Accounting information system exam 2
What is a bill of lading?
billing of lading is a formal contract between the seller and the shipping company (carrier) to transport the goods to the customer
what assets are at greatest risk in a POS system?
Cash and inventory
Why do firms have separate departments for warehousing and shipping? What about warehousing and inventory control? Doesn't this create more paperwork?
1. The separation of the warehouse and the shipping department allows for segregation of functions over two departments for the custody of the assets during two distinct phases of the revenue cycle. The warehouse attendants have custody over the finished goods until they receive a stock release form from the sales department. The warehouse clerks pick the inventory items from the warehouse and send them to shipping along with a copy of the stock release form. The shipping department is only able to ship goods that it receives from the warehouse personnel. Further, it must match the goods with a packing slip and shipping notice that originates from the sales department. Thus, warehouse personnel are not allowed to ship out any unauthorized inventory items because the shipping personnel would not have the corresponding paperwork. The additional paperwork required is considered a necessary cost for the added benefit of control over inventory. The warehouse personnel do not keep the formal accounting records. The asset custodial tasks must be kept separate from the formal record-keeping tasks. The inventory control keeps the formal accounting records of inventory stock items.
Sales order vs billing vs AR dapartments
2. 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 since this department has custody over the accounts receivable assets. Accounts receivable personnel record customer payments and track unpaid bills by customers. If they were allowed to prepare the bills, they might not bill certain customers and receive a kickback from the customers for the free goods.
What document initiates the sales process?
A customer order usually in the form of a purchase order initiates the sales process
What are the key features of a POS system?
A point of sale system immediately records both cash and credit transactions and inventory information. The sales journal, accounts receivable, and inventory accounts may be updated in real-time, or a transaction file may be used to later update a master file.
Distinguish between an edit run, a sort run, and an update run.
An edit run is the first run; it detects most data entry errors. Only "clean" data progresses to the sort run. The sort run sequences the transaction records according to its primary key field and possibly a secondary key field. Once the data is sorted, the update program posts the transactions to the appropriate corresponding records in the master file. During a sequential update, each record is copied from the original master file to the new master file regardless of whether the balance is affected
In a manual system, after which in in the sales process should the customer be billed?
Billing occurs after the product is shipped to the customer
Why was EDI devised?
EDI was devised to expedite routine transactions between manufacturers and wholesalers, and between wholesalers and retailers. An added benefit is the reduction of clerical errors.
How is a credit check in the advanced technology system fundamentally different from a credit check in the basic technology system?
In the advanced technology system, the system logic, not a human being, makes the decision to grant or deny credit based on the customer's credit history contained in the credit history file. If credit is denied, the sales clerk should not be able to force the transaction to continue. In the basic technology system, credit checking of prospective customers is a function of the credit department, which has responsibility for ensuring the proper application of the firm's credit policies. The complexity of credit procedures will vary depending on the organization, its relationship with the customer, and the materiality of the transaction. Credit approval for first-time customers may take time and involve consultation with an outside credit bureau. In contrast, credit decisions about existing customers that involve ensuring only that the current transaction does not exceed the customer's credit limit may be dealt with very quickly.
How segregation of duties is accomplished in an integrated data processing envirnoment
In this environment, segregation of duties is accomplished through multilevel security procedures. Multilevel security employs programmed techniques that permit simultaneous access to a central system by many users with different access privileges but prevents them from obtaining information for which they lack authorization.
What is multilevel security?
Multilevel security employs programmed techniques that permit simultaneous access to a central system by many users with different access privileges but prevents them from obtaining information for which they lack authorization
Where in the cash receipts process does supervision play an important role?
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.
Why does billing receive a copy of the sales order when the order is approved but does not bill until the goods are shipped?
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. Some of the goods may not be available to ship; thus, the customer should not be billed until the goods are shipped and the economic event is complete
What document initiates the billing process?
The billing process is initiated by the shipping notice, which signals the shipment of the goods to the buyer.
Purpose of having a mail room
The checks received in payment for accounts receivable are a crucial asset for the firm. These checks must be protected from individuals who might try to deposit these checks into their own accounts. The process of having a member of the mail room personnel open the mail and record all checks received before they are routed to the cashier or the accounts receivable department is to ensure that the accounts receivable personnel do not engage in such activities as lapping the accounts receivable accounts.
The general ledger clerk receives summary data from which which departments? What form of summary data?
The general ledger clerk receives a total of all sales from the billing department in the form of a summary journal voucher. The accounts receivable department sends an account summary of the individual accounts receivable so that the accounts receivable control account can be verified against the accounts receivable ledger. The inventory control department sends summary information in the form of a journal voucher that reflects the total reductions of inventory in financial terms and the associated charges to cost of goods sold.
Distinguish between a packing slip, a shipping notice, and a bill of lading.
The packing slip travels with the goods to the customer, and it describes the contents on the order. Upon filling the order, the shipping department sends the shipping notice to the billing department to notify them that the order has been filled and shipped. The shipping notice contains additional information that the packing slip may not contain, such as shipment date and carrier and freight charges. The bill of lading is a formal contract between the seller and the transportation carrier; it shows legal ownership and responsibility for assets in transit.
What is the purpose of physical controls?
The purpose of physical controls is to control the actions of people.
What function does the receiving department serve in the revenue cycle?
The receiving department counts and inspects items that are returned by customers. The receiving department prepares a return slip, copies of which go to the warehouse for restocking, and to the sales order department so that a credit memo can be issued to the customer.
What are the three rules that ensure that no single employee or department processes a transaction in its entirety?
The three rules that ensure segregation of functions are: 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 two or more individuals.
At which points in the revenue cycle are independent verification controls necessary?
a. Shipping department—verifies that the correct amount and types of goods are sent from the warehouse by reconciling the stock release document and the packing slip. b. Billing department—reconciles the shipping notice with the invoice to ensure that customers are appropriately billed. c. GL clerks—reconcile journal vouchers from various departments such as the billing department, the accounts receivable department, and inventory control
What are three authorization controls?
a. credit checks b. returns policy for granting cash refunds and credits, and c. cash prelists providing verification that customer checks and remittance advices match in amount.
How can we prevent inventory from being reordered automatically each time the system detects a low inventory level?
once an item is on order, control should be in place to ensure that it is not ordered again until the original order has been received from the supplier. One method of accomplishing this is to "flag" the inventory item "on order" by entering a value (e.g., the number of items ordered) in the on-order field of the inventory record. This field has a value of zero when the item in question is not on order.
