Question

At Kornsen Industries, the revenue processes are conducted by five employees. The five employees are the sales clerk, warehouse clerk, accountant 1, accountant 2, and the collection clerk. A description of their duties is as follows:

a. The sales clerk receives customer orders by phone. She prepares a fourcopy sales order form. She files one copy, one copy goes to the warehouse clerk, one copy goes to accountant 1, and one copy is mailed to the customer.

b. After receiving a sales order, the warehouse clerk prepares a packing slip, takes the proper items from the warehouse, and ships them with the packing slip enclosed. The sales order is stamped with the ship date, and the shipping log is updated. The sales order is filed by customer number.

c. After receiving the sales order from the sales clerk, accountant 1 reviews the customer records and either approves or disapproves customer credit. If he approves the customer’s credit, he stamps the sales order “approved” and forwards it to accountant 2. Accountant 1 prepares a three-copy invoice. One copy is mailed to the customer, one copy is forwarded to accountant 2, and one copy goes to the collection clerk.

d. Accountant 2 matches the approved sales order to the invoice and files these by customer number.

e. After receiving a copy of the invoice, the collection clerk posts the sale to the sales journal and the accounts receivable subsidiary ledger. Daily totals from the sales journal are sent to accountant 1, and she posts these sales summaries to the general ledger.

f. A mail clerk forwards customer checks to the collection clerk. The collection clerk stamps the check “For Deposit Only” and records it in the accounts receivable subsidiary ledger. The check is also recorded in the cash receipts journal by the collection clerk. The collection clerk deposits checks in the bank account weekly. A weekly summary of cash receipts is forwarded to accountant 2, and she records these summaries in the general ledger.

Required:

a. Draw two process maps to reflect the sales processes and collection processes at Kornsen. The student website has a document flowchart in an Excel file for your reference.

b. Describe any weaknesses in these processes or internal controls. As you identify weaknesses, also describe your suggested improvement.

c. Draw two new process maps that include your suggested improvements. One process map should depict the sales processes, and the second process map should depict the cash collection processes.

Answer 1

1) Current sales process

2) Gaps identified

- Is there any customer master? When is the customer master record created?

- Order is getting confirmed on call and not on mail

- what about packing the items before shipping? loading of items & shipping checklist?

- no defined credit policy in place

- invoiice created immediately after receiving SO from sales clerk, not verified with warehouse clerk whether item is available? shipment made or not

- What happens if invoice is not approved?

- No verification performed with the actual items dispatched. possibility of more items being dispatched as no one is verifying the actual dispatch with the shipping log and SO

- No verification individual entries passed by collection clerk

- sales entry passed on invoice generation and not on transfer of risk and reward

- collection via cheque is recorded as cash receipts

to be process