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CASE 6: Revenue Cycle copy of the invoice serves as a billing copy,

and shipping inserts it into a special envelope


on the package in order to save postage. The
O'Brien Corporation is a medium-sized, carrier of the customer's choice is then
privately owned industrial instrument contacted to pick up the goods. In the past,
manufacturer supplying precision equipment goods were shipped within two working days
manufacturers in the Midwest. The corporation of the receipt of the customer's order; however,
is 10 years old and operates a centralized shippin g dates now average six working days
accounting and information system. The after receipt of the order. One reason is that
administrative offices are located in a there are two new shipping clerks who are still
downtown St. Louis building; the production, undergoing training. Because the two
shipping, and receiving departments are housed shipping clerks have fallen behind, the two
in a downtown St. Louis building; the produc- clerks- in the receiving department, who are
tion, shipping, and receiving departments are experienced, have been assisting the shipping
housed in a renovated warehouses few blocks clerks.
away. The shipping and receiving areas share
one end of the warehouse. The receiving department is adjacent to the
shipping dock, and merchandise is received
O'Brien Corporation has grown rapidly. daily by many different carriers. The clerks
Sales have increased by 25 percent each year share the computer terminal with the shipping
for the last three years, and the firm is now department. The date, vendor, and number of
shipping approximately $80,000 of its items received are entered on receipt in order to
products each week, lames Fox, O'Brien's keep the perpetual inventory records current.
controller, purchased and installed a computer
last year to process the payroll and inventory. Hard copy of the changes in inventory
Fox plans to integrate the accounting (additions and shipments) is printed once a
information system fully within the next five month. The receiving supervisor makes sure the
years. additions are reasonable and forwards the
printout to the shipping supervisor, who is
The marketing department consists of four responsible for checking the reasonableness of
salespersons. On obtaining an order, usually the deductions from inventory (shipments). The
over the telephone, a salesperson manually inventory printout is stored in the shipping
prepares a prenumbered, two-part sales order. department by date. A complete inventory list
One copy of the order is filed by date, and the is printed only once a year, when the physical
second copy is sent to the shipping department. inventory is taken. The diagram on the next
All sales are on credit, F.O.B. destination. page represents the document flows employed
Because of the recent increase in sales, the four by O'Brien Corporation.
salespersons have not had time to check credit
histories. As a result, 15 percent of credit sales
are either late collections or uncollectible. Required
The shipping department receives the sales O'Brien Corporation's marketing, shipping,
orders and packages the goods from the billing, and receiving information systems
warehouse, noting any items that are out of have some weaknesses. For each weakness in
stock. The terminal in the shipping the systems
department is used to update the perpetual a. Identify the weakness and describe the
inventory records of each item as it is removed potential problem(s) it caused.
from the shelf. The packages are placed near
the loading dock door in alphabetical order by b. Recommend controls or changes in the
customer name. The sales order is signed by a systems to correct each weakness.
shipping clerk when the order is filled and c. Prepare a level-zero data-flow diagram of
ready to send. The sales order is forwarded to the marketing, shipping, and b illi n g
the billing department, where a two-part sales procedure. Treat the receiving department
invoice is prepared. The sales invoice is as external.
prepared only on receipt of the sales order from
the shipping department so that the customer (CMA adapted)
is billed just for the items that were sent, not for
back orders. B i ll in g sends the customer's copy
of the invoice back to shipping. The customer's