Introduction to Accounting Systems
Class #1
September 25
Today, we will discuss what an accounting information system and go through a simple
example of a system. The purpose of today’s class is to give you some background on
the course. This material will be repeated later in the course (in more depth). Below is
some background material which introduces what I am hoping to get across in this class.
Note: the material from today’s lecture will not be on the first exam. The purpose of
today’s lecture is to introduce some context for our discussions in class periods 3-6.
This material will be repeated (for the most part) in the control section of the
course, beginning in Class period # 7.
• What is an accounting information system?
When most people hear the term, accounting information systems, they immediately
conjure up images of computerized systems for producing financial statements. But this
is NOT what accounting information systems are!
When you took your first course in accounting, you probably learned how to analyze
transactions and record them in a general journal. For example you might have been
asked to prepare a journal entry for the rental payment for office space for the next 6
months. You learned to debit an asset (prepaid rent) and to credit another asset (cash).
Prepaid Rent
Cash
4800.00
4800.00
If you were the accountant for this company, what would cause you to make the entry?
Do you constantly monitor all of the company’s employees to see if they might be
engaging in transactions? Obviously, not!
The answer to this question is that you will have an invoice or a statement from your
landlord. As you make payment on the invoice, you will record the payment.
This gives a clue regarding the subject matter of this course. This course is about the
processes we go through in recording information in our accounting records. An
accounting information system is, therefore, a set of processes we employ to enter
accounting information into our records and the means by which we record, store, and
summarize that information.
If we focus on a computerized system, a clerk might enter information from invoices, a
computer might store this information in a disk file, and various computer programs
might be written to summarize and use this information or print reports.
• Why do we care about accounting information systems?
Another way of asking this question is: what do we wish to accomplish with our system?
There are several related answers to this question, including the following:
1. Make certain that the transaction information that is recorded fully and correctly
reflects the transactions which have occurred.
2. Provide some protection against theft and fraudulent financial statements.
3. Provide managers with the type of information that they require to make decisions.
To make certain that our records reflect reality, we must standardize the way we
do things. If we sometimes wait until Friday to record cash receipts and we
sometimes record them as they are received, then we run the risk of either not
recording a given cash receipt (thinking that we recorded it when we received it when in fact we did not) or recording it twice (thinking that we did not record it
when it was received - when in fact we did). For a particular company it may be
better to record all cash receipts as they are received or it may be better to record
them all at the end of the day.
To provide protection against theft, we will want to be able to assign
responsibility for our assets and record-keeping to particular individuals. If cash
turns up short at a cash register at the end of the day, we want to be able to trace
the problem to a particular individual. This is why each cashier at the grocery
store has his or her own cash register tray.
The choice of a computerized accounting system or a manual accounting system
(hand recording of information in a general journal) may depend on how the
owners or managers of the company plan to use the information (as well as the
number of transactions which must be recorded and stored). As an example of
decision-driven technology, consider the monthly statement for a credit card.
This statement would include a line-item for each purchase transaction, but would
not include each item purchased as a separate line-item. You would just have a
single entry for a purchase from a given store on a given date. This is because the
store gives you an itemized receipt, so storage of this information by the creditcard company would be redundant. Conversely, you must have a detailed
summary with a specific line-item for each transaction in order to reconcile your
receipts to your statement. So a single line-item summarizing all purchase
transactions would not be sufficient.
The first two items are termed control characteristics of the system. How does the
system (the way you process information) influence the likelihood that your information
is correct and does it provide some checks against theft? The third item relates to the
efficiency of the information system at providing useful information for management
decisions.
We will focus, in this course, on the control characteristics of the system. Specifically,
we will want our system to provide some assurance of the following issues:
1. 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.
2. All transactions which were recorded actually occurred. We want to make sure that
transactions did not accidentally get recorded twice and that no fraudulent
transactions were recorded.
3. All transactions which occurred and which were recorded were properly authorized.
Suppose the mailroom clerk sold the company truck for $25.00 to his best friend!
4. All recorded transactions are recorded and transcribed accurately. We want to make
sure (first of all) that everything got entered correctly! The double-entry system of
bookkeeping helps with this.
We will refer to these control objectives of the system as Input completeness (#1), input
validity (#2 and #3), and input accuracy (#4). We will also be concerned with some other
“accuracy” and “completeness” issues related to updating the general ledger, but we will
worry about this later. These control issues will be discussed in the last segment of the
course.
• 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 our you will
go out of business. Similarly, you can’t afford to buy inventory without selling it on a
continuous basis. This can be seen in the figure below:
cash
decreases
cash
increases
Cash
Receipt
Sale
Payment
of A/P
Increase A/R
Decrease Invty
Invty increases
Purchase
Inventory
Billing/Acct. Receivable
Cash Receipts
Cycle
Purchase/Acct.Payable/
Cash Disbursements
Cycle
These cycles are important because we can use our knowledge about the relationships
between sales, accounts receivable, and cash receipts (inventory, purchases, accounts
payable, and cash disbursements) to decrease the possibility of errors and theft. As an
example, consider a situation in which a customer calls and says that he received an
invoice from your company and that he never purchased anything. You should be able to
trace the invoice (the bill) back to a sales transaction and a contract to purchase.
This brings up an interesting question: how could we trace an invoice back to a contract
to purchase? The answer to this question is what this course is all about.
The primary way we make sure that our system achieves the control objectives we
outlined above is by establishing documentation procedures that tie recorded transactions
to existing transactions.
• The importance of transaction documents
Consider the following simplified scenario: When we receive an invoice in the mail for
goods purchased from one of our vendors, we will want to make certain that the invoice
reflects the correct amounts (the amounts we agreed to pay when we placed the order)
and that we actually received the goods in good condition. To achieve all of these
objectives, we will reconcile several documents.
1. When we received the goods, the receiving clerk prepared a receiving report. The
receiving report will detail what we actually received (in good condition).
2. The receiving clerk will then reconcile the receiving report with the Purchase Order
to make certain that what we received was what we ordered.
3. The accounts payable clerk (which is who will receive the invoice) will then reconcile
the invoice to the receiving report and purchase order to make certain that we are
paying the correct amounts for goods received in good condition which we did order.
Note that by performing these reconciliations, we achieve objectives 2, 3 and part of 4
above. We make sure that the recorded transaction actually occurs and that it is properly
authorized - and that the correct amounts get recorded. There are other “things” we do
which will achieve objectives 1 and 4 more completely, but we will talk about them later.
This is a primary reason why documents are used in the processing of transactions.
• Business transactions
Businesses engage in many types of transactions. They sell their product or their
service, they purchase inventory or equipment, they pay their employees they pay
vendors they process accounts receivable transactions, and make major investments in
plant and equipment. All businesses, however, must have some type of revenue
generating transaction and must incur some expenses related to that revenue generation.
The simplest types of business transactions are sales to customers and purchases from
vendors. Businesses exchange their inventory for cash or for a promise to pay (an
account receivable) from the customer. They also purchase replacement inventory from
vendors with a promise to pay for the goods (an account payable). In addition, they
receive money from account receivables and pay money on account payables. We will
focus on these four types of transactions in describing our comprehensive system.
Our primary system input for recording business transactions will be the document.
The reason for this is that we can always trace back from a “journal entry” to a piece of
paper (which we call a document) which tells the details of the transaction. Why is this
important? There are two reasons. The first reason that it is important to have a
document is that it provides us with a tool to make data entry (recording of journal
entries) more accurate and dependable. In addition, though, it gives us a means of
checking back to see if transactions are recorded correctly.
The documents will be processed and reviewed by several people. In addition, the
documents will serve different purposes at different points of the processing. For
example, a Sales Order is a document which a company prepares to tell the account’s
receivable department the details of a proposed sale. The account’s receivable
department will then determine whether the customer should be allowed credit for the
transaction. If credit is allowed, accounts receivable will use the sales order to prepare an
invoice. The warehouse clerk will use the sales order to pick the goods and prepare them
for shipment. The shipping clerk will use the sales order to prepare a packing slip which
will be included with the goods.
The reason several people are involved in the processing of a given document is that a
single individual is more likely to make undetected mistakes (or perhaps commit fraud
without detection) if there are no checks and balances on their work. For example, if the
sales manager prepared the sales order and used that to prepare the invoice, then any
errors in the sales order would also find their way to the invoice. In addition, the account
receivable would never get recorded and the customer might not be a good credit risk.
Now we turn our attention to a specific system: the recording of sales transactions and
cash receipts. We will discuss the people that are involved with processing transactions,
the documents that are processed within the system, and what the processes are. In
addition, we will discuss why we do what we do in processing the transactions. You can
think of our description sort of like a play. We will describe the cast and what they do.
The documents serve as “stage props.”
• Newport Company - a simple example of a comprehensive
system
Now we will go through a model system for Newport Company. Newport Company is a
wholesaler of life vests.
Before we begin, I want to introduce three types of records which Newport Company
keeps:
• General Ledger
The General Ledger refers to the file or book in which the transactions and
balances for all accounts are maintained. Transactions and balances are grouped
by accounts - and within each account, by date.
•
General Journal
Also referred to as the book of original entry, the General Journal is where
transactions of all types are recorded. A transaction in the General Journal will
reflect changes in (at least) two General Ledger accounts. These affects will be
transcribed into the General Ledger.
•
Subsidiary Ledger
The Subsidiary Ledger details transactions for a specific vendor or customer. The
details in this ledger (kept in the local department) should reconcile with the
General Ledger.
These databases may be books (paper) or computerized files.1 For the purpose of our
discussion, we will assume that they are paper. Now we shall discuss the processes (the
system) for recording sales transactions on account (receivable).
•
Processes for recording sales
Customer companies send Purchase Orders to Newport. This PO is forwarded to the
Sales Clerk for processing. The sales clerk will then prepare a Sales Order header. A
Sales Order header is a Sales Order which has not been approved or filled.2 You can
think of it as a “proposed sale.” The Sales Order header contains the customer
identification information, the items which will be sold and their prices. It is important to
note, though, that the sale is not approved. The sales clerk does not have that authority that is the domain of the accounts receivable department.
The Accounts Receivable Clerk will approve the sale and indicate that the sale is
approved by signing (or initialing) the Sales Order. This Sales Order will be used to
prepare a Packing Slip and an Invoice. The purpose of the Sales Order is for internal use
of approval and filling the order; the purpose of the Packing Slip is to serve as a receipt to
the customer - so that the customer can check the goods against the Packing Slip; the
Invoice will serve as a bill for the customer which will advise the customer of the amount
to pay.
The accounts receivable clerk then sends two copies of the Sales Order to the Shipping
clerk, one which has all of the numbers “blacked out.” This document will be the
Packing Slip. The numbers are blacked out so that people on the loading dock at
Newport and at Delta Marine will not know the value of the goods that they are handling.
The shipping clerk will fill the order, file a copy of the Packing Slip and will prepare
a Bill of Lading.3 The shipping clerk will pack a copy of the Packing Slip with the goods
and will give the Bill of Lading to the common carrier with the goods. The shipping clerk
will then send the other copy of the Packing Slip and the Bill of Lading to the accounts
receivable clerk to inform him that the goods had been shipped. The accounts receivable
clerk will update the Accounts Receivable Subsidiary Ledger. The accounts receivable
clerk will then complete the Invoice and send copies of the Invoice
to the customer and to the General Ledger Department. In the General Ledger
department, the Accounting clerk will prepare an entry in the General Journal. The
1
The term database is used because the data is stored in a structured way, whether in a ledger book or in a
computer file. For example, each transaction in the general journal will have a transaction number and a
date. Transactions are recorded chronologically. Each transaction has an amount and account titles which
are affected. We will discuss this in greater depth in block 3 of the course.
2
An order is filled when the goods have been prepared for shipping.
3
Frequently a Bill of Lading will just be a receipt filled out by the common carrier detailing the number of
packages and other shipping information. If you have ever shipped anything by UPS or Federal Express,
the receipt you get is a Bill of Lading.
accounts receivable clerk will file another copy of the Invoice in the Accounts Receivable
Master File.
The next section will discuss the processes for recording cash receipts from accounts
receivable.
•
Processes for cash receipts
Assume we have received a Check and Remittance Advice from the customer. The
mailroom clerk will annotate the Checks and Remittance Advices. On each Check, (s)he
will write the Remittance Advice (Invoice) number. That way, if the Check is returned
from the bank unpaid, the accounts receivable clerk can find the Invoice and contact the
customer. On each Remittance Advice, the mailroom clerk will write the Check number.
That way, if Newport needs to contact the customer about their account, they can tell the
customer the Check number. It also helps the cashier when (s)he reconciles the
Remittance Advices to the Checks. Usually Checks are batched together and Remittance
Advices are batched together and the batches correspond. In other words, every
Remittance Advice in the batch of Remittance Advices corresponds to a single Check in
the batch of Checks.
The accounts receivable clerk will use the annotated Remittance Advice to record the
payment in the customer’s Accounts Receivable Subsidiary Ledger. The accounts
receivable clerk will also prepare a Deposit Slip from the batch of Remittance Advices.
The Deposit Slip will then be forwarded to the cashier. A notification of the total of cash
receipts will be sent from the accounts receivable clerk to the General Ledger office.
The cashier will reconcile the batch of Checks to the Deposit Slip (which was created
from the batch of Remittance Advices). This guarantees that the amount recorded as a
credit to Accounts Receivable is the same as the amount recorded as a debit to Cash. The
cashier then takes the deposit to the bank and forwards a copy of the bank’s Deposit
Receipt to the General Ledger office.
In the General Ledger office, the Accounting clerk will reconcile the total of cash
receipts (which could be a listing of customer accounts paid - or just a notification of the
amount) to the bank’s Deposit Receipt and prepare an entry in the General Journal.
The next section will begin our discussion of the purchase cycle for Newport. We
present this in two parts, too. First we will discuss the processing of purchase
transactions; then we will discuss the processing of accounts payable.
• Processes for recording purchases
The processes for recording purchases can be broken down into four events: (1)
ordering, (2) receiving, (3) recording of an account payable and approval of the payable,
and (4) payment of the account payable.
• Ordering
The inventory manager (or some other requisitioning entity) sends a Purchase
Requisition to the purchasing manager. An example of a Purchase Requisition appears
on page 18. The purchasing manager approves the requisition, determines which vendor
would be best, and prepares a Purchase Order. The Purchase Order is sent to the
vendor.
At some point the vendor sends a Vendor Acknowledgement to Newport and this is
forwarded to the purchasing manager. Note that this Vendor Acknowledgement
designates a sales order number. This number provides a means of communication
between the two companies. Suppose Newport wanted to find out the status of Purchase
Order number 2215. If they called Catalina and asked about the status of their order,
Catalina would ask for the sales order number - because their files are structured by sales
order number. The purchasing manager would write down this sales order number on the
Purchase Order in the Purchase Order Master File. Then, if he wanted to know
something about the order, he could pull the Purchase Order and find the sales order
number.
• Receiving
The receiving processes are initiated by the receipt of goods on the loading dock
(usually by a common carrier - like Yellow Freight or UPS). The receiving personnel
have a copy of the Purchase Order. Included with the shipment of goods is a copy of the
Packing Slip, too. The receiving personnel will inspect and count the goods and will also
compare the Packing Slip and the Purchase Order. From this inspection, they will
prepare a Receiving Report. The Receiving Report details what was received and the
condition. The process of preparing a Receiving Report is important because the
receiving personnel are acknowledging the receipt in good condition.
• Establishing an account payable
The next event to occur will be the establishing of an account payable. Once the
accounts payable department has received an Invoice from the vendor and a Receiving
Report from the receiving department, the accounts payable clerk will reconcile these two
documents and reconcile them to the copy of the Purchase Order and approve the Invoice
for payment. Note that we know from the reconciliation that (1) the goods arrived in
good condition, (2) they were the goods that we ordered, and (3) the price is the same
price which was approved by the purchase manager.
The account payable clerk will approve the invoice and place the invoice in the
Accounts Payable Master File. This file is described below:
•
Accounts Payable Master File
The Accounts Payable Master File is a tickler file which includes all of the
invoices which have been approved for payment, sorted by the date due. The file
is called a tickler file because the cashier (who will make the payments) will
finger through the invoices (each day or once a week) seeing which invoices are
due. The motion of fingering through the files looks sort of like “tickling” the
invoices.
• Payment of accounts payable
Our final event in the purchasing cycle involves the payment of accounts payable.
Since approval for payment must come from the accounts payable department, we can be
sure that every payment reflects a real account payable. The cashier goes through the
Accounts Payable Master File and finds which invoices need to be paid and then makes
the payment. In the description for each check, the cashier should note the original PO
number.
Now we have examples of the following documents:
•
Purchase Order (from a customer)
•
Invoice (Sales Order would be a less complete version of the same document)
•
Packing Slip
•
Purchase requisition
•
Vendor acknowledgement
PURCHAS
ORDE
Delta Marine
414 Willow Ave
Eugene, OR 97401
(503)689-5511
The following number must appear on all related correspondence, shipping papers, and
invoices:
P.O. NUMBER: 1416
To:
Ship To:
Newport Company
198 Louwer Ave
Portland, OR 97221
(503)313-2111
Delta Marine
414 Willow Ave
Eugene, OR
(503)689-5511
P.O. DATE
REQUISITIONER
SHIP VIA
F.O.B. POINT
TERMS
9/18/95
Handel
UPS ground
Destination
2/10, n/30
QTY
14
UNIT
units
DESCRIPTION
UNIT PRICE
Safety cushion
$ 13.83
TOTAL
$ 193.62
$ 0.00
$ 0.00
$ 0.00
$ 0.00
$ 0.00
$ 0.00
SUBTOTAL
$ 193.6
SALES TAX
$ 0.0
SHIPPING & HANDLING
$ 0.0
OTHER
$ 0.0
TOTAL
$ 193.6
1. Please send two copies of your invoice.
2. Enter this order in accordance with the prices, terms, delivery method, and
specifications listed above.
3. Please notify us immediately if you are unable to ship as specified.
4. Send all correspondence to:
J. F. Handel
Delta Marine
414 Willow Ave
Eugene, OR 97401
503-689-5511 ; Fax (503)689-1115
Authorized by
Date
Charge Sale Invoice
Sold To:
198 Louwer Ave.
Portland, OR 97221
(503) 313-2111
Invoice No. 731
Date
9/30
Prepared by
JRS
Terms
2/10, n/30
Delta Marine
414 Willow Ave
Eugene, OR 97401
Cust. PO
Date
Signed by
Quantity
Ordered
14
Important:
Product
Number
1416
9/18
Handel
Ship. Date
Shipped VIA
BOL No.
Description
10/5
UPS
1983
Quantity
Shipped
A1513 Safety cushion
All returns must be made within 10 days and accompanied by an invoice copy and
packed in the original carton
(copy 1 - customer copy)
14
Unit
Price
Extensio
n
13.83
193.62
Total Sale
Acct No.
193.62
D1100
Verified by
JH
Charge Sale Invoice
Sold To:
198 Louwer Ave.
Portland, OR 97221
(503) 313-2111
Invoice No. 731
Date
9/30
Prepared by
JRS
Terms
2/10, n/30
Delta Marine
414 Willow Ave
Eugene, OR 97401
Cust. PO
Date
Signed by
Quantity
Ordered
14
Product
Number
1416
9/18
Handel
Description
A1513 Safety cushion
Ship. Date
Shipped VIA
BOL No.
10/5
UPS
1983
Quantity
Shipped
14
Unit
Price
Extensio
n
13.83
193.62
Total Sale
Acct No.
Important:
All returns must be made within 10 days and accompanied by an invoice copy and
packed in the original carton
(copy 4 - packing slip)
Verified by
193.62
D1100
JH
CONTROL
BUSINESS FORMS
Newport company
198 Louwer Ave
Portland, OR 97221
(503)313-2111
PURCHASE
REQUISITION
Date
For Dept.
Date Required
For Resale
NEWPORT PART NO.ITEM
RCSV-Cat
RCMV-Cat
RCLV-Cat
BSV-Cat
BMV-Cat
BLV-Cat
BXV-Cat
INDEPENENCE, MISSOURI
Not For Resale
1
2
3
4
5
A
C
C
T
N
O
NO. 14200
J
O
B
N
O
QUANTITY U / M DESCRIPTION
100
100
100
100
160
160
40
DELIVER TO
REQUESTED BY
AUTHORIZED BY
APPROVED BY
SPACES BELOW FOR USE OF PURCHASING DEPARTMENT
ORDER FROM
BUYER
SPECIAL INSTRUCTIONS
UNIT PRICE
Red children's vest - small
Red children's vest - small
Red children's vest - small
Blue vest - small
Blue vest - medium
Blue vest - large
Blue vest - Xlarge
PO NO
ORDER DATE
FOB
VIA
TERMS
DELIV. DATE
14.95
14.95
15.45
16.50
17.50
17.50
19.45
JRS
C
Vendor Acknowledgement
atalina Vests
to:
1516 Oceanside Drive
Riverview, CA 92110
(619)321-1144
Newport Company
198 Louwer Ave.
Portland, OR 97221
This is to acknowledge that your purchase order, Number
2215
___________
, has been received, accepted without
9/26/95
modification and should be shipped on __________
.
If you have any questions about your order, please call
Aaron Jacobs at (619)321-1162. Refer to sales order
number
9822333
We appreciate your business
A523
Accounting Information
Systems
September 25, 2011
A523 - Reed Smith
1
What we will do today
•
•
•
•
Introduce the course and ourselves
Go over the syllabus
Digress into a discussion of IUPUI and You
Have a brief introduction into
accounting information systems
A523 - Reed Smith
2
What is a system?
• Name some examples of systems…
• What do these examples have in common?
A523 - Reed Smith
3
1
Then, what is an information
Storage
system?
Data about
the business or
an event
Processing
Retrieval
Decision
making
A523 - Reed Smith
4
What are we going to study in
this course?
• Documentation - how to describe a system
and its characteristics.
• Control - How do we design accounting
systems to minimize the likelihood of
errors and/or fraud
• Databases - How do we use data? How
does the system handle the data? How are
databases structured?
A523 - Reed Smith
5
What are we going to do this
term?
• Learn how to diagram a system (DFDs and
flowcharts)
• Learn about control issues important to
accountants
• Learn about how accounting “works”
(particularly in today’s technological
environment)
• Learn about database structures (with
attention to accounting issues)
A523 - Reed Smith
6
2
Syllabus
Profess o r :
Reed Smith
Class times:
Thursday
Office:
BUS 402 6
Office Hours :
Wednesday and Thursday
Phone:
274-0867
e-mail:
jrsmith2@iupui.edu
Web:
bus.iupui.edu/johresmi/index.htm l
6:00 – 8:40 PM
4:30 – 5:30 PM
A523 - Reed Smith
7
Syllabus - materials
• Class notes
– Will be available on the web
– NEED TO BRING SOME WITH YOU TO
CLASS
• Perry-Schneider text
• Systems Understanding Aid
A523 - Reed Smith
8
Syllabus - the way things work
• Regular updates/modifications to they
syllabus will be on ONCOURSE
– YOU ARE RESPONSIBLE FOR THESE
A523 - Reed Smith
9
3
Syllabus
Exam 1
300 pts
Exam 2
300 pts
Systems Understanding Aid
300 pts
Project 1
50 pts
Project 2
50 pts
Total
1000 pts
A523 - Reed Smith
10
Exams
• Exam 1
– Diagramming accounting systems
• Exam 2
– Database management issues
– Control issues and fraud
A523 - Reed Smith
11
Projects
• Project 1
– Perry/Schneider text (details to come)
• Project 2
– Microsoft Excel - pretty easy
A523 - Reed Smith
12
4
Systems Understanding Aid
• Available at the bookstore
• DON’T buy a used one.
– They are always missing things.
• Due date and further information will be
forthcoming
A523 - Reed Smith
13
Attendance/Participation
• Attendance in class is highly
recommended!
– You are responsible for information
discussed in class
• Attendance for VIDEO presentations.
A523 - Reed Smith
14
A little about me…
Reed Smith
Accounting
(BS, MAcc Tennessee)
(PhD, Ohio State)
(Faculty: Texas, Oregon,
SUNY-Buffalo, Indiana University)
e-mail: jrsmith2@iupui.edu
I
I
I
I
am a big college football enthusiast.
also like to sail and swim.
play Zimbabwean music on Marimba and Mbira.
used to play guitar, but don’t find much time to do that any more.
A523 - Reed Smith
15
5
So I don’t forget
• Next week, we will be working on
documenting accounting systems.
• Bring five or so colored pencils or
highlighters to class.
• Also print out and bring the notes for
these classes.
A523 - Reed Smith
16
6
System Descriptions
What we will do today…
• Today, we will describe the billing and cash
receipts systems of a simple company
• 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.
The Players
Sales Transactions
Sales manager
Accounts Receivable clerk
Shipping Clerk
Mailroom clerk
Cashier
General Ledger Clerk
Sales and
Billing
Process
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 Rec:
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.
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 Rec:
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.
Sales
(recording the sale in the
General Journal)
•G/L department (accounting)
Record the invoice from Accounts Receivable.
SALES
Sales clerks receives a PO
Prepares Sales Order Header
Forwards to Accounts
Receivable for approval
Prepare
S/O
Accounts Receivable
A/R
Checks the A/R subsidiary
ledger
Approves the transaction and
annotates the SO header making
it a Sales Order
Returns Sales Order to sales
clerk.
Ap
Send copies to shipping (one is
Packing Slip)
v ed
p ro
Shipping
A
r
pp
ov
ed
SALES
Sales
Prepare vendor acknowledgement
Send to customer
Prepare
V/A
Customer
SHIPPING
A
ove
ppr
d
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.
Invoice
Customer
A/R w/
BOL
Invoice
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.
Invoice
Invoice
Customer
G/L
G/L
Invoice
Record the invoice from
Accounts Receivable.
Accts. Rec
Sales
XXX
XXX