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In 1989, Robert Smith opened a small fruit and vegetable market in Bethlehem, Pennsylvania. Originally, Smith sold only produced grown on his family farm and orchard. As the market’s popularity grew, however, he added bread, canned goods, fresh meats, and a limited supply of frozen goods. Today, Smith’s market is a full range farmers’ market with a strong local customer base. Indeed, the market’s reputation for low prices and high-quality draws customers from other Pennsylvania cities and even from the neighboring state of New Jersey. Currently, Smith’s market has 40 employees. These include sales staff, shelf stockers, farm laborers, shift supervisors, and clerical staff. Recently, Smith has noticed a decline in profits and sales, while his purchases of products for resale have continued to rise. Although the company does not prepare audited financial statements, Robert Smith has commissioned your public accounting firm to assess his company’s sales procedures and controls. Smith’s market revenue cycle procedures are described in the following paragraphs: Revenue Cycle Customers push their shopping carts to the checkout register where a clerk processes the sale. The market has four registers, but they are not dedicated to specific sales clerks because the clerks play many roles in the day-to-day operations. In addition to checking out customers, sales clerks will stock shelves, unload delivery trucks, or perform other tasks as demand in various areas rises and falls throughout the day. This fluid-work demand makes the assignment of clerks to specific registers impractical. At the beginning of the shift, the shift supervisor collects four cash register drawers from the treasury clerk in an office in the back of the market. The drawers contain $100 each in small bills (known as float) to enable the clerks to make change. The supervisor signs a log indicating that he has taken custody of the float and places the drawers into the respective cash registers. Sales to customers are for cash, check, or credit card only. Credit card sales are performed in the usual way. The clerk swipes the card and obtains online approval from the card issuer at the time of sale. The customer then signs the credit card voucher, which the clerk places in a special compartment of the cash register drawer. The customer receives a receipt for the purchase and a copy of the credit card voucher. For payments by check, the clerk requires the customer to present a valid driver’s license. The license number is added to the check and the check is matched against a “black” list of customers who have previously passed bad checks. If the customer is not on the list, the check is accepted for payment and placed in the cash register drawer. The clerk then gives the customer a receipt. The majority of sales are for cash. The clerk receives the cash from the customer, makes change, and issues a receipt for the purchase. At the end of the shift, the supervisor returns the cash register drawers containing the cash, checks, and credit cards receipts to the treasury clerk and signs a log that he has handed in the cash drawers. The clerk later counts the cash and credit card sales. Using a stand-alone PC, he records the total sales amounts in the sales journal and the general ledger sales and cash accounts. The treasury clerk then prepares a deposit slip and delivers the cash, checks, and credit card vouchers to the local branch of the bank two blocks away from the market. Required a. Create a data flow diagram of the current system. b. Create a system flowchart of the existing system. c. Analyze the physical internal control weaknesses in the system. Model your response according to the six categories of physical control activities specified in the COSO internal control model. d. Describe the IT controls that should be in place in this system.

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Accounting Information Systems

10th Edition
Hall + 1 other
Publisher: Cengage Learning,
ISBN: 9781337619202

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Chapter
Section
BuyFindarrow_forward

Accounting Information Systems

10th Edition
Hall + 1 other
Publisher: Cengage Learning,
ISBN: 9781337619202
Chapter 4, Problem 1ICC
Textbook Problem
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In 1989, Robert Smith opened a small fruit and vegetable market in Bethlehem, Pennsylvania. Originally, Smith sold only produced grown on his family farm and orchard. As the market’s popularity grew, however, he added bread, canned goods, fresh meats, and a limited supply of frozen goods. Today, Smith’s market is a full range farmers’ market with a strong local customer base. Indeed, the market’s reputation for low prices and high-quality draws customers from other Pennsylvania cities and even from the neighboring state of New Jersey. Currently, Smith’s market has 40 employees. These include sales staff, shelf stockers, farm laborers, shift supervisors, and clerical staff. Recently, Smith has noticed a decline in profits and sales, while his purchases of products for resale have continued to rise. Although the company does not prepare audited financial statements, Robert Smith has commissioned your public accounting firm to assess his company’s sales procedures and controls. Smith’s market revenue cycle procedures are described in the following paragraphs:

Revenue Cycle

Customers push their shopping carts to the checkout register where a clerk processes the sale. The market has four registers, but they are not dedicated to specific sales clerks because the clerks play many roles in the day-to-day operations. In addition to checking out customers, sales clerks will stock shelves, unload delivery trucks, or perform other tasks as demand in various areas rises and falls throughout the day. This fluid-work demand makes the assignment of clerks to specific registers impractical.

At the beginning of the shift, the shift supervisor collects four cash register drawers from the treasury clerk in an office in the back of the market. The drawers contain $100 each in small bills (known as float) to enable the clerks to make change. The supervisor signs a log indicating that he has taken custody of the float and places the drawers into the respective cash registers.

Sales to customers are for cash, check, or credit card only. Credit card sales are performed in the usual way.

The clerk swipes the card and obtains online approval from the card issuer at the time of sale. The customer then signs the credit card voucher, which the clerk places in a special compartment of the cash register drawer. The customer receives a receipt for the purchase and a copy of the credit card voucher.

For payments by check, the clerk requires the customer to present a valid driver’s license. The license number is added to the check and the check is matched against a “black” list of customers who have previously passed bad checks. If the customer is not on the list, the check is accepted for payment and placed in the cash register drawer. The clerk then gives the customer a receipt.

The majority of sales are for cash. The clerk receives the cash from the customer, makes change, and issues a receipt for the purchase.

At the end of the shift, the supervisor returns the cash register drawers containing the cash, checks, and credit cards receipts to the treasury clerk and signs a log that he has handed in the cash drawers. The clerk later counts the cash and credit card sales. Using a stand-alone PC, he records the total sales amounts in the sales journal and the general ledger sales and cash accounts. The treasury clerk then prepares a deposit slip and delivers the cash, checks, and credit card vouchers to the local branch of the bank two blocks away from the market.

Required

  1. a. Create a data flow diagram of the current system.
  2. b. Create a system flowchart of the existing system.
  3. c. Analyze the physical internal control weaknesses in the system. Model your response according to the six categories of physical control activities specified in the COSO internal control model.
  4. d. Describe the IT controls that should be in place in this system.

a.

To determine

Prepare the data flow diagram for the current system.

Explanation of Solution

Data Flow Diagram:

A data flow diagram can be defined as a systematic method to represent the data flow in a system or a process. This diagram also offers the information regarding inputs and outputs of the process or an entity.

The data flow diagram for the current system:

Fig (1)

The above figure represents the data flow diagram of sales order of Company S...

b.

To determine

Prepare the system flowchart for the existing system.

c.

To determine

Describe the physical internal control weaknesses.

d.

To determine

Describe the IT controls that should be considered in the system.

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Chapter 4 Solutions

Accounting Information Systems
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Ch. 4 - What are the key features of a POS system?Ch. 4 - How is a credit check in the advanced technology...Ch. 4 - What is multilevel security?Ch. 4 - Why does billing receive a copy of the sales order...Ch. 4 - Why was EDI devised?Ch. 4 - What assets are at greatest risk in a POS system?Ch. 4 - In a manual system, after which event in the sales...Ch. 4 - What is a bill of lading?Ch. 4 - What document initiates the billing process?Ch. 4 - Where in the cash receipts process does...Ch. 4 - Why do firms have separate departments for...Ch. 4 - Distinguish between the sales order, billing, and...Ch. 4 - Explain the purpose of having mail room...Ch. 4 - Explain how segregation of duties is accomplished...Ch. 4 - How could an employee embezzle funds by issuing an...Ch. 4 - What task can the AR department engage in to...Ch. 4 - Why is access control over revenue cycle documents...Ch. 4 - How can reengineering of the sales order...Ch. 4 - What financial statement misrepresentations may...Ch. 4 - Give three examples of access control in a POS...Ch. 4 - Discuss the trade-off in choosing to update the...Ch. 4 - If an automated credit checking function denies a...Ch. 4 - How can advanced technology transaction processing...Ch. 4 - What makes POS systems different from revenue...Ch. 4 - Is a POS system that uses bar coding and a laser...Ch. 4 - How is EDI more than technology? What unique...Ch. 4 - Discuss the two common methods of achieving...Ch. 4 - Which function or department records a sale in the...Ch. 4 - Which functions should be segregated? a....Ch. 4 - Which of the following is incompatible task? a....Ch. 4 - Which control helps to ensure that the inventory...Ch. 4 - The bill of lading is prepared by the a. sales...Ch. 4 - Which of the following is NOT an independent...Ch. 4 - Which document defines terms for shipped goods...Ch. 4 - Which of the following sets of tasks should not be...Ch. 4 - Which of the following is often called a...Ch. 4 - Which document triggers the billing function? a....Ch. 4 - SEGREGATION OF FUNCTIONS Which, if any, of the...Ch. 4 - INTERNAL CONTROLS AND FLOWCHART ANALYSIS a....Ch. 4 - FLOWCHART ANALYSIS Use the flowchart for Problem 3...Ch. 4 - The following describes the cash receipts process...Ch. 4 - RISKS AND INTERNAL CONTROLS Following describes...Ch. 4 - INTERNAL CONTROL EVALUATION a. Identify the...Ch. 4 - STEWARDSHIP Identify which department has...Ch. 4 - Denis Frederick owns Never Leak, Inc., which is a...Ch. 4 - The following describes the information system for...Ch. 4 - The following describes the sales procedures for a...Ch. 4 - CONTROL WEAKNESSES AND RELATED RISKS -CASH...Ch. 4 - Refer to the system flowchart in the figure...Ch. 4 - In 1989, Robert Smith opened a small fruit and...Ch. 4 - Posavek is a wholesale supplier of building...Ch. 4 - Green Pond Nursery Supply (GPNS) is a garden...Ch. 4 - (Prepared by Will Richens and Michael Catchpole,...Ch. 4 - Outdoor Adventure is a Montana-based wholesaler of...

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