lOMoARcPSD|5416226

SM Ch9 - Answer Key

Accountancy (Liceo de Cagayan University)

StuDocu is not sponsored or endorsed by any college or university

Downloaded by Magic Burger (magicburger07@gmail.com)
 lOMoARcPSD|5416226

Chapter 9
Auditing the Revenue Cycle

Review Questions:

1.
Whatdocumenti
nit
ia
t e
sthes
ale
spr
oces
s?
Response
:Ac ustomeror
der
,us
ual
lyint
hef
ormofapu
rcha
seor
der
,ini
ti
at
est
hes
ale
spr
oce
ss.

2.Dis
tinguis
ha mon gapackingsli
p,as hippi
n gno ti
c e,andab il
lofl ading.
Re s
ponse:Thep ackingsli
pt r
avelswitht heg oodstothec ustome r
, a
nditdesc
ribesthecontent
sontheor der
.Uponfill
ingtheorder
,the
shi
ppingdepartmentsendstheshippingno t
icetot heb il
lin
gde partme nttonoti
fyi
tthattheorderhasbeenfil
ledands hi
pped.Theshippi
ngnotic
e
cont
ainsaddit
ionalinf
ormationthatthepa c
kings lipma yno tcontain,suchasship
me ntdate,ca
rrier
,andfr
eightcharges
.Theb i
llofl
a di
ngisa
for
malc ont
ractbe
t weenthesell
erandt hetransportati
onc arri
er;itsho wslega
lownershi
pa ndresponsi
bil
it
yf o
ra s
setsintr
ansi
t.

3.Whataret
hreei nputcontr
ols
?
Res
ponse:
 Aut
horiza
tionpr ocedure
s
 Cre
ditcheckpr ocedure
s
 Val
idat
ionc ontrol
s
 Bat
chcontrols

4
.Whatarethethr
eer ulest
hatensurethatnosi
ngleemployeeo rdep a
rtmentproc
ess
esatr
ansac
tioni
nit
sent
ir
ety
?
Response:Thet hreerul
esthatensurese
gregat
ionoffunctionsareasfoll
ows:
a.Transa
cti
ona uthori
zat
ionshouldbes e
parat
ef r
omt r
ans act
ionprocess
ing.
b.Assetcust
odys houldbeseparat
ef r
oma s
setrecor
dk eeping.
c.Theorganiz
ations t
ruct
ureshouldbesuchthattheperpetrat
ionofafraudreq
uir
escol
lus
ionbet
ween2ormor
eindi
vidua
ls.

5.Wha ti
sa ut
omat
ion,a
ndwh yisitus
ed?
Respons
e:Automati
oninv
olvesusi
ngtec
hnolo
gytoimpr
oveth
ee ffic
iencya
nde ffe
cti
venessofat
ask.Aut
omat
ionoft
herev
enu
ecy
clei
s
typi
cal
lyusedtor
educeover
hea
dc ost
s,makebet
terc
red
itgr
ant
ingdec
isions,andcol
lectout
standin
gaccount
sre
cei
vabl
ebet
ter
.

6.Wha
tist
heob
jec
ti
veofr
een
gine
eri
ng?

Downloaded by Magic Burger (magicburger07@gmail.com)

 lOMoARcPSD|5416226

Res
ponse:Theobj
ect
iv
eofr
een
gine
eri
ngi
stogr
eat
lyr
educ
ecos
tsb
yide
nti
fyi
nga
nde
li
mina
ti
ngnon
val
ue-
add
edt
asksa
ndb
yst
rea
mli
nin
g
ne
ces
sar
yexis
ti
ngproce
sse
s.

7.Disti
nguis
ha mon gane d
itrun,sor
trun,andupda terun.
Re s
ponse:Ane ditrunisthefir
strun;itde t
ectsmostdataentryerror
s.Onl
yc le
a rdat
aprogre
ssest
othesortrun.Thesor
trunsequenc
esthe
trans
acti
onrecordsaccordi
ngtoitspri
ma ryk eyfie
lda ndpossi
blyas econdar
ykeyfiel
d .Oncethedat
aa r
esort
ed,theupdat
eprogr
am postst
he
trans
acti
onstotheappropri
atecorres
pondingr ecordsinthemasterfil
e.Duringas
eq uenti
alupdat
e,eac
hr ec
ordiscopi
e df
rom t
heori
ginalmast
er
fil
etothenewma st
erfil
e,r
egardle
ssofthee ffe
ctont hebalanc
e .

8.Ho wi st
herecord’sprimarykeycr
iti
cali
npr e
servi
ngtheauditt
rai
l?
Re s
ponse:Thep rimaryk e
yprovi
destheli
nkbe t
we e
nthema gnet
icre
cordss
tore
donac omput
erdi
skandthephy s
ica
lsourc
edocuments
andbusinesse
ventsthattheyrepr
ese
nt.Indatabasesys
temsthepri
ma r
yk e
yofonetable’
srec
ordi
stheembeddedfor
eignkeyinrel
at
edtabl
e
rec
ords.Forexample,theinvoi
cepri
ma r
yk e
y( In
voiceNumb er
)isafore
ignkeyint
h ere
lat
edli
neit
emdeta
ilrec
ords,t
husformin
ga naud
ittr
ail
.

9.
Wha taretheadvanta
gesofr e
al-
ti
mepr oces
sing?
Re s
ponse:Re al
-ti
mepr oces
singgrea
tl
ys horte
nsthecashcycl
eofthefir
m.La g
sinher
entintr
adit
ionalsys
temscancaus
edela
ysofs
e v
era
l
da
ysbe tweentakin
ga norderandbill
ingthecustomer.Real
-t
imeprocess
ingcangi
veafirm acompeti
ti
vea dva
ntagei
nthema r
ket
pla
ce.Manual
pr
ocedu r
estendtoproducecleri
calerr
ors,s
ucha sincorr
ectac
countnumbers
, i
nva
lidinv
ent
orynu mber
s, a
ndp ri
ce–qua
nti
tyext
ensi
on
mis
calculat
ions.Real-
ti
mep rocess
ingreduce
sthea mountofpaperdocument
sinas ys
tem.

10.Wh ydoe sbil

li
ngrecei
veac op yofthesal
esorde
rwhe ntheorderisa pp
rove
dbutdoe snotbil
lun t
ilthegoodsar
es hipped?
Response:Thebill
ingdepa rt
me nt
’srec
eip
tofthesale
sorderocc ursi
nmos tins
t a
ncesbeforethegood sar
eactuall
ys hipped;thus,
the
economiceve n
tisnotcomplet
e .Sincecredi
tche
cksneedtoresul
tinclud ec
red
italrea
d yexte
nde dforordersnotye
ts hi
ppe d,thebil
lingdepar
tment
(andothe
rde part
ments
)recei
v ec opi
esofthesal
esorderoncecre
d i
tisa ppr
oved.Ofc ours
e,someoft heg oodsmayno tbea vail
abletoship;t
hus
,
thecust
ome risnotbi
ll
eduntilthes hi
ppingdepar
tmentsendst
hes hi
ppi ngnot
icetothebill
ingde part
me nt
.

11.Howdot es
tsofcontr
olsrel
atet
osub s
tanti
vetes
ts
?
Res
ponse:Testsofcontr
olsa
nds ubsta
nti
vetest
sar
eaudi
ti
ngt
echni
quesu
s e
dforr
educi
ngto
tala
uditri
sk.Sub
sta
nti
vete
stst
rad
iti
ona
ll
y
fol
lowte
stsofcont
rolsbec
a us
etheres
ultsoftest
sofcont
rol
sar
euse
dtodete
rmineth
enatur
e,t
imi
ng,andext
entoft
hesub
sta
nti
vetes
ts.

12.I
namanuals
yst
em,a
fte
rwhic
he v
enti
nthesal
espr
oces
sshou
ldthec
ust
omerbebi
ll
ed?
Re
spons
e:Bil
li
ngocc
ursa
fte
rthepr
oducti
sshi
ppedt
othecus
tomer(
andt
heshi
ppi
ngde
par
tme
nts
endsas
hippi
ngno
tic
etot
hebi
ll
ing

Downloaded by Magic Burger (magicburger07@gmail.com)

 lOMoARcPSD|5416226

de
par
tme
nt)
.

13.Whatisabillofladi
ng?
Response
:Abi llofl
adi
ngisafor
malcontr
actbet
weenthese
ll
era ndt
heshi
ppi
ngc
ompa
ny(
car
ri
er)t
otr
ans
por
ttheg
oodst
othec
ust
ome
r.
Thebi
llo
fl a
dinge s
tabli
she
sle
galowner
shi
pa ndres
ponsi
bil
it
yforass
etsint
rans
it
.

14.Wha
tdocume
ntin
iti
at
est
hebi
lli
ngpr
ocess
?
Re
spons
e:Thebil
li
ngpr
oce
ssisi
nit
ia
tedbyt
hes
hipp
ingno
tic
e,whi
chs
igna
lst
hes
hipme
nto
ftheg
oodst
othebu
yer
.

15.Wher
eintheca
shrec
e i
ptsproce
ssdoess
uper
vis
ionpl
ayanimport
antr
ole?
Res
ponse
:Supervi
sionpla
y sani
mport
antr
oleint
hemailr
oom wherebotht
heche
c k(
ass
et)andr
emi
tt
anc
ea dv
ice(a
ccount
ingr
ecord
)are
int
heha
ndsofoneper
son.Ma i
lroomfraudc
anres
ult
,whic
hinvol
vesst
eal
ingthec
hec
ka nddes
tr
o yi
ngt
her
emit
tan
cea d
vic
etoc o
vert
hethef
t.

16.Listt
herevenuecyc
leaudi
tobje
ctiv
esder
ive
df ro
mt he“exis
tenceoro
ccurr
ence
”ma na
g ementa
sse
rti
on.
Res
pons e
:
 Ver
ifythatt
heaccount
srec
eivabl
ebal
ancerepre
sentsamountsac
tual
lyowedtot
heorgani
zati
onatt
hebal
ancesheetda
ta.
 Est
abli
shthatr
evenuefr
oms a
lestr
ans
act
ionsrepre
sentgoodsshi
ppedandser
vic
esrender
edduri
ngthepe
riodc
o v
eredbythefina
nci
al
st
atements
.

17.Listt
herevenuecyc
leaudi
tobj
ect
ive
sde r
ive
df r
omt he“ c
ompl e
teness
”ma nag
ementass
e r
ti
on.
Res
pons e
:
 Det
erminethata
llamount
sowedtotheorgani
zat
iona tthebala
n c
es he
etdat
earere
fle
ctedinac
count
sr e
cei
vabl
e .
 Ver
ifythata
llsa
lesf
orshi
ppedgoods,al
lserv
ice
sr endered
,anda l
lret
urnsandal
lowancesf
orthepe
riodar
erefle
cte
dint
hefina
l
st
atements
.

18.Listt
her e
v e
nuecycl
eauditobjec
ti
v e
sde r
ive
dfromthe“ ac
c ur
acy”mana
ge mentass
ert
ion.
Res
pons e:
 Ver
ifythatrev
enuetr
ansact
ionsareaccura
tel
ycomputeda ndbase
doncur r
entpri
cesandcor
rec
tqua
nti
ti
es.
 EnsurethatARsubsi
dia
ryledger,theSal
esInvo
icefil
e,andtheRemit
tancefil
earemathe
mati
cal
lyc
orr
ectanda
gre
ewi
tht
heg
ene
rall
edg
er
accounts.

Downloaded by Magic Burger (magicburger07@gmail.com)

 lOMoARcPSD|5416226

Di
scus
sionQue
sti
ons

1.Di stingui sha mon gt hes ale s

, bill
ing, a
nda ccoun t
srec e
ivablede par t
me nts.Wh yc an ’
tthes ale
sora ccountsre ceivablede partme ntspreparethe
bills
?
Re spons e:Thep rinciplesofs e
gr ega
tiono fdutiesapplyt othe sede pa rtments.
Thes alesorde rde partme nt(includedint hes alesdepa rt
me ntint h ete xt)i
sr es
pons iblef ort akin gth ecustome ror derandpl acingitint
oa
standa rdfor ma t.Thi sde partme n trecordsinforma t
ions ucha sthec ustome r
’sna me ,address ,a ccoun tnumb e
r,qua ntit
iesa nduni tsofe achite
m,
discount s, f
re i
ghtpr eferenc es,etc .Thes ale
sor de rproce s
singma y
, ins omei nstances,playar oleinv e ri
fyingo rde t
e r
mi ningt hepr omi s
eds hi
pping
date.Th eb ill
ingde pa rtme ntr eceivesac opyoft hes al
esor derfromt hes alesde partme nt
.Uponr eceip tofthes hippingno ti
cea ndt hes t
ockreleas
e
doc ume nts ,thebi l
lingde partme ntpr eparesthes a l
esinv oi
ce, whichi st hec ustome r
’sbi l
lre flect
ingc ha r
g esforitemss h ipped,whi chma ybe
differ
e ntf romi temsor der e
d ,tax esandf rei
ghta nda nydiscount soffered .Thes a
lesor derde pa rt
me nts hou l
dno tpr eparet heb il
lsbe causethe
salespeopl ema ybi lltheirfav oriteclientsles
st ha ntheys houldbebi l
led .Thes ale
spe oplepl ac etheor dera ndthuss tartthewhe elsinmo ti
onfor
inventor yt obes hipp ed .Fur ther,thes ales
peopl es houldno tbea ll
o we dt ode termineho wmuc hth ec us t
ome rspa yfort he i
rinven t
ory ,becaus
et he
y
ma ybet emp te
dt oc ha r
g elo we rpr i
cesa ndre c
e i
v ekick backs.
Thea ccount srec eivablede part
me ntrece i
v esthes al
esor dersa ndpos tsthemt ot hea cc ountsr ec ei
va bl
es ubs i
diaryl edger.Asr e mit
tance
advi c
e sa rer ecei
ve d,the ya repos tedtot hecus tome r’
sa ccoun tinthea c count sreceivablesub si
diaryl e dger.Thea ccountsr ec
e ivablede par
tme nt
shoul dno tbea ll
o we dtopr eparet hebi ll
sbec a
us et hi
sde pa r
tme ntha sc ustod yoverthea ccount sre ceiv a
blea ssets.Itrecordsc ustome rpayme nts
andt racksc ustome rs’un pa i
db il
ls.Ifitwa sallowe dt opreparet hebi ll
s,itmi ghtnotbi l
lc ertainc usto me rsandr ec e
iveaki ckbackf romt he
custome rsfort hef r
e eg oods .

2. Explai
nt h
er i
sksassoci
atedwithma i
lr
oom pr o
ce dures
.
Re s
ponse:Thec hecksrecei
vedinpayme ntfora c
count
sr ec
eiva
blea reac rucialas
s e
tforthefirm.Th ema i
lr
oomi sapointofe xposur
efor
anyfirm. Theindivi
dualwhoop ensthema i
lha saccessbothtocash(t
h ea s
set)andt otheremitt
a ncead vic
e( t
her e
cordofthetransa
c ti
on).A
dishonestemployeema yusethisopport
unit
yt ostealthechec
k, ca
shit,andde str
o ytheremitt
anc eadvic e
,thusleavi
ngnoe videnceofthe
tr
a nsac
tion.Ulti
ma t
el
y,thi
ss or
toff r
audwillcomet ol i
ghtwhenthecus tomerrece i
vesanotherbilland, i
nr e
sponse,produ
c e
st hecancele
dc he
ck.
Ho wever,bythetimethefirmge t
stothebottomoft hisprobl
em,thep erpetr
atorma yha v
ec ommi tte
dt hec ri
mema nytime
so verandl ef
tthe
organizati
on.Detect
ingcri
me saftert
hefactaccompl i
shesli
tt
le.Pre
ventionisthebe stsoluti
on.Thede te r
renteffe
ctofsupervis
ioncanpr ovi
dean
effect
iveprevent
ivecontr
ol.

3.Howc ouldanempl
oyeeembez
zlef
undsbyis
sui
nganunaut
hor
ize
dsalescr
editme
moi ft
heappr
opr
iat
ese
gre
gati
onofdut
iesa
ndaut
hor
iza
ti
on
cont
rol
swe renoti
npl
ace?
Response
:Ane mplo
yeewhohasa
c c
esst
oincomi
ngpayment
s,e
itherc
ashorche
ck,aswel
last
heaut
hor
iza
ti
ontois
suecr
edi
tmemosmay

Downloaded by Magic Burger (magicburger07@gmail.com)

 lOMoARcPSD|5416226

pocke
tthec
ashorchec
kofapayme
ntforg
oodsr
ece
ive
d.Thee
mpl
oye
ecou
ldt
heni
ssueac
redi
tme
mot
othec
ust
ome
r’sa
ccounts
otha
tthe
acc
ountdoe
snotshowabal
anc
edue.

4.Wha tt
askcant
heaccount
sreceiva
bledepart
me nten gagei
ntov e
rifythatal
lcheckssentb ythecustomershavebeenappropri
at
e lydeposi
te
dand
re
corded?
Respons
e:Thecompanys houl
dpe ri
odic
a l
ly,perhapsmonthl
y,senda naccountsumma r
yt oeachcust
ome rl
ist
inginvoic
esa nda mount
spai
d
bychecknumberanddate
.Thisforma l
lowsthecus t
ome rtover
ifytheaccurac
yoft herecords.Ifanypayme nt
sarenotrec
or de
d,thec ust
omerca
n
not
ifythecompan
yofthedis
crepancy.Thesereportsshouldnotbehandledbythea ccountsreceiv
ablecle
rko rt
hecashie
r.

5.Wh yisacces
scont
rolove
rreve
nuecyc
ledocumentsjustasi
mpor tantasthephysi
calc
ontro
ldevi
c e
sove rc
ashandinvent
ory?
Response
:Ac c
esscont
rolt
othebi
ll
ingandaccountsreceiv
ablerecordstha
tarepar
tofthere
v e
nuec yc
leisj
ustasimporta
ntast
heph ys
ica
l
cont
roldevic
esoverc
ashandinve
ntor
ybecaus
etheserecordsaffe
ctthecoll
e ct
ibi
li
tyofanass
et—accountsrec
eiva
ble—thatshoul
deventua
ll
ybe
conver
tedint
oc a
sh.I
fthe
serecor
dsar
enotadequa
telycontrol
led,in
v ent
oryma ynotbeult
imate
lyconver
tedint
othecashamountthefir
m
dese
rves.

6.Forab at
chp r
ocess
ingsyst
em us ingsequentia
lfil
es,descri
betheint
erme d
iateandpe rmanentfil
esthatarec r
eate
da ft
erthee di
trunhas
succe
ssfull
ybeencomplet
e dwhe npr ocess
ingthesalesorderfil
eandupdatingtheaccountsre
c ei
v a
bleandi nventor
yma sterfil
es.
Response:Aftert
hee di
tp rogramt e
s t
seachrecordforcler
ica
lorlogicalerr
ors,itwri
testhecorrectrecordstoacleant r
ansa
cti
onfil
eand
therec
ordswi t
herror
stoa nerrorfil
e.Bo t
hoft hes
efilesareconsi
deredi
nterme di
ateortemporaryfil
e s
.Th ee r
rorfil
eiscons i
der
edtobea
temporar
yfilebeca
usetherecordswi llberesubmitt
eda ft
ertheyhavebeenrevieweda ndcorr
ected.Thec lea
nt rans
acti
onfileisconsi
dere
dtobean
int
ermediat
efil
ebecauseitwillbes orte
da ndwr i
tt
entoane wtape.Theold,unsort
edt ra
nsac
tionfil
ewi llnotbeus edinfurtherpr
ocess
ingonc
ea
sort
edtransac
ti
onfil
eisma de.

7.Wh yha stheu s

eo fma gne t
ictape sasas torageme diumde cl
inedinr e
c e
nty ears?Wha taretheirprima ryu sescurrent
ly
?
Response: Bo tht apesa ndd i
s ksc anbeus eda sthephy si
calstorageme dium forsuchsy st
ems .Ho wev er,t
heus eoftapeshasdecli
ned
consider
ablyi nrecenty ears.Forda y-to-dayope rati
ons, t
apesa r
ei ne
ffic
ientbeca usetheymus tbeph ysi
c all
ymoun tedonat apedri
vea ndthen
dis
mount edwhe nthej obe nds .Thisa pproachisla borintens
ivea ndexpensive.Th ec onst
antde c
li
neint hec ostofdiskst
orageinrecentyear
shas
eli
mina t
edt heecono mi cadv antageonc ea ss
oc i
atedwi thtapes.Mos torganiz
ationst hatst
il
luses equentialfile
ss t
orethem ondisksthatar
e
perma ne
ntlyc onnected( onli
ne )tothec omput e
rsy st
ema ndrequirenohu ma nint e
rventi
on.Theope r
ationalf eat
uresofsequenti
alfil
esdescr
ibed
earl
ierarethes amef orbo tht apeandd i
skme dia
.Toda y,tapesareus edprimarilya sbackupde vi
cesandf o rs t
orin
ga rchi
veda t
a.Forthese
purposes,theyprovidea nefficie
nta nde ffec
tivestora
g eme diumf oral a
rgesystem.

Downloaded by Magic Burger (magicburger07@gmail.com)

 lOMoARcPSD|5416226

8.Discussbo t
ht hetangibl
eandintangi
bleb e
nefit
sofreal-
ti
mepr oce
ssi
n g.
Re sponse:Re al-
ti
mepr oc
essi
ngyi e
ldsthefoll
owingtangiblebenefit
sReal
-ti
mep rocess
inggreat
lys
hort
ensthecashcycleofthefirm.Lags
inher
entint r
aditionalsys
temscancau s
ede l
aysofsever
aldaysb etweentakinganor derandb il
li
ngthecus
tomer.Real-
ti
mepr oces
s i
ngcangivea
fir
mac ompe t
it
ivea dvant
ageinthema rke
tplace
.Ma nualproc
e dureste
ndt oproducec l
ericalerr
ors
,suchasi
ncorre
ctaccountnumbe rs,i
nval
id
invent
orynu mbe rs,andpric
e–quanti
tyextensi
onmi sca
lcul
ati
ons .Real-
ti
mep r
ocessingr e
du c
estheamountofpaperdocumen t
sinas yst
em.
Fur t
her,real-t
imeprocess
ingma yalsoachie
vethefoll
owi ngintangibl
ebenefits
.Itma yincre
asecus
tomersat
isfa
cti
onth r
oughf as
ter
operat
ionr es
pons etimetorequest
sandinqu i
ri
es,decre
asedlagt i
mebe twe e
norderda teands hi
pme n
tdat
e,andmor eaccur
aterecordswithf
ewer
corre
ctionsreques t
ed.

9.Di st
ingui s
hbe twe enpos iti
vea ndne gativec onfirma t
ions .
Res ponse:Pos i
ti
vec onfirma t
ionsa skr ecipientst or e s
pondwhe thert he i
rr e
cordsa gr eeo rd i
sagreewi t
hthea mounts t
ated.Pos i
ti
v e
confirmationsa repa rt
icularl
yus e fu lwhe nt hea uditors us pectsthatal a
rgenu mberofa cc ountsma ybei nd is
pute. Theya rea lsous edwhe n
confirmingunus ualorl ar
geba lanc e sorwhe nal argep ropor t
ionoft ot
ala cc ountsrec ei
vabl earisesfromas ma l
lnumbe rofs i
gnificantcustome r
s.A
problem wi thpos it
ivec onfir
ma tion si spoo rr espons er a t
e.Cus t
ome rswhodono tdisputet hea mounts ho wnint hec onfirma t
ionl ett
erma yno t
respond.Thea uditorc annota ss
u me ,ho we v er,tha tlac kofr esponseme ansa greeme nt.Toobt ainthehigh es
tresponser atepos sible,seconda nde v
en
thir
dr eque st
sma yne edtobes entt ononr e sponde nts.
Ne gati
vec onfirma t
ionsr eq ue stth ere cipie ntstor e s
pondonl yiftheydi sagreewi tht hea moun tshowni nthel ett
er. Thiste chniqueisus ed
prima r
il
ywhe na ccountsrec e
ivabl ec ons isto fal argenu mbe roflow-v a
lueba lancesa ndt hec ontrolris
kofmi s
stateme nti scons i
de r
edt obel ow.
Thes ampl es i
z eforthistypeoft es tist ypic all
yl argea ndma yincludethee ntirepopu lat
ion. Evi dencefrom nonreturnedne gati
v econfirma ti
ons
select
edf rom al argepopu lati
onpr o vide sindi re ctevi den cet osupportthea ud i
tor’
se xpecta t
iont hataccountsreceivablea reno tma teri
ally
mi sst
ate
d .Re sponse stoneg at
ivec onfirma tions ,pa rt
ic ularlyiftheya rewi de spreadinal ar gepopu lati
on, mayindic a
teapo t
entialproblem.Si nce
thene ga
tiv econfirma t
ionsa pproa c hdoe sno tp rovet ha tthei ntendedrecipi entsactuallyre cei
v eda ndreviewedthec onfirma tionl et
ters
, evidenceof
indivi
dua lmi sstat
eme ntspr ovi
de db yr e t
ur ne dr espo nse sc annotbepr oje
c tedt othee ntirepopul a t
ion.Ino t
herwor ds,respons est onega t
ive
confirmationsc anno tbeus eda saba sisfo rde te rmini ngt het otaldoll
aramountoft hemi sstateme ntinthea cc
ount .Suche videncec anb eus ed,
howe ver
, toreinforceth eaud i
tor’spr iore xp ecta t
iont ha tthea ccountbalanc ema ybema ter i
all
ymi ss
tat
e dandtha taddition a
lt est
ingofde t
a i
lsi
s
nee dedtode terminet hena turea nda moun toft h emi sstat
e me nt.

10.Wha ti
sthepur poseofanal
yti
calrevi
ewsintheauditofrevenuecycl
eaccounts
?
Response:
Audito
rsoftenprecedesubs
tanti
vetest
sofdeta
ilswit
ha na nal
yti
calrev
iewo fac
countbala
nces.I
nthecas
eoftherev
enuecyc
le,ana nalyt
ical
revi
ewwi l
lp r
ovidetheaudi
torwithano ve
ral
lperspe
cti
vef ort
rendsinsal
es,cas
hr e
ceip
ts,sa
lesr
etur
ns,
anda c
count
srec
eiv
able.
I na ddit
ion,
anal
yti
calprocedurescanpr
o vi
deassura
ncethattr
ansac
tionsanda cc
ountsarer
easonabl
ystat
edandcomplet
eandma yt
huspermitthea udit
orto

Downloaded by Magic Burger (magicburger07@gmail.com)

 lOMoARcPSD|5416226

r
educ
esub
sta
nti
vet
est
sofde
tai
lsont
hes
eac
coun
ts.

11.Explaintheopen-in
vo i
cesys
tem.Wha teffec
tmi ghtithaveonc onfir
mationresponses
?
Re sponse
:Unde rthisa
pproach,i
nvoicesarerecordedindi
vidu al
lyrat
herthans umma rizedorgroupedb ycredit
or.Inthi
senvi
ronment,no
accountspayabl
esub s
idi
a r
yledgerexi
st
s.Eachinvoiceispa i
d(closed)asitcome sdue.Fo rfinanci
alre
porti
n gpurposes
,totalac
count
sp a
yablei
s
cal
c ul
at
e dsimplybysummi ngtheopen(unpaid)invoic
es.De t
erminingtheliabil
it
yduet oapa rti
cul
arcre
ditor,whichma yconsi
stofmult
ipl
eope n
in
vo i
ces,isnotsuc
has impletas
k. Theaudi
torshouldno tass
umet ha tanorganiz
ationthatus esthi
sapproa
chwou l
di n
ve s
ttheti
mene e
dedto
res
pondt otheconfir
ma t
ionreq
ues t
.Theconfir
ma t
ionp r
oc es
sma yt husbeineffe
ctive
.

12.Wha
tfinanc
ials
tat
eme
ntmi
sre
pre
sent
ati
onsma
yre
sul
tfr
om ani
ncons
ist
ent
lyappl
ie
dcr
edi
tpo
lic
y?Bes
pec
ific
.
Re
spons
e:
Ac
count
sre
cei
vabl
ema
ybeo
ver
sta
tedbe
caus
eal
lowanc
efordoubt
fulac
count
sisunde
rst
ate
dduet
opoorc
redi
tpol
ic
y.
Badde
bte
xpe
nsema
ybeunde
rst
ate
d.

13.Gi
vet
hre
eex
ampl
esofa
cce
ssc
ont
roli
naPOSs
yst
em.
Re
spons
e:Thef
oll
owi
ngar
eex
ampl
es:
St
eelc
abl
est
ose
cur
eexpe
nsi
vel
eat
herc
oat
stot
hec
lot
hingr
ack.
Loc
keds
howc
ase
stodi
spl
ayj
ewe
lryandc
ost
lye
lec
troni
cequi
pme
nt.
Magne
tict
agsa
ttac
hedt
ome
rchandi
se,whi
chwi
lls
oundanal
arm whe
nre
mov
edf
romt
hes
tor
e.
Pas
swor
dlo
g-i
ntoc
ashr
egi
st
ers
.

Not
etoI
nst
ruc
t :Someph
or ysi
cals
ecur
it
yde
vic
esc
oul
dal
sob
ecl
ass
ifie
dass
upe
rvi
si
on.

14.Wha tma k
esPOSs ys
temsdiffe
rentfr
om re
venuec y
cle
sofma nuf
act
urin
gfirms
?
Response:Inpoi
nt-of
-sa
les ys
tems,t
hec us
tomerli
ter
all
yhaspossess
ionofthei
temspur
chas
ed,t
husthei
nve
ntor
yisin-
hand.Typi
cal
ly
,
forma
nuf a
cturi
ngfir
ms,t
heorderisp l
acedandthenthegoodisshi
ppedtothecus
tomeratso
melat
erti
meperi
od.Thu
s,upda
ti
nginve
n t
oryatt
he

Downloaded by Magic Burger (magicburger07@gmail.com)

 lOMoARcPSD|5416226

t
imeofsa
lei
snece
ssaryinpo
int
-of
-sa
les
yst
emss
inc
ethei
nve
ntor
yisc
han
gin
gha
nds
,whi
lei
tisno
tne
ces
sar
yinma
nuf
act
uri
ngfir
msunt
ilt
he
g
oodsar
eact
ual
lys
hippedtot
hecus
tomer
.

15.IsaPOSs y
stemt hatus
e sbarcod i
n gandalaserl
ightsca
nnerfoolpr
oofaga
instina
ccurat
eupdat
es?Dis
cuss.
Res
ponse: No ,theba r
-code sarenotreadwi t
h100 %a ccuracy
.Anotherpotent
ialer
rorcanocc
uri ft
hewrongbar-
codedsti
cker
sare
att
achedtotheme r
c handi
se,whic hc anoccurinsomedi s
countret
ailst
orest
hatdono tupdat
ethedat
aba
se;theyj
ustpr
intou
tbar-c
odedsti
cke
rs
anda t
tac
hthemt otheme rc
ha ndi
s e.Dev i
ouscust
omersma yswit
chs t
icker
sonpricetags
.Inaddi
ti
on,aner
rorcanbemadewhene nt
eri
ngthebar
-
codesint
othesyste
m, t
husthewr on git
emr i
ngsupwhe nthetagisscanned.
Mul
ti
pleChoi
ce
1. C
2. B
3. C
4. B
5. C
6. C
7. D
8. A
9. C
10. A

Pr
obl
ems

1.Pr
oc e
ssDe s
cri
ption
Desc
ribethepr
ocedure
s,doc
ume
ntsa
ndde
par
tme
ntsi
nvol
vedwhe
nins
uffic
ienti
nve
nto
ryi
sav
ail
abl
etofil
lac
ust
ome
r’sa
ppr
ove
dor
der
.

Re
spons
e:

Downloaded by Magic Burger (magicburger07@gmail.com)

 lOMoARcPSD|5416226

Whe ninsufficientinv
entor
yi sa
vai
labletofil
lacust
omer’
sappro
vedorder
,thewar
ehous ecle
rkpl
acest
heseit
emsonbackorder
.Theba c
k -
order
st
atusisrepor t
edt othesal
esd e
part
me ntwhe r
eeit
heranewsal
esorde
rfortheout
st
andin git
em(s
)ispr
eparedort
heexi
st
ingsal
esorderiscopied
andad j
ust
e dt or e
fle
ctthemissi
ngproduct(s
).Thest
ockre
leas
edocume n
tisnot
edtoreflectt
heamount
sthatar
ebei
ngshippedt
othecustome r
.
Thec ust
ome ristypica
ll
yno tbi
ll
eduntilthegoodsar
eshi
pped.

2.Proc
essDescri
pti
on
Refe
rtoFigur
e9-1pres
ent
edi
nthet
exta
nde
xpl
ainwhe
ret
heba
tcht
ota
lsc
omef
roma
ndwhi
cha
ccou
ntsi
ntheg
ene
rall
edg
era
rea
ffe
cte
dbyt
he
end-
of-
daybatchpr
oces
s.

Response:Inabatchsys
tem,thegenera
lledge
rma st
erfil
eisnotupda t
edeveryt
imeab at
chisproce
sse
d;ra
ther
,thegene
rall
edge
ristypi
cal
ly
update
da tt
heclo
seo feac
hda y.Eac
ho fthesy
stems,suchasaccountspayabl
e,ac
countsr
ece
ivable
,cas
hrecei
pts
, c
ashdi
sbur
sement
,a nd
in
ventorycont
rol
,accumulat
etotal
sforallofi
tsbat
chesrunsin
cet helastg
enera
lledge
rupdate
.Thetota
lsar
esortedbyt
hegener
alle
d ge
raccoun
t
numbe r
,andthegener
alle
dgerisupdatedinasingl
erun.

3.FlowchartAnal ysis
Usetheflo
wcha rtf
orPr oble
m3t oanswe rthes
eq uest
ions:
a. Wha taccountingdocume ntisrepres
entedb ysymbolA?
b. Wha tisana ppropri
atena mef orthedepa r
tme ntla
bele
dB?
c. Wha twou l
dbea nappr opri
atede scr
ipt
ionfo rproce
ssC?
d. Wha tisthelocati
onr epresentedbys ymbolD?
e. Wha taccountingrecordi sreprese
n t
edbys ymbo lE?
f. Wha tisana ppropri
atena mef orthedepa r
tme ntla
bele
dH?
g. Wha tdeviceisrepresentedb ysymbolF?
h. Wha tdeviceisrepresentedb ysymbolG?
i. Wha taccountingrecordi sreprese
n t
edbys ymbo lG?

Re
spons
e:
a. Cas
hprel
istorremit
tanc
elis
t
b. Cas
hRe c
eiptsdepar
tment
c. Pos
ttoCashRe c
e i
ptsJ
ourna
landde
pos
itc
hec
ksorPr
oce
ssCa
shRe
cei
pt

Downloaded by Magic Burger (magicburger07@gmail.com)

 lOMoARcPSD|5416226

d. Bank
e. CashRecei
ptsJ
ourna
l
f. Account
sRecei
vabl
eDe pa
rtme
nt
g. Computert
ermi
nal
h. Computerdi
sk
i. Account
sRecei
vabl
efil
e

Downloaded by Magic Burger (magicburger07@gmail.com)

 lOMoARcPSD|5416226

4.Int
ernalCont
rolEval
uat
ion
Ide
nti
fythec
ontr
olwea
kness
esdepi
ct
edi
ntheflo
wcha
rtf
orPr
obl
em4
.

Re
spons
e:
 Sa le
sc lerkshouldnotr ec
ords al
esintheSa l
esJ ournalbef
oretheeconomi cevent(shi
ppingthegoods)haso c
c urr
ed.Bill
ingshould
perf
ormt hi
srole.
 Noc reditcheckisperformed .
 Bi ll
ingd epart
me ntbil
lscustomerbe f
oretheg oodsa r
es hi
ppedandwi thoutconfir
ma t
ionofshipmentandqu antit
yshipped.As hi
ppin
g
noti
ces houldtrigge
rthebillin
gpr ocess
.
 Ac count sReceivabl
es houldnotpro c
esscashr ec
e i
ptsandma i
ntai
nt heARs ub s
idiaryrec
ords.
 Wa r
ehous eclerk,whoc ontrol
stheph ys
icalinventory
,shouldnotal
soma i
ntaintheinvent
orysubsi
diaryrecords.
 Theg ene r
alledgerdepart
me ntshouldreceiv
ej ournalvoucher
sanda ccountsumma riesfr
om AR, CashRe c
e i
p ts
,Bil
li
n g,a
ndI nve
ntory
contr
ol.Insteadtheyinappropri
atelyusesourcedoc ume nt
stoupdat
eGLa cc
ount s
.

5.Segrega
tionofFunc t
ions
Which,i
fany,ofthefol
lowingsit
ua t
ionsrepre
sentimpropersegr
egat
ionoff unctions
?
a.Thebi l
li
ngdepartmentpre p
aresthecust
ome rs
’invoic
es,andt heARd epar
tmentpostst
othecust
omers
’account
s.
b.Thes al
esdepart
me ntapprovessale
sc r
editmemo sastheresultofproductret
urns,a
ndsubseque
ntadj
ust
me nt
stothecus
tome
racc
ount
s
ar
eperfo
rme dbytheARde par
tme nt
.
c.Thes hi
ppin
gde part
me ntshipsgoodsthathavebeenretr
ievedf r
oms tockbywa re
houseper
sonnel
.
d.Theg ener
alaccounti
ngde part
me ntpost
stotheg ener
alle
d g
e raccountsaft
errecei
vin
gjour
n a
lvouche
rstha
ta r
eprepa
redbyt
hebi
ll
ing
depa
rtment
.

Re s
ponse:
Allarep r
opersegre
gati
onoffunct
ionse
xcep
tb .Thesal
esde pa
rtmentshoul
dnotbeall
owedtoapprov
ec r
edi
tmemoss i
nceitcoul
dpo t
ent
ial
ly
overst
atesale
sinonepe r
iodtomeetquo
tasandboostbonusesandreve
rsetheminasubseq
uentper
iod.There
cei
vin
gr e
portindi
cat
ingtha
tgoods
havebe enrece
ivedbytherec
eivi
ngdepar
tmentshoul
dbet hesourc
edoc umentf
orcr
editmemosanditshoul
dbeauthor
ize
db ysomeone
independentofthesal
esdepar
tment.

6.Inte
rnalControls(
CMA6885 -
2)
Jem Clot
hes
,Inc
.,isatwent
y-fiv
e-s
tor
echa
in,c
once
ntra
tedi
ntheNor
theas
t,t
hatse
ll
sre
ady-
to-
wearcl
othe
sforyoungmenandwomen.Eachst
ore
hasafull
-t
imema nage
randana ssi
st
antma
nager
,bot
hofwhom ar
epaidasal
ary
.Thecas
hie
rsandsa
lesper
sonnela
retyp
ica
ll
yyoun
gpe opl
e

Downloaded by Magic Burger (magicburger07@gmail.com)

 lOMoARcPSD|5416226

workingpa rtt
imewhoa repa ida nhour l
ywa g ep lusac ommi s sionba sedons alesv ol
ume .ThePr ob lem6flo wc ha rtpre sentedint het extdepict
s
theflo
wofas a l
estrans actionthr ou ght heor g ani z
a tionofat ypi c als t
ore.Thec ompa nyus e
suns ophi sti
ca tedc as hre gist
e r
swi thf our-partsale
s
invoi
ce stor ecordeac ht ransaction.The sesale sinv oicesa reus edr e gardle
ssoft hepa yme ntt ype( c ash, che ck,orb ankc ar
d ).
Ont hes alesfloor,thes ale spe rsonma nua llyr ecordsh isorh e rempl oyeenumbe ra ndt het r
a nsa cti
on( c
lothe s
,c lass,desc ri
p ti
on ,quanti
ty,and
unitprice),total
sthes a lesinvoi ce,c a l
culatest hedi s coun twhe na pp r
opr i
ate,calc
u lat
esthes alesta x,a ndpr epa resth egr andto t
al.Th esal
esperson
thengiv e
st hes al
esin voicet oth ec a shier,retain in
gonec op yi nt hes alesbook.
Thec as
hierr e
v i
e wst hei nvoi cea ndi nput sthes ale. Thec a shr egist
erme chani cal
lyv alidatest hei nv oi c
eb yau toma tical
lya s s
igninga
consecutivenu mbe rtot het ransa ction. Thec as hierisa ls
or espons ibleforg et
tingcre di
ta ppro valonc ha r
g es al
esa nda ppro vi
ngs a lespa i
db ycheck.
Thec ashiergiv esonec opyoft hei n voicet othec us t
ome ra ndr e tainsthes econdc op yasas t
or ec op ya ndt hethi rdforaba nkc ar
d, ifade positi
s
needed. Re t
u r
nsa reha nd l
e dine xac t
lyt her ev ersema nne r,wi tht hec ashi
erissuingar etur nslip.
Atthee ndo feac hd ay,th ec as hierseq ue nti
a ll
yor de rst hes a lesinvoicesandt akesc as
hr egis t
ert ota lsforc ash ,ba nkc ard,a ndc hecksales
,
andc asha ndba nkc ardr eturns.The seto t
alsa rerec onc i
ledb yt hea ssi
stantma nagert oth eca shre gisterta pe s,theto taloft hec ons ecuti
vely
numbe reds alesinvoices ,andt her eturns li
ps . Thea ssist
antma na ge rpreparesada ilyreconc ili
a t
ionr e por tfort hes torema nage r’
sr eview.
Ca s
h ,check,a ndba nkc ards alesa rere viewe db ythema na ge r,whot henpr eparest heda il
yba nkd e pos i
t( bankc ards a
lesin vo i
c e
sa r
e
incl
ude dint hed epos i
t).Thema na g erma kest hede posita ttheba nka ndfilesthev ali
date dde posits lip.
Thec as
hr egistertape s
,s ale sin voices, andr e turns li
psa ret he nforwa r
dedda i
lytot hec entra lda tapr ocessingde partme nta tcorporate
headqua rt
ersfo rproc e
s sing.Theda tapr oce s
s ingde partme n tretur nsawe eklys al
esa ndc ommi s
siona c t
ivi t
yr epor ttot hema nage rforr e
view.

Requi
red:
a.Identi
fysi
xstr
engt
hsint heJemClo
the
ssys
temforcont
rol
li
ngsal
est
ran
sact
ions
.
b.Fore ac
hstr
engt
hident
ified,e
xpl
ai
nwhatpr
oble
m( s
)Jem Cl
othe
shasav
oide
db yinc
orpor
ati
ngt
hes
tr
engt
hint
hes
yst
emf
orc
ont
rol
li
ng
sa
lest
rans
acti
ons.

Res
ponse:
St
rengths Probl
emsAv oided
•All25store
su s
ethesa
me •Avoi
dsdifficu
ltyinaudi
ti
ngt
hes
tor
es
syste
mf orcont
rol
li
ngsal
es andi
ncorporatin
gc ha
inwi
de
trans
act
ions. i
mproveme nts
.

•Thea
ssi
st
antmanag
erandma
nag
er •Avoi
dssubj
ecti
vit
yinsales
ar
epa
idonasal
arybas
is. andc
ommi s
sionall
ocat
ions.
•Redu
cessubj
e c
ti
vit
yforcredi
t

Downloaded by Magic Burger (magicburger07@gmail.com)

 lOMoARcPSD|5416226

a
ndc
hec
kapp
rov
als
.

•Cas
hier
sands a
lespe
opl
e •Mini
mizestheposs
ibil
it
yo ff
raud
.
ar
esepara
tedforcompl
eti
ng •Hel
psmiti
gatesal
esinvoi
ceerr
ors.
sa
lesi
nvoice
sa ndre
tur
ns. •Pr
event
sthesal
espeopl
efromtakingt
he
re
tur
nsforthei
rownu se

•Aut
omati
cs e
quenti
alnumberi
ng •El
iminat
essubje
cti
vecon s
ecuti
ve
i
sdonebytheca
s hregi
st
er. numberi
ng,minimizi
nge mploye
etheft
.
r
egi
st
er. •Avoi
dstheundete
ctedlossofaninvoi
ce.
•Pr
ovide
sana udi
ttra
ilforinv
oices
.

•Themul
ti-
par
tin
voi
cesa
res
eque
nti
al
ly •Pre
v entstheomi s
sionofaninvoic
e.
or
der
ed. •Avoidspos si
blefraudul
entpayment
shortage.
•Provi
de sadistri
butionofcopie
softhe
invoi
c ethroughoutthesys
tem.

•Th ereconci
li
ati
onofcas
hr e
c e
ipt
s, •Reducest
heposs
ibi
li
tyoft
hef
torf
raud
.
checks,bankcar
ds,re
tur
ns,andcash •Prov
idesano
the
ropport
uni
tyt
ocat
ch
r
e gi
ste
rt ape
sisper
formed. er
rors
.

7.Stewards hip
I
dentif
ywhi chdep art
me nthasst
ewa
rds
hipo
vert
hef
oll
owi
ngj
our
nal
s,l
edg
ers
,andfil
es:
a
.Cus tome rope norde rfil
e
b
.Sa lesjournal
c
.J ournalvouc herfil
e
d
.Ca s
hr eceipt
sj ournal
e
.In vent
orys ub s
idiaryledger
f
.ARs ubsidiaryledg e
r
g
.Sa leshistoryfile

Downloaded by Magic Burger (magicburger07@gmail.com)

 lOMoARcPSD|5416226

h
.Shippi
ngrepor
tfil
e
i
.Cr
e di
tmemofile
j
.Sa
lesorde
rfil
e
k
.Closedsa
lesorde
rfil
e

Re s
ponse:
a.Sales
b.Bill
ing
c.Ge ne
ralle
dger
d.Ca s
hreceipt
s
e.Wa re
house/I
nventor
ycont
rol
f
. Accountsre
ceiv
a bl
e
g.Sales
h.Shippin
g
i
. Sal
es
j
. Sal
es
k.Sales

8.ControlWe aknesses
Forthepa s
t11y e
ars,ElaineWr i
ghtha sbe enane mploy
eeo ftheStar-Bri
ghtElectr
ical
Supplystor
e .
El ai
nei sav er
ydili
ge ntempl oyeewhor ar
elycall
sins i
cka ndtakeshervacationdayss t
agger
edt hrou
ghoutt hey earsot hatnoone
el
seg et
sbo ggeddo wnwi thhertasksformor ethanoneday.Star-
Br i
ghtisas malls
torethatempl o
y sonlyf
ourpe opleo t
hert hantheo wne r
.The
ownerandoneo fthee mpl o
yeeshelpc ustome r
swi t
hthei
re l
ectr
icalneeds.Oneoft heempl oyeeshandlesal
lre c
eivi
ng, st
oc king,ands h
ippingo f
merchandise.Ano t
here mployeehandle sthepur c
hasi
ng,payroll
,generalledger
,inv
e nt
ory,anda ccount
spayablefunctions.El ai
neha ndlesallofthe
poi
nt-of-
salecashre cei
ptsandprepa re
st heda i
lydeposi
tsforthebusiness.Furt
hermore,Ela i
neope nsthemailandde positsa l
lcashre c
e i
pts(about
30pe r
centofth etot
alda i
lyc a
shrec ei
pts).Elai
n eal
sokeepstheARr ecordsandbillst
hec ustomerswhopu rchaseonc redit.

Requi
red:
a
.Pointouta
nyc ont
rolweakne
sse
syouse
eintheabovesc
e n
ari
o.
b
.Listsomerec
omme nda
ti
onstor
emedyanyweakne
ssesyouhavef
oundwor
kin
gunde
rthec
ons
tr
ain
ttha
tnoa
ddi
ti
ona
lempl
oye
esc
anbe
hi
red.

Downloaded by Magic Burger (magicburger07@gmail.com)

 lOMoARcPSD|5416226

Response :
a.El a
ineperfor
msma nyi ncompa t
ibletasks. Sheope nsthema il
,depositsallcashandc he c
krecei
p t
s,andk eepstheaccountsrece
ivablerecords.
Shec ouldeasil
yk e
e pche cksa nda l t
erthea c countsrec
eivabletocoverhe rtheft
.Furthermore,sherecordsthebill
s,soshec oul
dpo t
e ntia
ll
ybi l
la
customer,notrecor
di ti
nt heboo ks,andk e ept hemone ywhe nthechec kisr e
ceived
. Eve nmoretrouble
s omeisthefactthatshehandlesthepoint-
of-salerecei
ptsandpr eparest heda i
lyde po si
ts,whicha reasubst
antialamoun tofsa l
es( 30perce
n t
).Elainenevertake
se noughvacationtimes o
thatanyonee l
secanpe r
f ormhe rdut ieslon ge noughtoc heckthebooks.
Thee mployeewhoha ndlest heinv entorya ndaccountspayabl
ef unc t
ionalsoha sincompati
b l
etasks.Th i
semployeec oul
dbema ki
ng
payme ntstoafamilyorf riendf ori nventoryno trece
ived.Thee mployeewhoha ndlesallrecei
pts,
s t
ocking,andsh i
ppin
go finvent
oryi salso
performingincompa t
ibl
et asksa ndc ou l
dbepi lferi
ngsomei nvent
orya sitcome sina nds hi
ppingittohims el
forhe r
sel
f.

b.Clo s
es uperv i
sionisne ededforthee mplo
y e
eworkingi nt herec ei
ving,st
ocking,a ndshi
ppingdepa r
tme nt
.Thisemploy
eenee
dstobek e
ptfr
om
st
ealingi nvent
or y.Closesupervi
sions houl
dhe l
preducet hisr i
sk.Prenumb er
eds hippingformsthatmu stbeaccounte
dformaydet
erthi
semploye
e
fr
oms hippinga nyg oodstoh i
ms el
forhe rs
elforfr
iends.Thea ccountingfunct
ions hou l
dber e
dist
ribut
eda mongt here
maini
ngtwoemploye
esand
cl
oses upe rvi
sions houldbee xer
cised.Onepo ss
ibl
er ea
lloca t
ionoft askswouldbe :
Empl oye e1 Empl o
y ee2
•recordpoi nt-
of-salerecei
p t
s •pr epar
et hedail
yc as
hde posi
tsand
•upda t
et hea ccountsrecei
v a
b l
e reconciletodailycashsa les
a
cc ountr ec
ords ope nthema i
landma keal i
stofall
•preparet hebillsforaccounts incomi ngchecks—pr eparede pos
it
rec
e ivable account spaya bl
e
•inventory •g ener
a lledge
rpu r
chasing
•payr ol
l

Th
iss
yst
emi
sno
tpe
rfe
cta
ndc
los
esup
ervi
si
oni
simpor
tant
.

9.Inte
r nalControl
Ir
isPlantownsandope rat
esthr
eeflor
als hopsinMa gnolia
, Texas.Theaccounti
n gf
unct
ionsha
vebeenperf
ormedma nua
ll
y.Eachoftheshopsha
s
ama nagerwhoove r
seesthecas
hrec e
ipt
sa ndpurchas
ingfunc ti
onsfortheshop.Allbi
ll
sa r
ese
nttothece
ntr
alshopandarepai
dbyac le
rkwho
al
sopre par
espayr
ollchecksandma int
ainst hegen
e r
aljournal.I
risisse
riousl
yc ons
ide
ringswi
tc
hingtoacomputer
izeds
yste
m.Wi t
hs oma ny
inf
orma ti
onsys
temspa ckage
sonthema r ket,Ir
isi
soverwhe lmed.

Re
qui
red
:

Downloaded by Magic Burger (magicburger07@gmail.com)

 lOMoARcPSD|5416226

Advi
seIr
isa
stowhi
chbus
ine
ssmodu
lesy
out
hinkh
eror
gani
zat
ionc
oul
dfindbe
nefic
ial
.Di
scus
sad
vant
age
s,di
sad
vant
age
s,a
ndi
nte
rna
lcont
rol
i
ssue
s.

Re spons e :Iri
sne edst oc ons iderwhe thers hewi she stopur chaseonemi croc omput e rs ystemo rthree .As sumi ngt ha ts hewi shestopur cha s
eonl y
onemi c rocomput erforthec en t
ra ls hop, shes houldde finitelyc ons idera na cc ount ings of twa rep acka get hatha sa na cc ountspa ya blea ndg ene ral
ledge rmodu le .Thepur cha seofapa yro l
lmodul ewi llde pe ndupont henu mbe rofe mpl o yee spa ide ac hpe riod.Iriswi llne edt ode termi neift he
times av edi swor tht hec ost.
Thepa yr ollmodul ema ya lsohe lpwi thyea r
-e ndf or mss uc ha sW- 2’sa nd1099’ s.I ri
sma ya lsowi sht oc ons ide rc entrali
zin gthepur c ha s
ing
func ti
oni nor dert oob tainq uant i
tyd is
c ount sbypl a cingl arg e
ror de rs.Ifshewi she stodot hi s,t
he na ninv entoryc ontr olmodu lema ybe
appr opr i
a te
. Ast hes yst
emi scur rent l
yde signed,Irisha snog oodwa yt ode te rmi newhe t
he rt hema na gersa repu rchas in gther i
ghtmi xofi n ventory
items ,o rifitemsa rebe i
n gu se de fficie
n tly.Florals hops ,be c auseoft hep eris habi l
ityofi n ventorya ndne e dt ore spondt oune xpec t
edor ders, may
no tlendt hems elv estoc entr ali
ze dpur cha s
in gand /
o rc ent raliz
e di n ventoryc ont rol.
IfI ri
swi shest opur cha seac omput erforea chs tore ,shes houl dcons ide rpur cha s i
n gs of t
wa ret hatc anpr oc esspoi nt-of-sal
et rans acti
onsa nd
balan cet hec as hr eceiptsa tthee ndoft heda y.Invent oryc ontro ls oftwa remi ghtbec ons ider eda sithe lpst r
a ckt hepr ofitabili
tya nds poi lageo f
certaini temsa swe llasa idst hema nage rsi ntheirpur cha sin gde c isions. Thes yste mc ouldt henp rovi des umma ryr epor tsf
o rIriss otha tshema y
exa minet hein ve ntorypur c hasinga ndus ag edecisionso ft hema na gers.
Thec ashr eceiptss ystems hou l
dpr ovidebe t
te rma na geme n to vercashr ec eiptse rro rstha nthema nua lsyste m, a ndi fthec or rectc ontr
o lsare
include d, contr olma yinc rease. Fore xampl e,ano t
ic emi gh tbepl a cedo vert h ec a s
hr e gisters aying“ Ifyoudono tg etar eceiptfro mthec omput e
r,
youror de risfr e
e .”Thei nfor ma tions yste mt henwi lllimi tthepos sibili
tytha tac ust
ome rp ay scasha ndt hee mpl oyeeo rma na g
e rk eepst hemone y
byno trin gingupt hes ale .
Irisma ybea blet ofinds oftwa r
ep acka ge
ss pe cificallyde s igne dfo rflor is
ts .Shes hou lde x
a mi net hemt os eei ft he ywi llsuitherpa rt
ially
dec entralizedma nag eme nt.Wi tht hec or rectsystem, Ir
iss houl ds e einc r
e a
s edc ontrolo ve rc ashr eceip t
sa ndma ybee v e no verinv entorypur c hases
andu sag e.Ad isa dvantagei st hatt h ema nag er
sma yf eelt hatthe ya rebe ingwa tche dmor ec loselya ndt hisma yc a uses omer esentme nt.

10.Inter
nalControl
Youa r
einves
ti
ngyourmoneya
ndopeni
ngaf
ast
-f
oodMexi
canres
taura
nttha
tacce
ptsonl
ycashforpa
yment
s.Youpl
anonpe
riodi
cal
lyi
ssu
ing
couponst
hrought
hema i
landi
nloc
alne
wspa
per
s.Youa
repart
ic
ularl
yint
ere
ste
dinacces
scontr
olsov
eri
nvent
orya
ndcas
h.

Re
quire
d:
Des
ignacar
eful
lyc
ont
rol
leds
yst
ema
nddr
awadoc
ume
ntflo
wcha
rtt
ore
pre
senti
t.I
dent
if
yanddi
scus
sthek
eyc
ont
roli
ssue
s.

Re
spons
e:Thedoc
ume
ntflo
wcha
rti
sil
lus
tr
ate
dbe
low.

Downloaded by Magic Burger (magicburger07@gmail.com)

 lOMoARcPSD|5416226

Onek eyc ontr

olissueisthatal
lsalesarerecor
ded.Merchandi
seshouldnotbegive
ntoac ustomerandthes al
eno tent
eredintot hesyst
em:
anemplo ye
ec ouldpoc kett
hemone yreceive
df orthesa
le.Anotheri
ssueisrec
oncil
ingphys
icalcouponswiththenu mberofc ouponse nter
edinto
thesys
tem.Ag ain,ane mployeeshouldnotbea bletori
ngupas aleatth
el o
werpric
eforacustomerwi t
houtac oupon,charg
et hecustome rful
l
pri
ce,andk eepthedifferen
ce.Ano t
herconcernisthatemplo
y ee
swi l
lstea
linv
entor
yb ygiv
ingawa yfre
efoodt othei
rfrie
ndsa ndr e
latives
.The
syst
ems houldtrackallfoodit
emspr epare
da ndrelat
edwaste.Theflowchar
tpres
ente
dprovide
sc hecksandbalancesforensuringthate mplo
yee
thef
tofcashre c
e i
vedfromc ustomersisprev
en t
ed.

Downloaded by Magic Burger (magicburger07@gmail.com)

 lOMoARcPSD|5416226

11.Dat
aPr oce
ssi
ng
Thecomputerpr
oces
sin
gpor
ti
onofas
ale
sor
ders
yst
emi
sre
pre
sent
edb
ythePr
obl
em11flo
wcha
rtpr
ese
nte
dint
het
ext
.Ans
wert
hef
oll
owi
ng
ques
ti
ons:

Requi
red:
a.Wha ttypeofdataproce
s s
ingsyst
emist hi
s?Explai
n,andbes pe
cific
.
b.Thea udit
orsug
g es
tsthatthi
ssyst
emc anbegreatl
ysimpli
fiedbycha ngi
ngtodir
ectac
cessfil
es.
Explaint
hema joropera
tionalchang
es
t
hatwouldoc
curinthesyste
mi fthisweredone.
c.Thea udit
orwarnsofcontroli
mplicat
ionsfr
om thi
schangethatmus tbeconsi
der
ed.Expl
ainthen a
tur
eofthecontrolimplica
tions
.
d.Sket
chaflowchart(t
hecomput e
rizedporti
ononly)ofthepropos
edne ws ys
tem.Usecorr
ectsymbolsandl
abelthediagram.

Re sponse:
a.Thi sisaba tchprocessi
ngsystemthatus esdi r
ectaccesss t
oragede vic
esrat
he rthans eque ntialtapes,bu tt
h erecordsa res toredinseq uenti
alfil
es.
Thet r
ansact
ionsa r
ek eyedin,andtheba t
cht otalsarecal
c ulated.Theba t
chtotalsacc ompa nyt hes ale
sor derfilethrougha llthedatapr ocessi
ng
runst hatfol
low.Th eed i
trunisusedtote steachr ec
ordfort hee xis
tenceofcleri
c alorlo g
i calerrors.An yr e
c or
dswi t
he rro rsareremo veda nd
wr itt
entoa nerrorfil
etobec orrec
tedlaterb ya nauthor
ize dpe r
son. Thebatchtotalsa r
er ecalculatedfo rthec l
eant r
a ns
a ctions.Thee ditedfil
eis
thens orte
dba sedont heprima r
ycustome ra ccountnumbe r. Theb atc
htotal
sa r
eus edt ov erifythei nt
e gri
tyoft hes orte
dda t
abasefil
e. Thes ort
ed
fil
ei susedtoupda tethea c
countsrecei
vabl efil
e.Theo ri
gi nalaccountsrece
ivablefilerema i
nsi ntactandi sus edforba ckup. Thenewl yc re
a t
ed
acc ountsrecei
vablebeco mesthenewma sterfile
.Thec usto mers’invoi
cesarepro cesseddur ingt heupda t
ea ndb i
llingrun .Thes a
lesor derfil
eis
sortedont hein ve
ntorynumb ersothatthei nventoryma s
te rfil
ec anbeupda t
ed. Theo r
iginalin ventor
yfil erema i
nsi ntacta ndisus edforba ckup.
Thene wlycreatedinventor
yfilebecomest hene wma st
erfile.Th ebatchtot
alsares t
illuse dtov erifythec ompl et
e nessanda ccuracyo fthe
transacti
onfile.Atthee ndoftheday,theb atcht ot
alsar
es or te
da ndus e
dtoupda t
et heg eneralle d
g er
.Theor igi
na lgenera lledgerrema insintact
andi sus e
df orbackup. Thenewlycreatedg eneralledge
rbe come sthenewma s
terfile.

b.I
fthes e
qu e
ntial
lystor
eddatafile
sa renotuse dandrea
l-t
imepr oc
e s
singofdataus
ingindexeddire
ctacces
sfil
e sar
eu sedinst
ead,t
heediti
ngand
sor
trunsarenol ongernece
ssar
y. Transact
ionswi l
lbeimme di
atel
yc heckedforin
puter
rors,
andt heaccount
sreceiva
blefil
ea ndinve
ntor
yfile
s
wil
lautomatical
lybeupda t
edase acht r
ansact
ionisproces
sed.Thus,batchtota
lswil
lnolongerbeu s
ed.Ac c
umul at
orsma ybeus e
dtoa c
cumu l
ate
val
uesthatareperi
odical
lypost
edt ot hegeneralle
d g
er.
Thea ccount
sa ffe
cte
db yeac
htransac
tioninthema s
terfil
ewillbeov er
writ
tenwitheach
t
ransac
tionthati
sp roces
sed.

c.Becaus
ethecomput
erswi
llb
eper
for
mingtas
kstha
tindi
vidual
suse
dt oper
for
m,suc
ha si
nve
ntor
ycont
rol
s,t
hec
ont
rolproc
edure
sover
progr
amc odenee
dtobesec
ure
dfr
om una
uthor
ize
daccess
.Th emas
terfil
esa
reove
rwri
tt
eneac
htimeare
cordi
spr
oce
ssed.Cont
rol
sshoul
dbe

Downloaded by Magic Burger (magicburger07@gmail.com)

 lOMoARcPSD|5416226

puti
ntoplac
eforper
iodica
ll
yma ki
ngabac
kupc op
yoft
hema
ste
rfil
e,s
otha
tther
ecor
dsma
ybec
ove
redi
nca
set
hec
urr
entwor
kin
gcop
yofa
mast
erfil
eisdes
tr
oyedo ri
ncorr
ect
lyo
ver
writ
ten.
d.Seediagr
amonne xtpage.
d.
d.d.
dd

12.Syst
em Configurati
on
Theflo
wc ha
rtforProbl
em 12re
pre
sent
sth
ecomput
erpr
ocess
ingport
ionofas a
lesor
ders
yst
em.Ans
wert
hef
oll
owi
ngq
ues
ti
ons
.
a. Wha ttypeofdat
aproc
ess
ings
yst
emist
his
?Expla
in,andbespeci
fic
.

Downloaded by Magic Burger (magicburger07@gmail.com)

 lOMoARcPSD|5416226

b
. Thema r
k e
tingma nag e
rsuggest
sthatthissy
ste
mc anb egrea
tl
yimprove
dbyprocess
ingallfil
esinr
ealt
ime.Exp
laint
hemaj
or
oper
ati
onalc hangesthatwouldoccurinthesyst
emift h
isweredone.
c
. Theauditorwa r
nsofope ra
tiona
leffic
iencyimpli
cat
ionsfromthi
schanget
hatmustbeconsidere
d.Expl
aint
henatur
eoft
hes
e
impl
ica
tions.
d
. Sket
chaflo wchartofthepropose
dne ws yst
em.Usec orr
ectsymbol
sandla
belthedi
agram.

Re sponse:
a. Thi ssys
temu s
esreal-t
imeda tacoll
ecti
ona ndr eal-t
imeupda ti
ngofc rit
icalr
ecor
ds(subs
idiaryac countsthatar
euniquetothetransact
ion)
.
Ge neralledg
era ccountsthata r
ec ommont oalltr
a nsact
ionsa r
ep r
ocessedinba t
chmode .
b.Ase achtransacti
oni sre
c eived,al
lrecordsa s
soc i
a t
edwi thitwil
lne edtobeupdatedimme diat
ely.Th i
swoul deli
minatethebatc
h-process
ing
stepa ndthesalesordertransa c
ti
onfilefromt hec urrentsys
tem.Ane wr eal-
timeupdatepr
ogra m willbere qui
red.Sal
ess umma r
ies,curr
ent
ly
prepa re
dpe r
iodicall
y,canno wbee xtrac
tedonde ma ndb ythema rk
etingma nagerdi
rect
lyfr
omhi s/he rte
rmi na
l.
c.Upda ti
ngallg e
ne r
alledge raccountsinreal-
timema yc a
us eopera
tionaldelay
s.Eachcust
ome rwi llneedtowa i
tunti
lthepreviouscustomer’
s
tr
a nsacti
onisc omplete
lyp r
oc e
ssed,incl
udingg ene r
alledgeraccountsthatarecommont oal
lc ust
ome rs
.Th eexte
ntofthede l
ayswilldependin
partont rans
actionvolumea ndthenumbe rofs i
mul taneoustransa
cti
on sexecute
d.
d.Pl easeref
ert othediagram ont hef ol
lowingpa ge.

Downloaded by Magic Burger (magicburger07@gmail.com)

 lOMoARcPSD|5416226

Solution to problem 9-12

Downloaded by Magic Burger (magicburger07@gmail.com)

 lOMoARcPSD|5416226

I
nte
rnalCont
rolCas
es

1. Solution Smith’s Market

a), b) See diagrams on the following pages.

c) Internal Control Weaknesses

1) Access to the cash drawers by sales clerks requires more accountability. Each drawer is accessed by various clerks
throughout the day and cash may be withdrawn by any of them.

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.

4) The treasury clerk is unsupervised in the counting of cash.

5) The treasury clerk has asset custody and responsibility for recording sales and cash in the journal and General Ledger.

Downloaded by Magic Burger (magicburger07@gmail.com)

 lOMoARcPSD|5416226

Credit Check
Customer
Customer Card Credit

Sales
Approva
l
Cash or Process
Check Sale Cash, Check,
Credit Card
Log,Receipt Sales
Cash Receipt, Credit Card Count, Journal
Receipt Signatu Record
Cash
re and Total
In/Out
Deposit Sales
Log
Amount General
Ledger

Bank Deposit
Bank
Cash, Check, Slip
File
Credit Card
Receipt and
Smith’s Market Sales Order Deposit Slip
DFD

Downloaded by Magic Burger (magicburger07@gmail.com)

 lOMoARcPSD|5416226

Custom Sales and Treasury Clerk

Bank Shift
er Check Out
Cash Card Superv
/ Comp isor
Cred 3 Sign
Chec any s
k it Proce Cash
1 Cas Cred
/
Card ss h In
Sale Ca it
Chec
Cred Cash and
sh Card
k
it /Cred Out
In Vouc
Card Checit /O her
Vouc
Rece kCard ut 4
her
ipt Vouc Lo Count,
her 2 g Recor
d, and
Dep Deposi Sale
Shift
osit t cash s
Superv
Slip Jour
isor Cash 5
/ nal
Gene
Cred
Chec
it ral
k
Card Ledg
VoucDep er
Smith’s Market herosit
Slip
Sales System
Flowchart Bank

Downloaded by Magic Burger (magicburger07@gmail.com)

 lOMoARcPSD|5416226

2. Solution to Spice is Right

a), b), See diagrams on the following pages.

c) Internal Control Weaknesses

1) No credit check

2) Inventory control function is performed by warehouse clerk.

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.

4) Customer is billed before order is actually shipped

5) Remittance List should be prepared in the mailroom

6) No journal voucher prepared by cash receipts clerk.

7) Cash receipts clerk does not prepare a deposit slip.

Downloaded by Magic Burger (magicburger07@gmail.com)

 lOMoARcPSD|5416226

Shipping Notice, Packing Ship Goods

CustomerCustomer Order
Customer Slip

SO 2, Stock Pick Shippin

SO release Goods g
Prepare SO
3 Notice
SN File
Stock
SO File SO Sales releas
1 Journal e Prepare
Invoice BOL
Customer
and Post SO 2 Stock Release
Invoice AR Ledger
SR File
Journal
Vouche Update SO 2
Sales and r Inventory
Inventory
Inventory Update GL Summary
Data SO File
General Inventory
Ledger J V, Ledger
Inventory
Summary BOL
File
Carrier
Carrier Packing
Slip
Spice is Right, DFD Sales Order
System

Downloaded by Magic Burger (magicburger07@gmail.com)

 lOMoARcPSD|5416226

Downloaded by Magic Burger (magicburger07@gmail.com)

 lOMoARcPSD|5416226

RA File
Customer
Customer
Remittance Advice

Remittan Prepare
Reconcile
ce Advice Remit List
and
Check, and Update
Separate
Remittance AR
Advice AR Ledger
Remittan
ce List
Bank
Bank
Receive and
Check
Reconcile
Cash AR
Record and Summary
Check Check
Deposit
Cash
Cash Rec Data Cash Receipts Update
Data GL
Cash Rec
Journal General Ledger
AR
Summary
Spice is Right, DFD Cash Receipts SystemFile

Downloaded by Magic Burger (magicburger07@gmail.com)

 lOMoARcPSD|5416226

Sales Accounting Wareh Shippin

Customer Sales
Departmen Sales
ouse g A
Order Shipping
Customer t Order
Stock
Prepare Notice
Packing
Order release
1 invoice
Sales Pick Slip
Prepare Invoice Order
Goods Stock
SO
Customer
Stock CustomerRecord saleSales Stock release
release
Order
Packing 4 OrderreleasePrepare BOL
Shipping
Slip Sales journal2
Sales
Notice UpdateStock
Sales
Order AR release
Inventory
A Sales Journal Inventory BOL
Order 3 BOL
Order Voucher Sales
Gen Ledger SummaryOrder
Gen Ledger
Carrier
Spice is Right Revenue Cycle
Flow Chart -- Sales Order
System (Page 1)

Downloaded by Magic Burger (magicburger07@gmail.com)

 lOMoARcPSD|5416226

General Ledger
Department
Acct Dept
Warehouse
Journal
Voucher
Summary

Post to General
Ledger

Gen ledger
Journal
Voucher
Summary

Spice is Right Revenue Cycle Flow

Chart -- Sales Order System (Page
2)

Downloaded by Magic Burger (magicburger07@gmail.com)

 lOMoARcPSD|5416226

d) Flowchart of revised system

Mail Accounti
Remit Cash
Remit General
Customer A
Room Advice ng Receipts
List Ledger
Check
Remit Prepare
Departm Check Dept
Advice Remittance
ent 5 Reconcile
List and Summary
Reconcile andRemitRemit
Separate Advice List Endorse Post to General
Check
Check Ledger
Remit Update AR Record Cash
Advice Rec Gen ledger
Remit AR Cash Rec
A Summary
Advice Journal
Summary Check 6
7
Bank

Spice is Right Revenue

Cycle Flow Chart -- Cash
Receipts System

Student responses will vary for this part of the assignment. The following issues, however, need to be addressed.
 Upgrade stand-alone computers to a networked environment
 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.

Downloaded by Magic Burger (magicburger07@gmail.com)

 lOMoARcPSD|5416226

3. Solution to ABE Plumbing

a), b) See diagrams on the following pages.
c) Internal Control Weaknesses
1) No Credit check is performed.
2) The sales clerk closes the open sales order causing the sale to be recorded before the goods are actually shipped.
3) The warehouse clerk has asset custody and should not also update the inventory records.
4) The shipping clerk does not reconcile the stock release with the original order. This allows for the wrong items and or
quantities to be shipped.
5) Customer is billed before the goods are shipped. Billing should be triggered by shipping notice. Instead, the customer invoice
is printed from the closed sales order, which was prepared before the goods were shipped.

Downloaded by Magic Burger (magicburger07@gmail.com)

 lOMoARcPSD|5416226

Invoice
1 AR Sub
Custo Charg
Bill es File
mer Closed
Order Custo
File
Customer mer
Customer
Customer Invoice
Data
Item,
Invoice File
Prepar quanti 2
Sales Open/Clo
e ty,
Order Custo sedOrder Update
Order mer GL
Open Order
Accoun
Item ts
Picke
Pick Stock
d GL File
Item Goods Release 1 Close
andInvent SO
Quant
ity ory
Sub BOL,
File Stock Release 2 Ship Stock Dept
Goods Releas
e File

B
OL
Carrier
Carrier
ABE Plumbing DFD

Downloaded by Magic Burger (magicburger07@gmail.com)

 lOMoARcPSD|5416226

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.

Downloaded by Magic Burger (magicburger07@gmail.com)

 lOMoARcPSD|5416226

4. Solution to Walker Books

a), b), See diagrams on the following pages.

c) Internal Control Weaknesses

Sales Processing:

1) The credit check is performed by the sales representative

2) The sales department should not be maintain the sales journal

3) The warehouse should not be updating inventory subsidiary ledger

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

Downloaded by Magic Burger (magicburger07@gmail.com)

 lOMoARcPSD|5416226

Downloaded by Magic Burger (magicburger07@gmail.com)

 lOMoARcPSD|5416226

Downloaded by Magic Burger (magicburger07@gmail.com)

 lOMoARcPSD|5416226

Shi
p
Not
ice 3
1
Inv
Sub
Ledg
er

Releas
e BOL

Jour
nal
Vouc
her
Shi
p 2
Not B
ice
2

Downloaded by Magic Burger (magicburger07@gmail.com)

 lOMoARcPSD|5416226

Jour
nal 1
Vou B
cher

Jour
nal
Vou
cher

Downloaded by Magic Burger (magicburger07@gmail.com)

 lOMoARcPSD|5416226

4 5
Rem
it
List

Downloaded by Magic Burger (magicburger07@gmail.com)

 lOMoARcPSD|5416226

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.

Downloaded by Magic Burger (magicburger07@gmail.com)

 lOMoARcPSD|5416226

5. Solution to AV Safety, Inc.

a), b), d) See diagrams on the following pages.

c) Internal Control Weaknesses

1) No credit check is performed
2) Sales journal is updated before the goods are shipped
3) Warehouse clerk has access to inventory and also update the inventory ledger
4) Mailroom clerk has access to both the remittance advice and the checks, no remittance list id prepared.
5) AR clerk has access to both the checks and the remittance advices

Downloaded by Magic Burger (magicburger07@gmail.com)

 lOMoARcPSD|5416226

Downloaded by Magic Burger (magicburger07@gmail.com)

 lOMoARcPSD|5416226

Downloaded by Magic Burger (magicburger07@gmail.com)

 lOMoARcPSD|5416226

Downloaded by Magic Burger (magicburger07@gmail.com)

 lOMoARcPSD|5416226

Downloaded by Magic Burger (magicburger07@gmail.com)

 lOMoARcPSD|5416226

6. Solution to Premier Sports Memorabilia

a), b), d) See diagrams on the following pages.

c) Internal Control Weaknesses:

1) Transaction is recorded in Sales Journal before goods are shipped.

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

privileges) to ensure a proper segregation of duties.

Downloaded by Magic Burger (magicburger07@gmail.com)

 lOMoARcPSD|5416226

Downloaded by Magic Burger (magicburger07@gmail.com)

 lOMoARcPSD|5416226

Downloaded by Magic Burger (magicburger07@gmail.com)

 lOMoARcPSD|5416226

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

rejection needs to be identified.

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.

Downloaded by Magic Burger (magicburger07@gmail.com)

 lOMoARcPSD|5416226

7. Solution to Bait ‘n Reel

Internal Control Weaknesses

1) The sales clerk performs the credit check this is a segregation of duties and transaction authorization problem.
2) Warehouse should not update the inventory and General ledger control accounts.
3) AR Clerk should not update the general ledger.
4) Billing and AR are combined. This structure will mask discrepancies between what was billed and what was recorded as a
sale.
5) Supervision is needed in the mailroom because employees who open the mail have access to both cash and the remittance
advice.
5) The cash receipts clerk has access to the assets (cash) and is responsible for updating the general ledger.
6) See 3 above.

Downloaded by Magic Burger (magicburger07@gmail.com)

 lOMoARcPSD|5416226

Downloaded by Magic Burger (magicburger07@gmail.com)

 lOMoARcPSD|5416226

Downloaded by Magic Burger (magicburger07@gmail.com)

 lOMoARcPSD|5416226

Downloaded by Magic Burger (magicburger07@gmail.com)

 lOMoARcPSD|5416226

Downloaded by Magic Burger (magicburger07@gmail.com)

 lOMoARcPSD|5416226

Downloaded by Magic Burger (magicburger07@gmail.com)

 lOMoARcPSD|5416226

Downloaded by Magic Burger (magicburger07@gmail.com)

 lOMoARcPSD|5416226

8. Solution to Green Mountain

a), b), d) See diagrams on the following pages.

c) Internal Control Weaknesses

Sales Order System
1) The sales department performs the credit check.

2) Billing receives no shipping notice prior to billing the customer.

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.

Downloaded by Magic Burger (magicburger07@gmail.com)

 lOMoARcPSD|5416226

Downloaded by Magic Burger (magicburger07@gmail.com)

 lOMoARcPSD|5416226

Sales Billing

1
Cre
Sales
dit
Hist
Che
ory
ck

Approve
d
Custom
er
Order

Approve
d
Custom
er
Order

File
Copy

Green Mountain Sales Order

Procedures. Page 1

Downloaded by Magic Burger (magicburger07@gmail.com)

 lOMoARcPSD|5416226

Warehouse Shipping

Stock
Release

Update
3
Inventory
Invento
ry
Sub
Ledger
Journal
Stock
Vouche
Release
r
Gener
al Green Mountain Sales Order
Ledge Procedures. Page 2
r

Downloaded by Magic Burger (magicburger07@gmail.com)

 lOMoARcPSD|5416226

Billing Dept Accounts Receivable General Ledger

Reconcile and
Update the
GL Accounts

General
Ledger

Green Mountain Sales

Order Procedures. Page 3

Downloaded by Magic Burger (magicburger07@gmail.com)

 lOMoARcPSD|5416226

Mail Room Accounts Receivable

Green Mountain Cash Receipts System,

Page 1

Downloaded by Magic Burger (magicburger07@gmail.com)

 lOMoARcPSD|5416226

Update GL

General
Ledger

Green Mountain Cash Receipts System, Page 2

Revised Green Mountain System

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.

Downloaded by Magic Burger (magicburger07@gmail.com)