1.

Data Flow Diagram of Sales Order Procedure

Customer

Customer Order

Check
Credit

Credit Record

SO4
Approved Sales Order
Update AR

Receive
Order
Bill of
Lading &
Packing Slip

SO3

Sales Journal
Invoice 2
SO2

Bill
Customer
Pick Goods

Shipping Notice

Stock Release File

Invoice 1

AR Subsidiary Ledger

Post to
General
Ledger

General Ledger Records

1.2

Data Flow Diagram of Cash Receipts Procedure

Customer

Check & Remittance Advice

AR Subsidiary Ledger

Update AR
Records

Separate
Document
s

Remittance Advice

Update
General
Ledger

Check

Record and
Deposit
Check

Check and Deposit Slip

Cash Receipts Journal

Bank

2.1 System Flowchart of Sales Order Procedure

Sales

Credit

Customer
Order

Customer

Enter Sales
Order

Billing
A

SO2

SO3

Credit Check

Shipping
Notice
Reconcile

Credit Records
Approved
SO 1

File

Reconcile

SO 2
File

Approved
SO 2
Approved
SO 3

Bill of
Lading

Invoice 1

File

Customer

Customer
Customer

Packing
Slip

Invoice 2

Approved
SO 4

SO3

2.1 Continued
Accounts Receivable
C

Invoice 2

Update
AR
Subsidiary
Ledger

File

Terminal

Update
General Ledger

2.2 System Flowchart of Cash Receipts Procedure

Mail Room

Accounts Receivable

Cash Receipts

Remittance
Advice

Customer

Check
Adjust
AR

Remittance
Advice

Update
General
Ledger

Separate
Documents

Remittance
Advice

Remittance
Advice

Check
File
A

Terminal

Update
Cash
Receipts
Journal

Terminal

Update
General
Ledger
Deposit
Slip

Bank

3. Control Weaknesses:
3.1 Transaction Authorization
The system of the credit policy of Premier Sports Memorabilia didnt consider return
policy. The company should have rules for granting cash refunds and credits to customers
based on the materiality of the transactions. In addition, the company doesnt have cash prelist
to verify whether customer checks and remittance advices match in amount.
3.2 Segregation of Duties
Tasks that would need to be segregated in manual systems are often consolidated
within computer programs. In such situations, management and auditor concerns are focused
on the integrity of the computer programs that perform these tasks. Furthermore, the
programmer of the system should not be the one to use such systems.
3.3 Supervision
It is difficult to supervise the system of the company since they lack records such as
open order file for records of the dates when the customer orders have been received and
approved, stock records to identify stock outs and others records relevant for proper
supervision of the transaction controls.
3.4 Accounting Records
The company lacks some records or lags which could possibly result in difficulty in
tracing some transactions for verification. In addition, the posting to the general ledgers are
systems generated transactions which should also be independently verified since the updates
are only in total amounts.
3.5 Access Controls
The system havent mentioned of proper authorization on access to different
departments or users of the information. The system should have identification codes to access
some information to secure information reliability. Without physical source documents for
backup, the destruction of computer files can leave a firm with inadequate accounting records.
To preserve the integrity of accounting records, Sarbanes-Oxley legislation requires
organization management to implement controls that restrict unauthorized access. Also at risk
are the computer programs that make programmed decisions, manipulate accounting records,
and permit access to assets.
3.6 Independent Verification
Some transaction lacks independent verification such as verifying the inventory counts
to secure the orders of the customers. The company should check whether there are enough
inventory counts in the warehouse before accepting the order or they should have their own
controls to prevent stock outs. In addition, verification on the proper account to be updated on
the cash receipts should also be checked so that proper receipts are deducted to the right
customers to maintain integrity of the company.

4. Transaction Process
The process starts on the receipt of a customer order indicating the kind and quantity of
merchandise desired. The next process is to transcribe the customer order into a sales order.
After creating the sales order, a copy of it is placed in the customer open order file for future
reference. The record of the customer in the open order file is restructured every time the
status of the order alters such as approval of the credit, on back-order, and shipment.
On the other hand, the customers creditworthiness needs to be recognized before processing
the order further.
The receive order activity sends the stock release to the pick goods function, in the
warehouse. This document classifies the stocks that must be located and picked from the
warehouse shelves. It also serves as an authorization for warehouse clerks to release the
specified items. After picking the stock, the order is verified for accuracy and the goods and
verified stock release document are sent to the ship goods task. If inventory levels are deficient
to fill the order, a warehouse clerk amends the verified stock release to reflect the amount that
will actually go to the customer. Finally, the warehouse clerk adjusts the stock records to reflect
the reduction in inventory.
Before the arrival of the goods and the verified stock release document, the shipping
department receives the packing slip and shipping notice from the receive order function. The
packing slip will ultimately travel with the goods to the customer to describe the contents of
the order. The shipping notice will later be forwarded to the billing function as evidence that
the customers order was filled and shipped.
Upon receiving the goods from the warehouse, the shipping clerk reconciles the physical
items with the stock release, the packing slip, and the shipping notice to verify that the order is
correct. The shipping clerk packages the goods, attaches the packing slip, completes the
shipping notice, and prepares a bill of lading. Once the goods are transferred to the carrier, the
shipping clerk records the shipment in the shipping log, forwards the shipping notice and the
stock release to the bill-customer function as proof of shipment, and updates the customers
open order file.
The billing function awaits notification from shipping before it bills. Upon credit
approval, the bill-customer function receives the sales order (invoice copy) from the receive
order task. This document is placed in an S.O. pending file until receipt of the shipping notice,
which describes the products that were actually shipped to the customer. Upon arrival, the
items shipped are reconciled with those ordered and unit prices, taxes, and freight charges are
added to the invoice copy of the sales order. The completed sales invoice is the customers bill,
which formally depicts the charges to the customer.
The inventory control function updates inventory subsidiary ledger accounts from
information contained in the stock release document. Customer records in the accounts
receivable (AR) subsidiary ledger are updated from information the sales order (ledger copy)
provides. Periodically, the individual account balances are summarized in a report that is sent to
the general ledger.
The general ledger function has received journal vouchers from the billing and inventory
control tasks and an account summary from the AR function. The AR summary figures should
equal the total debits to AR reflected in the journal vouchers for the transaction period. By
reconciling these figures, the general ledger function can detect many types of errors. We
examine this point more fully in a later section dealing with revenue cycle controls.