Sales Processing

Customer sales orders received by salespersons are input directly into the system via terminals from each of the regional locations. The regional sales manager is responsible for entering the orders after checking for proper credit approval and determining the maximum credit limit. A transaction log is maintained at each remote terminal; the log shows date of order entry, identification number of the salesperson receiving the order, customer number, stock number, and quantity ordered. After determining stock availability, the computer prepares a consecutively numbered, three-part sales invoice. As part of the sales processing, the computer inserts the customer's name and address, product descriptions and prices, and extensions and footings. Terms of payment and discount availability also are determined by the computer and included on the invoice. For each order processed, the computer records the transaction, including costing the sale, and updates the accounts receivable and inventory modules. The original invoice is mailed to the customer, the first copy is faxed to the warehouse as shipping authorization, and the second copy is retained awaiting a signed bill of lading evidencing shipment. Upon its receipt from the regional unit, the bill of lading is attached to the second invoice copy and placed in a numeric file. Exhibit BB.7 (link) describes the sales processing function in the form of a flowchart.

Cash Receipts from Customers

All mail is centrally received in the mailroom, opened, and distributed. Checks from customers are forwarded to CBIS, where the customer number, invoice numbers paid, discount taken, and net amount remitted are entered into the system based on the remittance advice information. The computer then updates the customer accounts, as well as the accounts receivable control and cash in bank accounts. At the end of the day, the computer produces a printout of detail and totals by customer, as well as a grand total.

The checks and remittance advices are then separated and the checks are forwarded to Mark Wilkins, cashier. Wilkins prepares the deposit and deposits each day's remittances intact. Receipted deposit tickets are forwarded by the bank to the controller's office where a comparison is made with the daily printout of cash receipts.

Miscellaneous cash receipts are processed in a fashion similar to that accorded customer remittances, except that a recording form is prepared by the general ledger section and forwarded daily to CBIS for entry into the computer. Prepared from the remittance advice, the recording form contains the date, amount remitted, account number(s), and amount(s) to be credited. Exhibit BB.8 (link) is a flowchart describing processing of customer cash receipts.

Purchases and Accounts Payable Processing

Brony's Bikes buys its derailleurs and other bicycle parts from three unrelated vendors; steel and paint are purchased from selected vendors, based on a bidding process. Supplies are purchased from various vendors. All parts, materials, and supplies are ordered as reorder points are reached on the basis of a three-part purchase order generated by the computer. Emil Ransbottom, director of purchasing, reports to Elmer Fennig, production vice president. Prices, as agreed upon by Ransbottom and the respective vendors, also appear on the purchase order, which is mailed to the vendor after being reviewed and approved by Fennig. A copy of the purchase order is sent to accounts payable and another goes to the purchasing department for later comparison with the incoming goods.

When goods are received, they are counted and inspected by employees in the receiving department and a two-part receiving report is prepared. The original accompanies the goods to stores (stores is used here to mean store room or store warehouse, not retail stores), where quantities and types of goods are compared with the receiving report, and the copy is filed numerically in the receiving department. The store's manager then signs the receiving report and forwards it to the director of purchasing for comparison with the purchase order for type, quantity, price, and discount terms. After signing for agreement, the director of purchasing forwards the receiving report to accounts payable where it is filed by vendor, along with the purchase order copy, awaiting receipt of a vendor's invoice.

When the vendor's invoice is received, an accounts payable clerk compares it with the purchase order and receiving report, and then prepares a voucher for processing the invoice. The voucher contains the vendor number, vendor invoice number, stock number, quantities, price, and terms. Voucher copies are forwarded to CBIS for daily processing of vendors' invoices. A daily control tape of dollar totals appearing on the invoices is retained by accounts payable for later comparison with computer output. During the input of vouchers, the accounts payable software module of the general ledger package edits for the following characteristics: valid vendor number, valid stock number, price in agreement with vendor price, and agreement with discount and payment terms stored in the computer. During the processing run, the computer updates the accounts payable ledger, the manufacturing overhead detail, the operating expense detail, and the perpetual inventory records for purchased parts, materials, and supplies. The computer also performs a record count and compares output with input at the end of the processing run. Lastly, the due date of the invoice is stored in the computer for purposes of generating daily disbursement checks for invoices to be paid on that date.

Computer output consists of a purchases summary that is forwarded to accounts payable for review and comparison with the control tape. Accounts payable also files alphabetically the voucher, along with the attached purchase order, receiving report, and vendor's invoice in an unpaid vouchers file. All of these documents are prenumbered. Exhibit BB.9 (link) is a flowchart depicting the documents and procedures just described.

Payment Processing

The daily computer check writing process produces a two-part check/remittance advice set. The remittance advice, indicating invoice number(s) being paid, gross amount, discount, and net amount of the check constitutes the lower part of the set. The check/remittance advice set is sent to accounts payable for comparison with the documents contained in the alphabetic vendors' invoice file. If the amounts appearing on the remittance advice agree with the vendor's invoice, an accounts payable clerk initials the voucher, attaches the purchase order, vendor's invoice, and receiving report, and forwards the documents to the treasurer. The treasurer examines the documentation received from accounts payable for agreement among the invoice, purchase order, and receiving report as to type, quantities, and prices. If everything is in agreement and the documents include initials evidencing proper approvals, the check is approved for signature. The checks are then signed by a check-signing machine and mailed directly to the vendor by the treasurer's office. The documents are effectively canceled to prevent reuse and are returned to accounts payable for filing in the paid vouchers file.

Responsibility for operating the check-signing machine is assigned to one individual. The machine is locked at all times when not being used to sign checks and the key is in the custody of the check signer. Exhibit BB.10 (link) is a flowchart describing the payment process.

Production Payroll Processing

Hourly production employees are paid weekly. Nonproduction employees are salaried and are paid biweekly. Salespersons also are paid biweekly, on a combination salary and commission compensation basis. The total time worked is accumulated for hourly employees by a time clock located at the factory entrance. The employee's name, Social Security number, and department number appear on the clock card. Factory supervisors approve the clock cards at the end of each week for employees working in their respective departments, before submitting them to payroll.

Each Monday morning the timekeepers summarize and assemble the clock cards by department number and forward the packets to payroll. The clock cards are examined in payroll for proper approval, a tape is run of total hours by department, and then the cards and tape are forwarded to CBIS for processing. A data entry clerk enters via a terminal the employee number, the department number, and the hours worked. Input editing consists of checking for valid employee number, valid department, and reasonableness of hours worked. The employee computer file contains the current pay rates, and the employee and department numbers.

Adjustments to the employee database for any rate changes, additions of new employees, and deletions of terminated employees are made only on the basis of authorization slips obtained from Laura Schroeder, director of human resources. Withholding information is also included in the database and is updated on the basis of authorization received from the human resources division.

The computer calculates gross pay, withholdings, and net pay. The employer's taxes (e.g., FICA, unemployment, and workers' compensation premium) also are calculated by the payroll module of the accounting software package. A record count is performed by the computer and compared with employee records updated at the end of the run. A register also accumulates hours by department for comparison with total hours at the end of the run.

Output consists of prenumbered payroll checks, a payroll summary, and a cost distribution summary. The control group is responsible for distributing the output. The checks, along with the summaries, are forwarded to the treasurer for signature and distribution. A check for the total amount of net pay is first drawn upon the general account for deposit in the payroll account; the treasurer signs this check and forwards it to the cashier for deposit.

After being compared with the payroll summary on a test basis, the individual payroll checks are signed with the aid of a check-signing machine and distributed by treasury personnel. Unclaimed checks are retained in safekeeping by the treasurer's office. The payroll summary and the control tape are forwarded to the payroll department as a basis for comparing total hours by department and for completing the various payroll tax returns and reports. The cost summary is sent to Oliver Perna, director of cost accounting, for review and filing. Exhibit BB.11 (Link) is a flowchart describing the production payroll process.

As part of the integrated software package, the payroll data serves as input for updating the goods-in-process inventory accounts. To complete the updating of goods-in-process and finished goods inventory, production reports and materials requisitions are entered into the system on a weekly basis. In addition to the perpetual inventory ledgers, the database includes a manufacturing overhead detail and an operating expense ledger. Current standard costs are also incorporated into the database. This enables the computer to calculate and print daily, weekly, and monthly variance reports for analysis by Perna and Malissa Rust, director of information systems and data processing.

The salaried payroll is prepared in a similar fashion. CBIS updates the employee database as written authorizations are received from human resources. As with production employees, the authorizations relate to changes in employee salaries, new employees, and terminated employees. Any overtime for salaried employees must be approved in writing by the respective department heads and routed to CBIS through payroll; the payroll department reviews the overtime for proper authorization and for reasonableness before transmitting the information to CBIS.

Other Accounting System Features

Monthly financial statements consist of a balance sheet, an income statement, and a statement of cash flows and are generated automatically by the computer. Month-end adjustments for accruals (payroll, taxes, warranty, commissions, pension, profit sharing, interest, and fringe benefits) and apportionments (depreciation, insurance, bad debts, and amortization) are determined by John Mesarvey, Brony's Bikes' chief accountant, and submitted to CBIS on standard recording forms. CBIS enters the data and invokes the command for printing the financial statements. In addition to the financial statements, the adjusting entries are printed and forwarded by the control group to Mesarvey for comparison with his copy of the adjustments as originally submitted to CBIS. Exhibit BB.12 (Link) contains the December 31, 20X9, adjustments for inventories (perpetual records adjusted to year-end physical inventory) and unrecorded liabilities. Exhibits BB.13-BB.16 (Link) contain beginning and ending entries in the December 20X9 transaction registers.

Sales invoices, purchase orders, disbursement checks, and payroll checks are prenumbered and generated by computer, as described previously. All manually prepared documents, such as vouchers and receiving reports, are also prenumbered. They are safeguarded and under the responsibility of designated individuals. Used documents are canceled to prevent reuse. Bills of lading are not prenumbered or otherwise accounted for. The internal auditing department regularly accounts for the numeric sequence of used documents. All voided documents are retained until the annual independent audit has been completed.

Question One: Explicit matching of sales invoices with bills of lading.

Strength Or Weakness

Question Two: Checks received and the related remittance advice are compared with documentation for agreement.

Strength Or Weakness?