System Descriptions

1. System Descriptions Accounting Information Systems

2. The Cash Receipts Cycle • The points to think about are • Why do we do all of the things that we do? • How can we tell this story more efficiently and (perhaps) effectively? • We will tell the story sort of like a “play” with characters acting out parts.

3. Why do we care about accounting information systems? What do accounting information systems do as compared to “manual entry” systems? Another way of asking this question is: What do we wish to accomplish with our system?

4. Why do we care about accounting information systems? There are several related answers to this question, including the following: • Make certain that the transaction information that is recorded fully and correctly reflects the transactions which have occurred. • Provide some protection against theft and fraudulent financial statements. • Provide managers with the type of information that they require to make decisions.

5. The first two items are termed control characteristicsof the system. How does the system (the way you process information) influence the likelihood of errors and fraud? • The third item relates to the efficiencyof the information system at providing useful information for management decisions.

6. Control Characteristics All transactions which were entered into were recorded. In other words, there are no transactions (such as purchases for credit) which exist, but which did not get recorded (Input completeness).All transactions which were recorded actually occurred (Input validity) . We want to make sure that transactions did not accidentally get recorded twice and that no fraudulent transactions were recorded.All transactions which occurred and which were recorded were properly authorized (Input validity).Suppose the mailroom clerk sold the company truck for $25.00 to his best friend!All recorded transactions are recorded and transcribed accurately (Input accuracy).We want to make sure (first of all) that everything got entered correctly! The double-entry system of bookkeeping helps with this.

7. Transaction cycles • When a company sells its product, it increases one asset (either cash or accounts receivable) and decreases another (inventory). • Profit comes from the difference in value between the asset received and the asset given up. • We can think of the sale and purchase of inventory as cycles. You continually have to purchase new items to sell or you will go out of business.

9. Knowledge about the relationships between sales, accounts receivable, and cash receipts (inventory, purchases, accounts payable, and cash disbursements) can be used to decrease the possibility of errors and theft. Example Problem A customer calls and says that he received an invoice from your company and that he never purchased anything. Solution Establishing documentation procedures that tie recorded transactions to existing transactions.

10. The Sales Transactions Players • Sales manager • Accounts Receivable clerk • Shipping Clerk • Mailroom clerk • Cashier • General Ledger Clerk What role does each perform? Sales and Cash Receipts

11. Sales(approving the transaction) • Sales Dept: From the Purchase Order, fill out the Charge Sale Invoice document, leaving blank the “verified by” space then give it to A/R. This is a Sales Order Header. • Accts Receivable: Approve the transaction and complete the Sales Order. This will be an invoice when the items have been shipped. Send 2 copies of the invoice to Shipping (one is a packing slip). Send an “approved” copy back to Sales. • Sales Dept: Send the vendor acknowledgement back to the customer. Inform the customer of the sales order number for future correspondence, give them someone to contact and an estimated date.

12. Sales (executing the transaction) • Shipping: Fills the order, notes the quantity shipped and computes the extension and total sale. Sends a copy to the customer (as a packing slip). Fills in the BOL# and returns to A/R. • Accts Receivable: Record the account receivable in the A/R subsidiary ledger (This is like a file for this particular customer). Send a copy of the complete invoice to the G/L department. Send a copy of the complete invoice to the customer.

13. Sales(recording the sale in the General Journal) • G/L department (accounting) Record the invoice from Accounts Receivable.

14. SALES Sales clerks receives a PO Prepares Sales Order Header Forwards to Accounts Receivable for approval Prepare S/O Accounts Receivable

15. Approved A/R Checks the A/R subsidiaryledger Approves the transaction and annotates the SO header makingit a Sales Order Returns Sales Order to salesclerk. Send copies to shipping (one isPacking Slip) Sales Shipping

16. Prepare V/A Approved SALES Prepare vendor acknowledgement Send to customer Customer

17. Invoice Approved A/R w/ BOL Customer SHIPPING Fills the order, notes the quantity shipped and computes the extension and total sale. Sends a copy to the customer (as a packing slip). Fills in the BOL# and returns to A/R.

18. Invoice Invoice Invoice G/L Customer A/R Record the account receivable in the A/R subsidiary ledger (This is like a file for this particular customer). Send a copy of the complete invoice to the G/L department. Send a copy of the complete invoice to the customer.

19. Invoice Accts. Rec XXX Sales XXX G/L Record the invoice from Accounts Receivable.

21. Sales and Cash Receipts

22. Sales and Cash Receipts • Remember that we are focusing on the sales and cash receipts transactions. • See Quiz to verify which ones apply to S & CR • It always helps to read ahead but it may also help to “think” ahead. • Read flowcharts for understanding prior to transaction • Think about the S & CR “Universe”

23. Sales and Cash Receipts Universe Or Charge-Off