DOC

Soln12

By Theresa Roberts,2014-09-20 11:54
15 views 0
Soln12

    Accounting Information Systems

    CHAPTER 10

THE REVENUE CYCLE: SALES AND CASH COLLECTIONS

    SUGGESTED ANSWERS TO DISCUSSION QUESTIONS

    10.1 This should generate a great deal of discussion. The basic issue concerns the willingness of consumers to divulge the kind of information that would allow companies to personalize the sales interaction versus concerns that such information would be misused or sold to other parties. In addition, with the growing problem of identity theft, consumers are becoming increasingly concerned about the safety and security of their personal information. Companies that wish to collect this data will most likely have to demonstrate the need for this information to the consumer and also the company’s ability to keep this information secure.

    10.2 Digitized products force little change on the four business activities of the revenue cycle. For all products, whether digitized or not, an order must be taken, the product shipped, an invoice delivered, and cash collected. The only thing that digitized products do is change the way these four activities are carried out. Digitized products actually facilitate the four activities by incorporating electronic sales orders, shipping, billing, and cash collections.

    10.3 Employees need to be trained to use the POS properly. Such training should include understanding how the POS works, stressing that . In that errors on the employees part will directly affect the inventory master file numbers. If an item does not “scan”, then it must be rescanned or dealt with so that the integrity of the records is upheld. Similarly, employees should be trained not to skip sales. If an item does not “scan”, the employee should be trained to accurately enter in the “bar code” of the item. Entering a generic or erroneous code not only creates an inventory error, but it also frustrates the customer who may take their business elsewhere. In addition, employees should be trained to report and/or fix errors in bar codes as they are encountered and in a timely manner.

    10.4 The report already provides dollar amounts outstanding by number of days past due by customer and by invoice. However, the percentage of total accounts receivable categorized by days past due would help to alert management of categories that are increasing. This could also be reported by customer and by invoice. This way if a particular invoice was not being paid, the company could more quickly identify the invoice, contact the customer, and potentially resolve any problems or disputes about the particular invoice. In addition, reporting by customer can help to identify chronic “slow paying” customers so that corrective action could be taken such as offering discounts for quick payment, changes in term, and notifying the credit manager to restrict credit for this particular customer. Furthermore, the company may have a certain threshold for each category of past due accounts either in percentages or absolute dollars. A metric could be calculated and presented that highlights the categories exceeding that threshold.

    10-1

    ? 2009 Pearson Education, Inc. Publishing as Prentice Hall

    Ch. 10: The Revenue Cycle: Sales and Cash Collections

    10.5 This is a good question to get students to explore and compare the role of technology in dynamic price setting policies. You may want to preface the discussion by relating the following scenario: You have graduated from collage and started your own consulting firm. A client has an urgent need that requires you to travel to his location. Since this is a last minute trip, you pay full price for an airline ticket. Since this client is on a fixed contract, you cannot charge the cost of the ticket back to the client. While riding on the airplane you find yourself sitting next to a college student who is majoring in accounting. During the course of the conversation with this accounting student, you find that he purchased his airline ticket from a discount reseller and paid less than half of what you paid for the same flight. How do you feel about this arrangement? Do think this type of pricing arrangement could transfer to other products? Would the companies that sell these other products be put at a competitive disadvantage when customers find that they are paying different prices for the same goods or services?

    10.6 The instructor can facilitate discussion of invoiceless pricing in a B2C environment by asking students how they would feel about not receiving a phone or cable bill. What are the problems the phone or cable company and phone or cable consumers encounter without a paper bill? What about billing problems and disputes. What about payment deadlines or consumers that want to pay in person or pay in cash?

    10.7 Any form of electronic or digital cash has the same audit risks as physical cash: susceptibility to theft and loss of an audit trail. In addition, digital “cash” also has risks associated with the durability of the store of value to what extent can the cash be

    recovered if the storage media becomes defective? Another issue concerns the potential loss of privacy, because the digital currency can be “marked” in a manner that enables tracing its path through the economy.

    10.8 Why not indeed? Copies of the sales order can be used by inventory personnel as a picking ticket to select inventory items ship to the customer. In similar fashion, the sales order converted into a picking ticket can also be used as a packing slip. Just make sure a copy is sent with the package and not the original so that in case there is a problem the original form can be reviewed for any errors or discrepancy. If sales orders are created electronically, the information contained on the electronic sales order can be used to create paper (or electronic) picking tickets, packing slips, or invoices.

    10-2

    ? 2009 Pearson Education, Inc. Publishing as Prentice Hall

    Accounting Information Systems

    SUGGESTED ANSWERS TO THE PROBLEMS

10.1 Types of controls used at various steps in the revenue cycle.

     Applicable Controls

     (P = Preventive, D = Detective, C =

    Process/ Threat Corrective)

    Activity

    Sales order 1. Incomplete or inaccurate Various data entry edit controls P

    entry customer orders

    2. Credit sales to customers Proper credit approval, prior to delivery

    with poor credit of goods or services P; accurate,

     current customer data P

    3. Legitimacy of order Authorized customer purchase order P;

     digital signatures D

    4. Lost sales due to stockouts, Inventory control systems P; periodic

    excessive carrying costs, physical inventory counts D; improved

    and lost revenue due to sales forecasts P; better supply chain

    markdowns management P and C

    Shipping 5. Shipping errors:

     Wrong merchandise Compare sales order with packing list

     Wrong quantities and shipping documents D; bar coding

     Wrong address P

    6. Theft of inventory

     Physical access controls P;

     documentation of all inventory

    movements D; periodic physical

    inventory counts D

    Billing and 7. Failure to bill Segregation of shipping and billing accounts functions P; one-for-one matching of receivable invoices (or EDI acknowledgments)

     against shipping documents D and C

    8. Billing errors Comparison of sales orders, shipping

     documents, and invoices P and C;

     various edit checks D and C

    9. Errors in maintaining Data entry edit checks D and C; use of

    customer accounts remittance advices P; monthly

    statements to customers D and C

    10-3

    ? 2009 Pearson Education, Inc. Publishing as Prentice Hall

Ch. 10: The Revenue Cycle: Sales and Cash Collections

     Applicable Controls

    Process/ (P = Preventive, D = Detective, C =

    Activity Threat Corrective)

    Cash 10. Theft of cash Segregation of cash handling and

    collections accounts receivable functions P; use of

     lockboxes or EFT P; bank account

     reconciliation by someone not involved

     in cash receipts processing D and C;

     segregation of bad debt/credit memo

    authorization from cash handling and

    accounts receivable functions P

    General 11. Loss of data Backup procedures C; disaster

     recovery plans P; physical and logical

     access controls P

    12. Poor performance Development and periodic review of

     appropriate performance metrics D and

    C

10.2

    Information Technology to enhance the restriction of physical access to inventory: 1. Electronic locks on all entrances and exits to the inventory area. 2. Smart card technology where employees must scan their ID card prior to entering/exiting

    the inventory area.

    3. Install motion detectors.

    4. Attach security tags to inventory items and install security tag scanners at each exit of the

    inventory area.

    5. Attach RFID tags to inventory items to track the movement of inventory. 6. Install and monitor surveillance cameras in the inventory area. 7. Install an infrared alarm system.

    8. Build a fence around the inventory area and equip the fence with cameras and sensors.

    10-4

    ? 2009 Pearson Education, Inc. Publishing as Prentice Hall

    Accounting Information Systems

    10.3 a. Shipping personnel should be required to document (on paper or by computer) receipt

    of goods from the finished goods storeroom. This procedure acknowledges

    responsibility for custody of the goods transferred.

     b. Either a redundant data check or closed loop verification could be used. If the

    transactions are being entered in batches, redundant data such as the first five

    characters of the customer's name could be included in each input record; after

    finding a match on customer account number, the system would also verify that the

    name characters match before posting the transaction. If the transactions are being

    entered online, the system could respond to operator entry of the account number by

    retrieving and displaying the customer's name for the operator to review.

     c. Up-to-date credit records should be maintained, and credit checks should be made

    prior to approval of sales orders.

     d. A receiving report should be required to support the authorization of credits for sales

    returns.

     e. Separate the function of authorizing write-offs of uncollectible accounts from the

    function of handling of collections on account, in order to prevent any single

    individual from perpetrating this type of fraud.

     f. Shipping personnel should be required to record the actual quantity shipped on the

    order document and/or enter the quantity shipped into the sales order processing

    system, in order that bills can be prepared based upon the quantity shipped rather than

    the quantity ordered.

     g. Supervision of mailroom operations, limitation of authority to endorse checks to the

    cashier only, and instructions to the bank to accept only those checks endorsed for

    deposit in the company's account.

     h. Cash receipts should be listed and totaled in the mailroom before the cashier receives

    the checks. A third person compares the amount deposited as shown by a validated

    deposit slip to the batch total prepared in the mailroom.

    i. All sales tickets should be prenumbered and accounted for. This would quickly spot

    a missing ticket.

    j. Segregate shipping and billing functions.

    k. Implement accurate inventory control and sales forecasting systems including

    periodic physical inventory counts and frequent review and revision of sales forecasts.

    l. A system of user IDs and passwords is the first line of defense followed by allowing

    “read only” access to customer data for sales staff, implement access controls over

    individual terminals, and maintaining activity logs.

    10-5

    ? 2009 Pearson Education, Inc. Publishing as Prentice Hall

Ch. 10: The Revenue Cycle: Sales and Cash Collections

    m. Regular backups with copies being stored off-site.

    n. Backup generators as well as cold and/or warm site contracted backup facilities.

    o. Encrypting sensitive data prior to transmission, creating virtual private networks, and

    transmitting data over secure socket layer (SSL) networks.

    p. A system of user IDs and passwords is the first line of defense followed by allowing

    “read only” access to price lists for sales staff, implement access controls over

    individual terminals, and maintaining activity logs.

    q. A system of user IDs and passwords is the first line of defense followed by allowing

    “read only” access to customer data for sales staff, implement access controls over

    individual terminals, and maintaining activity logs. In addition, formal non-compete

    agreement could be used when hiring personnel.

    r. A nightly backup with copies being stored off-site.

    s. Periodically testing backup data for access and compatibility with current company

    hardware and software.

10.4

Formulas:

Sales (1% Growth Rate)

    E5 and Row 5: =D5*101%, =E5*101%, =F5*101%, …

Cash Collections: D7: =D5*40%

     E7: =E5*40%+D5*30%

    10-6

    ? 2009 Pearson Education, Inc. Publishing as Prentice Hall

    Accounting Information Systems

     F7: =F5*40%+E5*30%+D5*20%

     G7: =G5*40%+F5*30%+E5*20%+D5*8%

     Copy and paste G7 formula to remaining cells

    Beginning Balance: E2: =D9 (same formula for remaining cells in Row 2) Ending Balance: D9: =D3+D7 (same formula for remaining cells in Row 9)

Spinner and Scroll Bar:

b. Spinner

    ; Select index key to link to the spinner Format Control, C17.

    ; Enter formula to calculate growth rate display, C13 (=C17/1000).

    ; Click View, Toolbars, Forms.

    ; Select Spinner and draw on the worksheet.

    ; Right click and select Format Control

    ; Fill in data below:

    10-7

    ? 2009 Pearson Education, Inc. Publishing as Prentice Hall

Ch. 10: The Revenue Cycle: Sales and Cash Collections

    ; Modify formulas in Row 5, beginning E5, e.g., cell E5, =D5*(100%+$C$13). Note:

    to copy and paste formula to other cells, use absolute reference for C13 or $C$13.

c. Scroll bar

    ; Select index key to link to the scroll bar Format Control, C16. ; Enter formula to calculate growth rate display, C11 (=C16*10000). ; Click View, Toolbars, Forms.

    ; Select scroll bar and draw on the worksheet.

    ; Right click and select Format Control

    ; Fill in data below:

    10-8

    ? 2009 Pearson Education, Inc. Publishing as Prentice Hall

    Accounting Information Systems

    ; Modify initial sales from a value to reference formula, i.e., =C11.

    ;d. Various controls could be implemented including format cells so that only numerical data will be accepted and reviewing cell formulas for accuracy or the column totals could be cross-footed as a check against the row totals. In addition, a validation check could be put in place for the various cells to make sure the appropriate data was entered into the various cells. For example, to make sure only numbers are input into the numeric cells, Excel’s Data Validation

    tool could be used. The tool is invoked by clicking on Data-Validation. The following displays an example:

    10-9

    ? 2009 Pearson Education, Inc. Publishing as Prentice Hall

Ch. 10: The Revenue Cycle: Sales and Cash Collections

10-10

? 2009 Pearson Education, Inc. Publishing as Prentice Hall

Report this document

For any questions or suggestions please email
cust-service@docsford.com