While there are many customer advantages of Web ordering, there are also many advantages to the company. From an accounting and internal control perspective, describe the advantages of Rizzoli's system and any risks that it reduces.
Identify internal control considerations for the following:
_____ Credit is authorized by the credit manager.
_____ Checks paid in excess of $5000 require the signatures of two authorized members of management.
_____ A cash receipts journal is prepared by the treasurer's department.
_____ Collections received by check are received by the company receptionist, who has no additional record-keeping responsibilities.
_____ Collections received by check are immediately forwarded unopened to the accounting department.
_____ A bank reconciliation is prepared on a monthly basis by the treasurer's department.
_____ Security cameras are placed in the shipping dock.
_____ Receiving reports are prepared on preprinted, numbered forms.
_____ The billing department verifies the amount of customer sales invoices by referring to the authorized price list.
_____ Entries in the shipping log are reconciled with the sales journal on a monthly basis.
_____ Payments to vendors are made promptly upon receipt of goods or services.
_____ Cash collections are deposited in the bank account on a weekly basis.
_____ Customer returns must be approved by a designated manager before a credit memo is prepared.
_____ Account statements are sent to customers on a monthly basis.
_____ Purchase returns are presented to the sales department for preparation of a receiving report.
Required: In the space provided, indicate whether each of these items represents a strength (S) or risk (R) related to internal controls in the revenues and cash collection processes. Alternatively, indicate whether the item is not applicable (N/A), meaning that it either has no impact on the strength of internal controls or does not pertain to the revenues and cash collection processes.
Required:
Use Microsoft Excel to prepare an electronic spreadsheet of an accounts receivable aging report for Gerrett for April 30. Organize the spreadsheet with the following column headings:
Be sure to include each individual invoice for each customer, and show column totals for each customer. Also show report totals for each column and be certain that the report totals cross-foot and agree with the ending Total Account Balance for all customers.
Required:
Use Microsoft Excel to perform the following:
_____ A customer ordered 12 boxes of your product (total of 144 items) for express shipment. Your data entry clerk inadvertently entered 12 individual items.
_____ You enter sales and accounts receivable data in batches at the end of each week. Several problems have resulted recently as a result of invoices being recorded to the wrong customer account.
_____ In an effort to boost sales, you obtain some of the stock of unissued shipping reports and create a dozen fictitious shipments. You submit these documents to the billing department for invoicing.
_____ Checks are received by the mail room and then forwarded to the accounts receivable department for recording. The accounts receivable clerk holds the checks until the proper customer account has been identified and reconciled.
_____ Several shipping reports have been misplaced en route to the billing department from the shipping department.
_____ Several sales transactions were not invoiced within the same month as the related shipment.
_____ A sales clerk entered a nonexistent date in the computer system. The system rejected the data and the sales were not recorded.
_____ Upon entering sales orders in your new computer system, a sales clerk mistakenly omitted customer numbers from the entries.
_____ A computer programmer altered the electronic credit authorization function for a customer company owned by the programmer's cousin.
_____ Customer orders were lost in the mail en route from the sales office to the accounting department (located at the company's headquarters).
Required:
From the list that follows, select one internal control would be most effective in the prevention of each listed failure. Indicate the letter of the control next to each failure. Letters should not be used more than once, and some letters may not be used at all.
Required:
From the preceding list, assign all the duties to each of four employees: supervisor, employee 1, employee 2, and employee 3. No employee should have more than three tasks, no two employees should have any of the same tasks, and there should be a proper separation of duties to achieve appropriate internal control. List the four people, the duties you assign to each employee, and a description of why those assignments achieve proper separation of duties.
When a used CD or LP record arrives at a Sound Redux store, it is checked for damage, labeled with a bar code, and entered into the extensive inventory. A customer buying a used CD or record takes it to the cash register, where it is scanned through a bar code reader and the customer's cash, check, or credit card payment is processed.
Sound Redux has decided to establish a website and to begin selling used CDs and records on its website. The company believes there is a niche market for collectors of CDs or records that it can reach via the Web.
Required:
Required:
Required:
At the end of each shift, the sales clerk prepares a summary of cash collections. This report is forwarded to the accounting department. The charge slips are forwarded to the accounts receivable department at this time.
The supervisor in the accounts receivable department verifies the information on the charge slip. Prices are matched with an approved price list. If errors are found, they are manually noted on the charge slip. A sales invoice is then prepared by the accounts receivable supervisor. The accounts receivable clerk mails the invoice to the customer.
The accounts receivable supervisor enters invoices in the computer system each afternoon. At this point, the accounts receivable subsidiary ledger is created and details of the sale are forwarded to the accounting department. At month's end, the accounts receivable supervisor prints a monthly report of the accounts receivable subsidiary ledger and list of past-due accounts. These reports are filed and referred to in cases of customer complaints or payment problems.
A cashier supervises the sales clerks and performs the basic cash collection functions. The cashier opens the mail each day and stamps the check “For Deposit Only,” with the company's endorsement and bank account number. Checks are compared with any supporting remittance advice received with the check, and a daily listing of mail collections is prepared. Two daily deposits are prepared: one for the mail collections and another for cash register collections. A duplicate copy of all deposit slips is maintained by the cashier for use in the preparation of the monthly bank reconciliation.
In the accounting department, a staff accountant receives documentation of cash collections from sales clerks and the cashier. The staff accountant uses the information to prepare the journal entry for posting to the general ledger. When all of the collections have been entered, the remittance information is transmitted electronically to the accounts receivable supervisor for purposes of updating the accounts receivable subsidiary ledger for the day's collections.
Monthly account statements are prepared by the staff accountant and mailed to all customers. If a customer's account remains unpaid for six months, the staff accountant will notify the accounts receivable supervisor to write off the account as uncollectible. At this time, the credit manager is also notified of the account status so that additional credit will not be granted to this customer.
Required:
From the facts of this scenario, describe the internal control risks associated with Art's internal controls over the revenues and cash collection processes. Prepare a business memo, addressed to Art Dusing, the company's owner/operator, describing your recommendations for correcting each of these problems.
Required:
Describe the control purpose of each of the points presented.
These PCs are connected through a local area network. They are password protected, and the managing partner keeps a record of all passwords. The practice uses a standard medical-services software package that cannot be modified. Following is a description of the revenues and cash collections processes used in this medical practice:
Most patients receive medical attention after insurance coverage has been verified by the office manager. Upon entering the medical office, the patient presents proof of insurance to a receptionist. The insurance documentation is photocopied and immediately forwarded to the office manager for verification (while the patient is in the waiting room). In some situations, the office manager may extend credit on the basis of special circumstances. Approximately 20 percent of the patients pay for services with cash or check at the time of the appointment.
The attending physician must prepare a prenumbered service report at the time services are rendered to patients. Completed service reports are immediately forwarded to the first accounting clerk, who updates the report with pricing information. One copy of this report is given to the patient, and the other copy is retained by the second accounting clerk. Depending upon the patient's form of payment, the second accounting clerk will perform one of the following for each service report:
The second accounting clerk prepares a daily summary of patient revenues.
The first accounting clerk opens the mail each day and handles insurance company correspondences. When collections are received in the mail from insurance companies and patients, they are forwarded to the second accounting clerk for deposit. The second clerk stamps each check “For Deposit Only” and prepares a daily cash receipts listing (which also includes collections from patients who received services that day). One copy of this list is retained, and a copy is sent to the third accounting clerk. The third clerk prepares the daily bank deposit slip and retains a copy in a chronological file. This clerk also handles patient correspondences and scheduling and maintains a list of patients whose insurance coverage has been approved by the office manager.
When patient accounts are not collected within 60 days, the second clerk notifies the office manager, who analyzes the reasons for all instance of nonpayment. When the insurance company rejects the claim, the office manager reclassifies the receivable from an insurance account to a patient account. The second clerk adjusts the insurance company and patient account files for reclassifications and write-offs. This clerk maintains a listing of patients with uncollectible balances and provides an updated copy each week to the third clerk, who will not allow patients with this status to schedule new appointments.
Springtown Pediatrics Association uses a local CPA firm to perform various accounting functions. On a monthly basis, the firm posts the daily revenues summaries to the general ledger and prepares a trial balance and monthly financial statements. In addition, this firm accounts for the numerical sequence of service reports, files tax returns and payroll forms, and performs the monthly bank reconciliations. The CPA firm reports directly to the managing partner of the practice.
Required:
Evaluate the information in each of the following situations as being either an internal control (1) strength, (2) weakness, or (3) not a strength or weakness.
(Excerpt from Adapted CPA Simulation Problem)
Each morning a mail clerk in the sales department opens the mail containing checks and remittance advices, which are then forwarded to the sales department supervisor, who reviews each check and forwards the checks and remittance advices to the accounting department supervisor. The accounting department supervisor, who also functions as the credit manager, reviews all checks for payments of past-due accounts and then forwards the checks and remittance advices to the accounts receivable clerk, who arranges the advices in alphabetical order. The remittance advices are posted directly to the accounts receivable ledger. The checks are totaled, and the total is posted to the cash receipts journal. The remittance advices are filed chronologically.
After receiving the cash from the preceding day's cash sales, the accounts receivable clerk prepares a three-copy daily deposit slip. The third copy of the deposit slip is filed by date, and the second copy and the original accompany the bank deposit.
Sales clerks prepare a three-copy sales invoice for each sale. The original and the second copy are presented to the cashier, while the third copy is retained by the sales clerk in the sales book. When the sale is paid for with cash, the customer pays the sales clerk, who presents the money to the cashier with the invoice copies.
A credit sale is authorized by the cashier using an approved credit list after the sales clerk prepares the three-copy invoice. After receiving the cash or approving the invoice, the cashier validates the original copy of the sales invoice and gives it to the customer. At the end of each day the cashier recaps the sales and cash received and forwards the cash and the second copy of all sales invoices to the accounts receivable clerk. The accounts receivable clerk balances the cash received with cash sales invoices and prepares a daily sales summary. The credit sales invoices are posted to the accounts receivable ledger, and then all invoices are sent to the inventory control clerk in the sales department for posting to the inventory control catalog. After posting, the inventory control clerk files all invoices numerically. The accounts receivable clerk posts the daily sales summary to the cash receipts journal and sales journal and files the sales summaries by date.
The bank validates the deposit slip and returns the second copy to the accounting department, where the accounts receivable clerk files it by date. Monthly bank statements are reconciled promptly by the accounting department supervisor and filed by date.
Required:
(Adapted CPA problem)
Reread the Robatelli's Pizzeria case in Chapter 1. Consider the following issues related to the revenues processes at Robatelli's:
As Elaine Black reflects on her meeting with Jim Saxton and Peter Greyton, she considers where the company has been and where it is heading, and ponders the current issues regarding Robatelli's accounting information systems and its ability to take and record sales. She is concerned about the limitations of the current accounting information system. Are internal controls strong enough? Would a new, integrated IT system yield improvements? As she contemplates the integration of the POS systems at the restaurant locations with the GL software at the home office, she wonders about the requirements for developing and implementing such a system, and how to best utilize the system to support Robatelli's plans for growth. Elaine realizes that her ability to address these issues will be critical not only to the success of the company, but also to her career.
Required:
1F. Borthick and H.P. Roth, “EDI for Reengineering Business Processes,” Management Accounting, October 1993, pp. 32–37.
2Jay Baitler, “The Power of Effective Procurement and Strategic Suppliers,” Strategic Finance, April 2003, p. 40.
3Ellen Messmer, “Nortel embraces Net EDI,” Network World, March 17, 1997, p. 69.
4Andy Zipser, “Cooking the Books: How Pressure to Raise Sales Led MiniScribe to Falsify Numbers.” The Wall Street Journal, 9/11/1989.