Is a Cleveland based retailer for home necessities such as fireplaces, wood paneling, etc.

Masterpiece Mantels has a warehouse where customers can view readily available product, and custom orders needing customer specification is also available.

We are observing the interview between the director of accounting and the auditor. The auditors job is to gain an understanding of the sales order and cash receipts processes.

Make a flow chart of the process of the sales order and cash receipts processes. Identify weaknesses in the process and suggest internal control activities that can be added to the process in order to mitigate the risk of fraud and misstated financial statements.

How do orders come in from the customers?

• Are customers can place orders from an online form over the website, over the phone, or sometimes not very often but in person at the warehouse. Regardless of how the orders come in the clerks in the sales department receive that data and enter it in the computer terminal and that creates a customer order. A digital copy of that customer order then gets sent to the warehouse and the shipping department via those computer terminals.

Does the salesclerk keep a copy of that order?

• Yes, the salesclerk has to print a copy of the customers order and they file it in their department.

So now the customer order:

What is the warehouse doing once the mutual order pops up in their warehouse system?

• The managers in the warehouse get a notification once that digital customer order is in their system. The manager in the warehouse will print two copies of it. One is to be used as a stock release so that the warehouse clerk can pick the goods and the other copy is used as a shipping notice.

Does the manager of the warehouse check that the right goods were picked?

• Yes, that is done right before the goods and the stock release as well as the shipping notice gets sent to the shipping department. So, the manager in the warehouse is checking those goods first. The warehouse manager also accesses the accounting system through the warehouse computer terminal to update the inventory subledger and the general ledger.

Then the goods and the documents are in the shipping department correct?

• Yes, the clerk in the shipping department will match the goods, the stock release, and the shipping notice to the digital copy of the customer order that shows up at their computer terminal. In that shipping department terminal, the clerk will match everything up and then digitally approves the printing of the bill of lading and the packing slip.

Is it just one copy of each of those that gets printed?

• Well for the packing slip yes, just one copy. For the bill of lading, we print one copy to keep in the shipping department and one other copy is sent with the packing slip and the goods themselves to the trucking company so that they can deliver the products to the customer.

So, the shipping department keeps a file of the bill of lading, but what about the stock release and the shipping notice they receive?

• The stock release and the shipping notice those two documents get sent to Accounts Receivable. The clerk in accounts receivable will then create a digital invoice and compare that to the shipping notice and the stock release and when they match, theyll email the digital invoice to the customer. So, after emailing the customer the clerk is able to update the digital accounts receivable subledger and the sales journal as well as the general ledger from their computer terminal. The digital invoice also gets sent to cash receipts.

And then what happens to those hard copy documents the shipping notice and the stock release?

• They are filed right there in the Accounts Receivable department and that pretty much closes out the sales part of the process.

With the update to the accounting records thats pretty much it. So now you typically receive payments from customers in a timely way How does that happen?

• We receive all customer payments through electronic fund transfers to our bank account. It makes the cash receipts process more streamlined. No payments are physically received in the office when the customer initiates payment through the website which is automatically linked to the bank accounts. The customer can enter credit card information or checking account information directly on the website. Once the customer confirms that payment the data gets sent directly to our bank and we receive notification via email in our cash receipts department. Then the clerk in that cash receipts department reconciles the payment confirmation email that they got from the bank with the digital invoice. If there is no errors, theyll make an entry in the accounting system to update the cash receipts journal.

What about AR? How is that closed?

• The cash receipts clerk updates the cash receipts journal, and they will also update the accounts receivable subledger and the general ledger.

Is there any final check to see if the cash has been deposited into the account?

• Yes, at the end of the day our treasurer accesses the online banking system. They check to make sure that the cash was deposited and that it matches what was entered in the cash receipts journal. But for the cash receipts journal the treasurer only has viewing access in the system they cant make any entries in the cash receipts journal.