Chapter 4
A sales order processing diagram illustrates the steps involved in processing a customer's order within a
business or organization. It outlines the sequence of actions, departments, and systems involved in
fulfilling a customer's request for products or services. The process generally includes several stages
from order placement to order fulfillment and delivery. Below is a basic breakdown of the key steps
typically found in a sales order processing diagram:
1. Order Initiation: The process begins when a customer places an order. This can be done through
various channels such as a company's website, phone call, email, or in-person.
2. Order Verification: The order details are reviewed to ensure accuracy, completeness, and
validity. This step involves checking whether the requested products are available in the
inventory and if the customer's information is correct.
3. Order Entry: The verified order information is entered into the company's order management
system. This may include the customer's contact details, shipping address, product details,
quantities, prices, and any special instructions.
4. Inventory Check: The inventory system is checked to determine whether the requested products
are in stock and available for fulfillment. If items are out of stock, the process may involve
backordering or notifying the customer of the delay.
5. Credit Check and Payment Processing: If applicable, a credit check may be conducted to assess
the customer's creditworthiness. The payment information is processed, and the payment is
authorized or charged.
6. Order Processing and Fulfillment: This stage involves picking the products from the inventory,
packing them securely, and generating any necessary shipping labels or documents. The
fulfillment process can vary depending on whether the company handles physical goods or
digital products/services.
7. Shipping and Delivery: The packed products are handed over to the shipping department or a
third-party logistics partner. Shipping options chosen by the customer are used to determine the
shipping method and delivery timeframe.
8. Order Tracking and Communication: The customer may be provided with tracking information
so they can monitor the progress of their order. Regular communication is maintained to keep
the customer informed about any changes or delays.
9. Invoicing and Documentation: An invoice is generated detailing the ordered products,
quantities, prices, taxes, and any additional charges. This document is usually sent to the
customer along with the shipment.
10. Order Completion and Confirmation: Once the products are successfully delivered to the
customer's specified address, a confirmation is sent to the customer. This confirms that the
order has been fulfilled and provides an opportunity for the customer to report any issues.
11. Returns and Customer Support: If the customer wants to return or exchange products, there
should be a clear process for handling such requests. Customer support plays a role in assisting
customers with inquiries, issues, or returns.
12. Order Analytics and Reporting: Sales order data can be used for various purposes, including
analyzing sales trends, forecasting inventory needs, and assessing the efficiency of the order
processing system.
Remember, the exact steps and processes can vary depending on the organization's size, industry, and
specific procedures. Sales order processing diagrams help visualize these steps and the interactions
between various departments and systems, aiding in process optimization and effective customer
service.
Short Question
1.Segregation of Functions:
Sales Order Processing:

Credit Authorization separate from SO Processing: This means that the individuals responsible
for approving credit (allowing customers to make purchases on credit) should be different from
those handling the sales order processing. This helps prevent conflicts of interest and reduces
the risk of approving orders for customers with questionable credit.

Inventory Control separate from Warehouse: Separating inventory control from the warehouse
means that the individuals responsible for managing inventory levels and accuracy should be
different from those responsible for physically handling and storing the inventory. This
separation reduces the risk of theft or mishandling.

Accounts Receivable Sub-ledger separate from General Ledger Control Account: The accounts
receivable sub-ledger contains detailed information about individual customer accounts, while
the general ledger control account summarizes the overall accounts receivable balance.
Separating these functions helps prevent unauthorized changes to customer accounts and
ensures accuracy.
Cash Receipts Processing:

Cash Receipts separate from Accounting Records: The individuals handling cash receipts
(payments from customers) should be different from those responsible for maintaining the
accounting records. This helps prevent embezzlement or manipulation of financial records.

Accounts Receivable Sub-ledger separate from General Ledger: Similar to the previous point,
this separation ensures that the detailed accounts receivable information is distinct from the
summarized data in the general ledger. It prevents unauthorized adjustments or errors.
2.Access Controls
Access to assets and information (accounting records) should be limited.
Within the revenue cycle, the assets to protect are cash and inventories and access to records such as
the accounts receivable subsidiary ledger and cash journal should be restricted.
3.Point-of-Sale Systems
Point of sale systems are used extensively in retail establishments. Customers pick the inventory from
the shelves and take them to a cashier. The clerk scans the universal product code (UPC). The POS system
is connected to an inventory file, where the price and description are retrieved. the inventory levels are
updated and reorder needs can immediately be detected.
The system computes the amount due. Payment is either cash, check, ATM or credit card in most cases.
No accounts receivables required.
If checks, ATM or credit cards are used, an on-line link to receive approval is necessary.
At the end of the day or a cashier’s shift, the money and receipts in the drawer are reconciled to the
internal cash register tape or a printout from the computer’s database.
Cash over and under must be recorded
4.Reengineering using EDI
Electronic Data Interchange (EDI) can be utilized to automate and expedite the process of placing orders
between a customer and a supplier. In this context, EDI streamlines the transaction by eliminating the
need for human intervention and manual processes. Here's a breakdown of the process you've
described:
1. Inventory Need Determination: The customer's computer system, likely integrated with their
inventory management or enterprise resource planning (ERP) system, detects a need for specific
products or inventory items. This could be triggered by factors such as reaching reorder points or
anticipated customer demand.
2. Supplier Selection: The customer's system selects a supplier based on predefined criteria and a
formal business agreement. This could include factors like price, delivery time, quality, and
historical relationships.
3. Automated Order Placement: Once the supplier is determined, the customer's computer system
initiates an automated order placement process. Instead of a human employee manually
creating an order, the system automatically generates the necessary order details, including the
products, quantities, and any other relevant information.
CHAPTER 6
5.Payroll system
A payroll system is a set of processes, software, and procedures used by organizations to manage
and execute the payment of wages and salaries to their employees. It encompasses various tasks
related to employee compensation, including calculating wages, deducting taxes and other
withholdings, generating paychecks or direct deposits, and maintaining accurate records of
earnings and deductions. The primary purpose of a payroll system is to ensure that employees
are paid accurately and on time while complying with relevant tax and labor regulations.
Here's a breakdown of each department's responsibilities and their interactions within the
payroll process:
Personnel Department: The personnel department handles personnel action forms to manage
employee-related changes, including new hires, pay rate adjustments, changes in marital status,
and terminations. These forms provide essential information to update employee records and
initiate necessary processes.
Production Employees: Production employees fill out two forms—job tickets to record time
spent on specific production jobs and time cards to capture total time worked. These forms are
signed by a supervisor to authenticate the accuracy of the reported data.
Cost Accounting Department: The cost accounting department uses the job tickets to allocate
labor costs to Work-in-Progress (WIP) accounts. They summarize these charges in a labor
distribution summary, which is then sent to the General Ledger (G/L) department.
Payroll Department: The payroll department receives personnel action forms and time cards.
Their responsibilities include preparing the payroll register, entering relevant information into
employee payroll records, generating paychecks, and sending both paychecks and a copy of the
payroll register to the Cash Disbursements department and a copy of the payroll register to the
Accounts Payable department.
Accounts Payable Department: The Accounts Payable department prepares a cash
disbursements voucher for the total amount of the payroll. Copies of this voucher are sent to the
Cash Disbursements and General Ledger departments.
Cash Disbursements Department: The Cash Disbursements department reviews and signs the
paychecks before forwarding them to a paymaster for distribution to employees. Additionally,
they write a check for the total payroll amount and deposit it into the payroll imprest account.
General Ledger Department: The General Ledger department receives information from the cost
accounting department and Accounts Payable department. They use this data to update relevant
accounts and maintain accurate financial records.
6.Job tickets to record time spent on specific production jobs. The purpose of a job ticket is to
accumulate the hours that an employee will be paid in the next payroll. job ticket ensures that
the workers receive accurate payment.
Time cards are used to capture total time worked. Moreover it is used to record the start and
end time of tasks or simply the duration of the task. Timecards may contain a detailed
breakdown of tasks accomplished by the individual(s) who worked on the task. The information
can be used for project costing, job estimation, tracking, management, client billing and payroll.
Tracking time can reduce an organization’s costs by making payroll processing more efficient,
by making costs visible so you can lower them, and by automating billing and invoicing.
These forms are signed by a supervisor to authenticate the accuracy of the reported data
7. computer based payroll system and manual payroll system. which one is better
Whether a computer-based payroll system or a manual payroll system is better depends on various
factors, including the size of the organization, the complexity of payroll processes, the budget, and the
specific needs of the business. Here's a comparison of both systems to help you understand their
advantages and disadvantages:
Computer-Based Payroll System:
Advantages:
1. Efficiency: Computerized systems can automate calculations, tax deductions, and other complex
payroll tasks, saving time and reducing the chances of errors.
2. Accuracy: Automated calculations reduce the risk of manual errors, which can be common in
manual systems.
3. Scalability: Computer systems are better suited for larger organizations with a significant
number of employees.
4. Reporting: Computer systems can generate detailed reports and analytics that provide insights
into labor costs, trends, and other important data.
5. Compliance: Automated systems often include built-in tax and regulatory compliance features to
help ensure accurate and up-to-date payroll processing.
Disadvantages:
1. Cost: Setting up and maintaining a computer-based payroll system can be expensive due to
software, hardware, and training costs.
2. Complexity: Implementing and maintaining the system may require specialized IT knowledge
and ongoing technical support.
3. Security Concerns: Data security is crucial, and computer systems can be vulnerable to
cyberattacks if not properly secured.
4. Learning Curve: Employees may require training to use the system effectively.
Manual Payroll System:
Advantages:
1. Simplicity: Manual systems are generally simpler and more cost-effective for small businesses
with few employees.
2. Control: Some organizations prefer the hands-on approach of manually calculating and
managing payroll.
3. No Technical Dependencies: Manual systems don't rely on technology, so there's no risk of
technical failures or system crashes disrupting payroll processing.
4. Privacy: Some businesses prefer not to store sensitive payroll information digitally due to
security concerns.
Disadvantages:
1. Time-Consuming: Manual calculations and paperwork can be time-consuming, especially as the
organization grows.
2. Error-Prone: Manual calculations are more susceptible to errors, which can lead to incorrect pay
and compliance issues.
3. Limited Reporting: Generating comprehensive reports and analytics may be challenging with a
manual system.
4. Scalability Challenges: As the organization grows, manual systems can become overwhelming
and inefficient.
In most cases, computer-based payroll systems offer greater accuracy, efficiency, and scalability,
especially for larger organizations. However, the decision ultimately depends on your organization's size,
budget, technical capabilities, and the importance you place on accuracy and efficiency.
Smaller businesses with limited resources might find manual systems sufficient, while larger businesses
or those with complex payroll needs might benefit more from a computer-based system. Many
businesses today opt for a hybrid approach, leveraging technology for payroll processing while
maintaining manual oversight.
8.Batch Production System
Production Planning and Control
Materials and operations requirements
Production scheduling
Materials and Operations Requirements
Materials requirement – the difference between what is needed and what is available in inventory
Operations requirements – the assembly and/or manufacturing activities to be applied to the product
Production Scheduling
Coordinates the production of multiple batches Influenced by time constraints, batch size, and
other specifications
Work Centers and Storekeeping
Production operations begin when work centers obtain raw materials from storekeeping. It ends with the
completed product being sent tothe finished goods (FG) warehouse .
Inventory Control
Objective: minimize total inventory cost while ensuring that adequate inventories exist of production
demand
Provides production planning and control with tatus of finished goods and raw materials
inventory
Continually updates the raw material inventory during production process
Upon completion of production, updates finished goods inventory
EXTRA QUESTION ) A Bill of Materials is a structured list that provides detailed information about the
components, materials, and subassemblies required to manufacture a final product or assembly. It's a
critical document in manufacturing, production planning, and supply chain management. Here's a bit
more detail:
Bill of Materials (BOM): A BOM is used to outline the entire structure of a product, breaking it down into
its constituent parts. Each part is listed along with its description, quantity, and sometimes additional
attributes such as part numbers, suppliers, and cost. The BOM defines the hierarchy of components,
showing how they are assembled to create the final product.
9. Route Sheet:

The Route Sheet details the sequence of operations and steps that a product or batch
will go through during the manufacturing process.

Its primary purpose is to define the production path and provide a roadmap for how a
product is assembled or processed
Work Order:


The Work Order specifies the exact materials, components, and production
processes required to complete a specific batch or order.
Its primary purpose is to provide detailed instructions for the production
team to follow.
Move Ticket - records work done in each work center and authorizes the movement of the batch
Materials Requisition - authorizes the inventory warehouse to release raw materials for use in the
production process