Required:   Create a system flowchart of the existing system. Analyze the physical internal control weaknesses in the system Describe the IT controls that should be in place in this system

REVENUE CYCLE CASE STUDY

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ARCHITECT’S DEPOT

 (NETWORKED COMPUTER SYSTEM WITH MANUAL PROCEDURES)

Architect’s Depot (AD) is an online company that supplies a range of architectural products to building contractors and private individuals.  Their product line includes such items as gable vents, shutters, vinyl sidings, and decorative trim in various materials.

The company employs a combination of manual procedures and a networked accounting system with distributed terminals in several departments.  

After years of satisfactory performance, however, AD is now experiencing operational inefficiencies and accounting errors.  Your firm has been hired to evaluate AD’s business processes and internal controls.  The revenue cycle is described in the following paragraph.

Sales Order Procedures

AD’s revenue process is initiated when a customer places an order either online, by mail or through a telephone representative.  Online orders are entered automatically by the system, mail and phone ordersare manually entered.  When the customer order  is entered, the system automatically performs an online credit check.  If credit is approved, the sales process continues.  If credit is denied, the process is terminated and the customer is notified of the automatic rejection.

For approved orders, the clerk manually prepares four hard copies of each sales order.  The clerk then enters the sale into the digital sales journal from his terminal and files one copy of the sales order in the sales department.  A second copy is sent to the billing department, where it is further processed.  A third copy is sent to the warehouse.  A final copy is sent to the customer as a receipt stating that the order has been received and processed.

The warehouse clerk uses the sales order as a stock release document to pick up the requested items from the shelves.  The clerk then manually prepares a bill of lading and

packing slip, which accompany the goods to the carrier.  The warehouse clerk then accesses the computer terminal and creates a digital shipping notice for the billing department.  Finally the clerk files the stock release hard copy in the warehouse.

The billing department clerk reconciles the hardcopy sales order and the digital shipping notice which is displayed on his or her terminal. He or she then prints two hard copies of an invoice.  One copy is sent to the customer as a bill and the other is sent to the accounts receivable department.  The clerk then files the sales order copy in the department.

Upon receipt of the hard copy invoice, the accounts receivable clerk creates a digital record in the accounts receivable subsidiary ledger from his terminal.  The clerk then files the invoice copy in the department.

Cash Receipts Procedures   

Customer payments and remittance advices come into the mail room.  A clerk separates the documents and sends the remittance advices to accounts receivable and the checks to the cash receipts department.

Upon receipt of the remittance advices, the accounts receivable clerk accesses the customer’s account in the accounts receivable subsidiary ledger from a terminal and adjusts the balance accordingly.  The clerk files the remittance advices in the department.

The cash receipts clerk receives the checks and posts them to the cash receipts journal from his or her terminal.  The clerk then manually prepares a hard-copy deposit slip and sends it with the cash to the bank.

Finally, at the end of each day, the system prepares batch totals  of all sales and cash receipts transactions and posts them automatically to the control accounts in the digital general ledger. 

Source:  Hall, J. A. (2018). Accounting Information Systems. 10th Edition. Boston,

      Massachusetts,  USA: Cengage.

Required:

1. Create a system flowchart of the existing system.
2. Analyze the physical internal control weaknesses in the system
3. Describe the IT controls that should be in place in this system
4. Prepare a system flowchart of a redesigned computer based system that resolves the control weaknesses that you identified.
5. Explain your solution.