and then
dismounted when the job ends. This approach is labor intensive and expensive. The constant decline in the cost of disk storage in recent years has
eliminated the economic advantage once associated with tapes. Most organizations that still use sequential files store them on disks that are
permanently connected (online) to the computer system and require no human intervention. The operational features of sequential files described
earlier are the same for both tape and disk media. Today, tapes are used primarily as backup devices and for storing archive data. For these
purposes, they provide an efficient and effective storage medium for a large system.
10. What is the purpose of analytical reviews in the audit of revenue cycle accounts?
Response:
Auditors often precede substantive tests of details with an analytical review of account balances. In the case of the revenue cycle, an analytical
review will provide the auditor with an overall perspective for trends in sales, cash receipts, sales returns, and accounts receivable. In addition,
analytical procedures can provide assurance that transactions and accounts are reasonably stated and complete and may thus permit the auditor to
reduce substantive tests of details on these accounts.
11. Explain the open-invoice system. What effect might it have on confirmation responses?
Response: Under this approach, invoices are recorded individually rather than summarized or grouped by creditor. In this environment, no
accounts payable subsidiary ledger exists. Each invoice is paid (closed) as it comes due. For financial reporting purposes, total accounts payable is
calculated simply by summing the open (unpaid) invoices. Determining the liability due to a particular creditor, which may consist of multiple
open invoices, is not such a simple task. The auditor should not assume that an organization that uses this approach would invest the time needed
to respond to the confirmation request. The confirmation process may thus be ineffective.
12. What financial statement misrepresentations may result from an inconsistently applied credit policy? Be specific.
Response:
Accounts receivable may be overstated because allowance for doubtful accounts is understated due to poor credit policy.
Bad debt expense may be understated.
Note to Instructor: Some physical security devices could also be classified as supervision.
14. What makes POS systems different from revenue cycles of manufacturing firms?
Response: In point-of-sale systems, the customer literally has possession of the items purchased, thus the inventory is in-hand. Typically,
for manufacturing firms, the order is placed and then the good is shipped to the customer at some later time period. Thus, updating inventory at the
time of sale is necessary in point-of-sale systems since the inventory is changing hands, while it is not necessary in manufacturing firms until the
goods are actually shipped to the customer.
15. Is a POS system that uses bar coding and a laser light scanner foolproof against inaccurate updates? Discuss.
Response: No, the bar-codes are not read with 100% accuracy. Another potential error can occur if the wrong bar-coded stickers are
attached to the merchandise, which can occur in some discount retail stores that do not update the database; they just print out bar-coded stickers
and attach them to the merchandise. Devious customers may switch stickers on price tags. In addition, an error can be made when entering the bar-
codes into the system, thus the wrong item rings up when the tag is scanned.
Multiple Choice
1. C
2. B
3. C
4. B
5. C
6. C
7. D
8. A
9. C
10. A
Problems
1. Process Description
Describe the procedures, documents and departments involved when insufficient inventory is available to fill a customer’s approved order.
Response:
When insufficient inventory is available to fill a customer’s approved order, the warehouse clerk places these items on back order. The back-order
status is reported to the sales department where either a new sales order for the outstanding item(s) is prepared or the existing sales order is copied
and adjusted to reflect the missing product(s). The stock release document is noted to reflect the amounts that are being shipped to the customer.
The customer is typically not billed until the goods are shipped.
2. Process Description
Refer to Figure 9-1 presented in the text and explain where the batch totals come from and which accounts in the general ledger are affected by the
end-of-day batch process.
Response: In a batch system, the general ledger master file is not updated every time a batch is processed; rather, the general ledger is typically
updated at the close of each day. Each of the systems, such as accounts payable, accounts receivable, cash receipts, cash disbursement, and
inventory control, accumulate totals for all of its batches run since the last general ledger update. The totals are sorted by the general ledger
account number, and the general ledger is updated in a single run.
3. Flowchart Analysis
Use the flowchart for Problem 3 to answer these questions:
a. What accounting document is represented by symbol A?
b. What is an appropriate name for the department labeled B?
c. What would be an appropriate description for process C?
d. What is the location represented by symbol D?
e. What accounting record is represented by symbol E?
f. What is an appropriate name for the department labeled H?
g. What device is represented by symbol F?
h. What device is represented by symbol G?
i. What accounting record is represented by symbol G?
Response:
a. Cash prelist or remittance list
b. Cash Receipts department
c. Post to Cash Receipts Journal and deposit checks or Process Cash Receipt
d. Bank
e. Cash Receipts Journal
f. Accounts Receivable Department
g. Computer terminal
h. Computer disk
i. Accounts Receivable file
4. Internal Control Evaluation
Identify the control weaknesses depicted in the flowchart for Problem 4.
Response:
Sales clerk should not record sales in the Sales Journal before the economic event (shipping the goods) has occurred. Billing should
perform this role.
No credit check is performed.
Billing department bills customer before the goods are shipped and without confirmation of shipment and quantity shipped. A shipping
notice should trigger the billing process.
Accounts Receivable should not process cash receipts and maintain the AR subsidiary records.
Warehouse clerk, who controls the physical inventory, should not also maintain the inventory subsidiary records.
The general ledger department should receive journal vouchers and account summaries from AR, Cash Receipts, Billing, and Inventory
control. Instead they inappropriately use source documents to update GL accounts.
5. Segregation of Functions
Which, if any, of the following situations represent improper segregation of functions?
a. The billing department prepares the customers’ invoices, and the AR department posts to the customers’ accounts.
b. The sales department approves sales credit memos as the result of product returns, and subsequent adjustments to the customer
accounts are performed by the AR department.
c. The shipping department ships goods that have been retrieved from stock by warehouse personnel.
d. The general accounting department posts to the general ledger accounts after receiving journal vouchers that are prepared by the billing
department.
Response:
All are proper segregation of functions except b. The sales department should not be allowed to approve credit memos since it could potentially
overstate sales in one period to meet quotas and boost bonuses and reverse them in a subsequent period. The receiving report indicating that goods
have been received by the receiving department should be the source document for credit memos and it should be authorized by someone
independent of the sales department.
Required:
a. Identify six strengths in the Jem Clothes system for controlling sales transactions.
b. For each strength identified, explain what problem(s) Jem Clothes has avoided by incorporating the strength in the system for controlling
sales transactions.
Response:
Strengths Problems Avoided
• All 25 stores use the same • Avoids difficulty in auditing the stores
system for controlling sales and incorporating chainwide
transactions. improvements.
7. Stewardship
Identify which department has stewardship over the following journals, ledgers, and files:
a. Customer open order file
b. Sales journal
c. Journal voucher file
d. Cash receipts journal
e. Inventory subsidiary ledger
f. AR subsidiary ledger
g. Sales history file
h. Shipping report file
i. Credit memo file
j. Sales order file
k. Closed sales order file
Response:
a. Sales
b. Billing
c. General ledger
d. Cash receipts
e. Warehouse/Inventory control
f. Accounts receivable
g. Sales
h. Shipping
i. Sales
j. Sales
k. Sales
8. Control Weaknesses
For the past 11 years, Elaine Wright has been an employee of the Star-Bright Electrical
Supply store. Elaine is a very diligent employee who rarely calls in sick and takes her vacation days staggered throughout the year so that no one
else gets bogged down with her tasks for more than one day. Star-Bright is a small store that employs only four people other than the owner. The
owner and one of the employees help customers with their electrical needs. One of the employees handles all receiving, stocking, and shipping of
merchandise. Another employee handles the purchasing, payroll, general ledger, inventory, and accounts payable functions. Elaine handles all of
the point-of-sale cash receipts and prepares the daily deposits for the business. Furthermore, Elaine opens the mail and deposits all cash receipts
(about 30 percent of the total daily cash receipts). Elaine also keeps the AR records and bills the customers who purchase on credit.
Required:
a. Point out any control weaknesses you see in the above scenario.
b. List some recommendations to remedy any weaknesses you have found working under the constraint that no additional employees can be
hired.
Response:
a. Elaine performs many incompatible tasks. She opens the mail, deposits all cash and check receipts, and keeps the accounts receivable records.
She could easily keep checks and alter the accounts receivable to cover her theft. Furthermore, she records the bills, so she could potentially bill a
customer, not record it in the books, and keep the money when the check is received. Even more troublesome is the fact that she handles the point-
of- sale receipts and prepares the daily deposits, which are a substantial amount of sales (30 percent). Elaine never takes enough vacation time so
that anyone else can perform her duties long enough to check the books.
The employee who handles the inventory and accounts payable function also has incompatible tasks. This employee could be making
payments to a family or friend for inventory not received. The employee who handles all receipts, stocking, and shipping of inventory is also
performing incompatible tasks and could be pilfering some inventory as it comes in and shipping it to himself or herself.
b. Close supervision is needed for the employee working in the receiving, stocking, and shipping department. This employee needs to be kept from
stealing inventory. Close supervision should help reduce this risk. Prenumbered shipping forms that must be accounted for may deter this
employee from shipping any goods to himself or herself or friends. The accounting function should be redistributed among the remaining two
employees and close supervision should be exercised. One possible reallocation of tasks would be:
Employee 1 Employee 2
• record point-of-sale receipts • prepare the daily cash deposits and
• update the accounts receivable reconcile to daily cash sales
account records open the mail and make a list of all
• prepare the bills for accounts incoming checks—prepare deposit
receivable accounts payable
• inventory • general ledger purchasing
• payroll
9. Internal Control
Iris Plant owns and operates three floral shops in Magnolia, Texas. The accounting functions have been performed manually. Each of the shops
has a manager who oversees the cash receipts and purchasing functions for the shop. All bills are sent to the central shop and are paid by a clerk
who also prepares payroll checks and maintains the general journal. Iris is seriously considering switching to a computerized system. With so
many information systems packages on the market, Iris is overwhelmed.
Required:
Advise Iris as to which business modules you think her organization could find beneficial. Discuss advantages, disadvantages, and internal control
issues.
Response: Iris needs to consider whether she wishes to purchase one microcomputer system or three. Assuming that she wishes to purchase only
one microcomputer for the central shop, she should definitely consider an accounting software package that has an accounts payable and general
ledger module. The purchase of a payroll module will depend upon the number of employees paid each period. Iris will need to determine if the
time saved is worth the cost.
The payroll module may also help with year-end forms such as W-2’s and 1099’s. Iris may also wish to consider centralizing the purchasing
function in order to obtain quantity discounts by placing larger orders. If she wishes to do this, then an inventory control module may be
appropriate. As the system is currently designed, Iris has no good way to determine whether the managers are purchasing the right mix of
inventory items, or if items are being used efficiently. Floral shops, because of the perishability of inventory and need to respond to unexpected
orders, may not lend themselves to centralized purchasing and/or centralized inventory control.
If Iris wishes to purchase a computer for each store, she should consider purchasing software that can process point-of-sale transactions and
balance the cash receipts at the end of the day. Inventory control software might be considered as it helps track the profitability and spoilage of
certain items as well as aids the managers in their purchasing decisions. The system could then provide summary reports for Iris so that she may
examine the inventory purchasing and usage decisions of the managers.
The cash receipts system should provide better management over cash receipts errors than the manual system, and if the correct controls are
included, control may increase. For example, a notice might be placed over the cash register saying “If you do not get a receipt from the computer,
your order is free.” The information system then will limit the possibility that a customer pays cash and the employee or manager keeps the money
by not ringing up the sale.
Iris may be able to find software packages specifically designed for florists. She should examine them to see if they will suit her partially
decentralized management. With the correct system, Iris should see increased control over cash receipts and maybe even over inventory purchases
and usage. A disadvantage is that the managers may feel that they are being watched more closely and this may cause some resentment.
Required:
Design a carefully controlled system and draw a document flowchart to represent it. Identify and discuss the key control issues.
Required:
a. What type of data processing system is this? Explain, and be specific.
b. The auditor suggests that this system can be greatly simplified by changing to direct access files. Explain the major operational changes
that would occur in the system if this were done.
c. The auditor warns of control implications from this change that must be considered. Explain the nature of the control implications.
d. Sketch a flowchart (the computerized portion only) of the proposed new system. Use correct symbols and label the diagram.
Response:
a. This is a batch processing system that uses direct access storage devices rather than sequential tapes, but the records are stored in sequential
files. The transactions are keyed in, and the batch totals are calculated. The batch totals accompany the sales order file through all the data
processing runs that follow. The edit run is used to test each record for the existence of clerical or logical errors. Any records with errors are
removed and written to an error file to be corrected later by an authorized person. The batch totals are recalculated for the clean transactions. The
edited file is then sorted based on the primary customer account number. The batch totals are used to verify the integrity of the sorted database file.
The sorted file is used to update the accounts receivable file. The original accounts receivable file remains intact and is used for backup. The
newly created accounts receivable becomes the new master file. The customers’ invoices are processed during the update and billing run. The sales
order file is sorted on the inventory number so that the inventory master file can be updated. The original inventory file remains intact and is used
for backup. The newly created inventory file becomes the new master file. The batch totals are still used to verify the completeness and accuracy
of the transaction file. At the end of the day, the batch totals are sorted and used to update the general ledger. The original general ledger remains
intact and is used for backup. The newly created general ledger becomes the new master file.
b. If the sequentially stored data files are not used and real-time processing of data using indexed direct access files are used instead, the editing
and sort runs are no longer necessary. Transactions will be immediately checked for input errors, and the accounts receivable file and inventory
files will automatically be updated as each transaction is processed. Thus, batch totals will no longer be used. Accumulators may be used to
accumulate values that are periodically posted to the general ledger. The accounts affected by each transaction in the master file will be
overwritten with each transaction that is processed.
c. Because the computers will be performing tasks that individuals used to perform, such as inventory controls, the control procedures over
program code need to be secured from unauthorized access. The master files are overwritten each time a record is processed. Controls should be
put into place for periodically making a backup copy of the master file, so that the records may be covered in case the current working copy of a
master file is destroyed or incorrectly overwritten.
d. See diagram on next page.
d.d. d.dd
Response:
a. This system uses real-time data collection and real-time updating of critical records (subsidiary accounts that are unique to the transaction).
General ledger accounts that are common to all transactions are processed in batch mode.
b. As each transaction is received, all records associated with it will need to be updated immediately. This would eliminate the batch-processing
step and the sales order transaction file from the current system. A new real-time update program will be required. Sales summaries, currently
prepared periodically, can now be extracted on demand by the marketing manager directly from his/her terminal.
c. Updating all general ledger accounts in real-time may cause operational delays. Each customer will need to wait until the previous customer’s
transaction is completely processed, including general ledger accounts that are common to all customers. The extent of the delays will depend in
part on transaction volume and the number of simultaneous transactions executed.
d. Please refer to the diagram on the following page.
Solution to problem 9-12
Internal Control Cases
2) The internal cash register tape should be used as a control to determine how much cash (including checks, and credit card
vouchers) should be in the register drawer.
3) The shift supervisor does not sign for the specific amount of cash received or returned at the end of the day. He simply logs
the drawers in and out.
5) The treasury clerk has asset custody and responsibility for recording sales and cash in the journal and General Ledger.
Custome
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2. Solution to Spice is Right
1) No credit check
3) Accounting department bills customer, updates the AR account, and records sales in the Sales Journal thus reducing the
opportunity to detect discrepancies between total sales and AR postings.
Remittan Prepare
Reconcile
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and
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Remittan
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Record and Summary
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Data GL
Cash Rec
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Summary
Spice is Right, DFD Cash Receipts SystemFile
Sales Accounting Warehouse Shipping
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Order Order Shipping
Customer Stock Notice
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Gen Ledger Summary
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Gen Ledger
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Spice is Right Revenue Cycle Flow Chart -- Sales
Order System (Page 1)
General Ledger Department
Journal
Voucher
Summary
Post to General
Ledger
Gen ledger
Journal
Voucher
Summary
B
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d) Flowchart of revised system
Student responses will vary for this part of the assignment. The following issues, however, need to be addressed.
The internal control problems already covered that need to be corrected in the new system.
A system configuration similar to figure 4-18 would be appropriate.
4. Solution to Walker Books
Sales Processing:
Cash Receipts
4) Mail room workers have access to both check and remittance advices. This situation requires a reduced span of control and
separate mail room procedures for customer payments and routine mail.
5) The accounts receivable clerk has access to both the checks and the customer accounts
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d) Revised System Walker Books System
Student responses will vary for this part of the assignment. Notwithstanding the internal control issues already covered that need to be
addressed, Walker Book’s automated system design could reflect features similar to those in figures 9-4 and 9-5.
5. Solution to AV Safety, Inc.
a), b), d) See diagrams on the following pages.
Stock rel
Summary
Update AR Update GL GL
AR Ledger
Journal Bank
Check, Voucher
Remit Advice
Check
Update CR Check Deposit
Journal Check
Check, Deposit
Check, Remit
Slip
Advice
Open Mail
Customer CR Journal
Stock A
Sales Rep Sales Release
Order
2
Packing
Customer Slip
Order Pick Stock
Prepare Sales Goods Release
Invoice Journal
Prepare
Sales Stock Review /
Order Sales Journal Release Prepare
1 Invoice
Order Voucher BOL
3
Sales
Order Update
Stock
Packing Ledger
B Customer C Release
Slip
Stock
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Release
Ledger
A Customer
Order Stock
Release Packing
Slip
Inventory BOL
Summary
B C
E
Sales Journal
Order Voucher
D
Inventory Journal
Summary Voucher
AR Sub
Update AR Ledger AR
Summary
Sales AR
Order Summary General
Update GL Ledger
Journal
Voucher
Inventory
Summary
Journal
Voucher
AR
Summary
Customer Check
Check
Remit
Advice
Check
Remit
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5
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Update CR
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Open
Mail
4
Journal
Remit AR Voucher
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Remit
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D E
Checks
Checks
Prepare
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Slip Deposit
Slip
AV Cash Receipts System Flow Chart
Bank
d). Revised AV Safety System
2) Warehouse and Shipping functions are combined. This removes control over picking and shipping the wrong products.
3) Mail room clerk should prepare a remittance list to control remittance advices and checks
4) Although not stated in the case as a problem, the auditor should evaluate network access controls (passwords, access
Sales Order
Sales
Journal
Pick Goods
Approval
Receive Sales Order Sales
/Rejection
Customer Order
Check Credit Prepare Sales
Order
Order
Ship Notice
Sales Order
Customer Order
File
Batch Totals
Sales Order
Approval/ Reconcile and
Rejection Bill Customer
Customer
Sales Order
Receive Bank
Customer Check
Payment
Invoice Copy
Remit Advice
Update Accts
Receivable
On Line Sales
Customer Orders On Line A
Sales Order
Order Credit Check Order
2
Customer
Prepare
Ship Notice
Sales
Order
Sales
Order B
Sales
Order
C
Check
B Post to CR
B Update AR Journal
Open
and
Separate
Check
Invoice
Deposit
3 Remit
Remit Slip
Advice
Advice
Bank
Check
In page 1, the feedback from the sales system to the sales department letting them know if they are processing an approved order or a
D) Student solutions to this part of the case will vary. The solution should address the control issues identified in part C, and the
design should reflect features similar to those found in figures 9-4 and 9-5.
7. Solution to Bait ‘n Reel
Customer A
Shipping
4
Retrieve SO
Slip
Stock
Customer Release
Order Shipping
1 Shipping Slip
Stock
Reconcile
Slip
Credit History
Stock Release Prepare
Terminal Release Invoice
Bill of
Sales Lading 3
System Customer
Sales Journal File Bill of
Lading 2
Customer Bill of
Order Pick Sales
Lading 1
Goods Pack Invoice
Inv. Subsidiary
Ledger Slip Stock
A Release
File Shipping
Slip
General Ledger Shipping Stock
Slip Release Terminal
Stock Carrier
Release A
AR Sub. Ledger
3 Stock
Cash Rec. Release
Shipping
Journal
Slip
File
Update
Records
Customer Check
B
Remit.
List 2
Check 6
5 Remit.
Advice
Remit.
Advice Remit.
Reconcile &
Prepare Post To A List 1
D. Slips Accounts
Reconcile
Check & Reconcile
R.A. Signed & Terminal
Check Update
Check
Remit.
List 2 7
Remit.
Deposit A
Remit. Advice
Slip 3
Advice Remit.
Deposit List 1
Remit. Slip 2
List 2
Deposit
Remit. Slip 1
List 1
File
B
File
Bank
5 7 Inventory
Prepare 6 Verify Sub. Ledger
Electronic Stock Release & Goods, Stock Release, &
SR & Collect Goods &
Sales Order Shipping Slip Shipping Slip
Shipping Goods Update
Slip Ledger
General
Ledger
11 Sales
Sales Information Update Journal
8
Reconcile 9 Sales
Sales Order & Stock Journal
& Prepare
Release
Print BOLs Stock
SO Release Sales & Customer 12
10 Information General
Update
Goods & Bill Ledger
General
Shipping Slip Bills of Customer
Ledger
Lading
13
Carrier Update
Customer Information
A/R A/R
Subsidiary Sub. Ledger
Sales Invoice Ledger
Customer 20
Update A/R Subsidiary
A/R Ledger
Subsidiary
Remittance Advice 19 Remittance Ledger
& Remittance List Reconcile Advice
Check &
14 Docu-
Remittance
Prepare ments 21
Advice
Remitt- Update
ance General General Ledger
Lists Ledger
Checks &
Remittance
List
Cash Receipts
Information
17
18
Update
Update
Cash
General
Receipts
Ledger
Journal
Customer Stock
Credit & Release
Order
Inventory Printer
Check
Reconcile
Terminal Goods & Packing
Docs. Slip
Approved Pick Raw
Sales Orders
Mats. &
A Make Stock
Goods Release
Packing
Slip
Update
Records Stock
Release Bill of
File Lading 2
Bill of
A/R Subsidiary Lading 1
Inv. Subsidiary Ledger
Ledger
Sales
Journal
General Ledger
Carrier
Customer Manage.
Invoice Reports
Customer Management
Deposit
Check
Slip
Remit. Cash Receipts A/R Subsidiary
File Ledger Check
Advice
Management
3) The warehouse clerk has asset custody and updated the inventory records.
4The shipping department fails to notify billing that the good have been shipped.
Cash Receipts
5) The mail room clerk has access to both the cash (asset) and the remittance advice
(record).
6) Cash receipts department is also doing the job of the accounts receivable
department. The cash receipts department has custody of the physical asset (cash)
and keeps the accounting records.
Sales Billing
1
Cre Sale
dit s
Che Hist
ck ory
Approv
ed
Custom
er
Order
Approv
ed
Custom
er
Order
File
Cop
y
Stock
Releas
e
3
Update
Inventory
Invent
ory
Sub
Ledger
Journal Stock
Vouche Releas
r e
Reconcile and
Update the
GL Accounts
General
Ledger
General
Ledger
Student responses will vary for this part of the assignment. Notwithstanding the
internal control issues already covered that need to be addressed, Green
Mountain’s batch oriented system is inappropriate for their type of business.
Student solutions should reflect this with system designs similar to those in figure
9-4 and 9-5.