Part 4 Questions

Consider the following transactions from Big Markers accounting information system.

1. Accrued one months interest on an existing note payable, $300
2. Billed 30 communities for monthly dues of $600
3. Borrowed $10,000 from First National Bank within a 6-month, 4% note payable
4. Created a Chief Financial Officer position and established a support team for that function. The CFOs annual salary will be $150,000; each support team member will earn $60,000 annually.
5. Depreciated computer servers, $8,000
6. Hired a new employee for the Development Team. The new employees salary will be $45,000 annually.
7. Paid six months rent in advance, $12,000.
8. Purchased new computer servers from Dell, $40,000
9. Reimbursed employees for business expenses: Supplies, $500, Travel, $1,500.
10. Took an inventory of supplies on hand, which revealed $450 supplies used.

Questions:

1. Which business process is most closely associated with each transaction?
2. What is the appropriate journal entry (if an) to record the transaction in Big Markers AIS?
3. Which element of financial statements are represented in the journal entry?
4. What forms/documents would be used to process each transaction?
5. For each transaction, suggest at least two additional pieces of information you would want to capture in a relational database.
6. For each transaction, suggest two internal controls you would implement. Justify your response.

Here is an example:

Transaction: Big Marker purchased supplies on account, $100.

Business Process: Acquisition/payment

Journal entry: Debit Supplies $100, Credit Accounts payable $100.

Elements: Supplies is an asset; accounts payable, a liability.

Forms: Purchase requisition and purchase order.

Additional information: name of the primary contact person at the vendor, specific type and quantity of supplies purchased (e.g. 10 boxes of paper clips)

Internal Controls: transaction authorizations would ensure that only the Purchasing department can issue purchase orders. Sending a bling copy of the PO to the Receiving department would aid in the segregation of duties.

Company Description Big Marker was started in 2010 by Mr. Zhu-Song Mei. Zhu was inspired to start the com- pany by the need to communicate with his mother during a period of illness. The company was initially financed by a group of angel investors and Zhu-Song; over time, it has attracted additional investors. Big Marker is organized as a limited liability company, and has 11 employees. Its organizational structure is fairly flat, as shown in the organizational chart below: Zhu-Song Mei CEO Justin Brown COO Bill Gloff Support & Marketing Team Development Team Zhu-Song handles the financial recordkeeping using Quickbooks, and McGladrey (www .mcgladrey.com) does an annual compilation and review for Big Marker. Big Marker uses the standard service company chart of accounts built into Quickbooks for its transac- tion processing. (The chart of accounts is block coded.) Big Marker is organized into a collection of communities, which are based on com- mon interests/goals. Each community has at least one organizer; for example, my com- munity is called Bob Hurt Education Community. Additionally, one organizer can participate in/create multiple communities. Communities host meetings and webinars at the organizer's discretion; meetings are designed for collaboration, while webinars are typically structured as interactive presentations. As of early 2014, Big Marker had between 5,000 and 10,000 communities, and hosted 1,0002,000 meetings/webinars monthly Internal Controls Big Marker employs several internal controls to safeguard its assets, ensure reliable finan- cial report promote operatii efficiency and encourage compliance with management directives. Here are some controls Big Marker employs, presented in alphabetic order: 1. Asset tracking. If a Big Marker employee wants to remove an asset from the office temporarily, one of the C-suite officers must authorize it. Additionally, approved assets must be signed out with the building's security staff. (Big Marker is one office in a large office building.) Finally, all assets are logged in both QuickBooks and a locally maintained spreadsheet. 2. Cash handling. Big Marker employs several internal controls to help safeguard its cash. For example, the office handles no actual cash; everything, from cash collections to payroll, is handled electronically. Big Marker maintains two separate cash accounts: one for the payroll at Chase (www.chase.com) and one for the operating expenses at Bank of America (www.bankofamerica.com). 3. Employee expense reimbursements. Zhu-Song personally reviews all requests for employee expense reimbursements; common requests include office supplies, party supplies, laptop accessories, and travel and entertainment costs. Approved reimburse- ments are processed as part of the payroll with ADP; employees log into the system and enter the data. (See payroll processing" later in this list for details.) 4. Employee manual. All new hires get an employee manual. The manual lays out a few common sense, minimal policies, but the overall atmosphere at Big Marker is very friendly and casual. Employees are very passionate about the work they and the company do. 5. Information technology. Big Marker uses state of the art computer servers for its oper- ations. It uses both colocation and cloud computing for its servers. 6. Payroll processing. In addition to maintaining the dedicated payroll account at Chase, Big Marker promotes strong internal control over the payroll process by outsourcing it to ADP (www.adp.com). Individual employees log into ADP's system to submit their hours and other information; ADP processes the payroll on a monthly basis, and all Big Marker employees are required to have checks direct deposited in their bank accounts. No paper checks change hands for payroll. The company offers a standard benefits package, including health insurance. 7. Staff meetings. Big Marker holds weekly staff meetings to discuss issues and priorities facing the company. You'll find additional elements of internal control in Big Marker's terms of use at https:// www.bigmarker.com/terms. Business Processes In addition to the payroll process described above, common business processes at Big Marker include purchasing servers, starting communities, monitoring communities, and paying company bills (such as advertising and rent). When Big Marker wants to purchase a new server, employees first develop their require- ment specifications (e.g., processing speed, available memory). They use those specifica- tions to choose a server from a vendor such as Dell (www.dell.com). Big Marker orders the server online, and accepts delivery when the server is ready. When an organizer starts a new community, Big Marker sends an automatically gener- ated email with details about how to host events and related matters. Each community is assigned a community heroa Big Marker employee available to answer questions and guide the organizer in relevant tasks. All new communities receive a free 14-day trial of Big Marker, after which their credit card (submitted during the community creation pro- cess) is billed for a nominal monthly fee of $20. Big Marker then attempts to charge the credit card each month for the fee. If billing fails, Big Marker sends another automatically generated email stating that they will try to bill the credit card every three days for 15 days; if billing still fails, the community is suspended. Community organizers have the option of selling tickets to their events; if they do, Big Marker retains 10% of the total ticket revenue. Similarly, community organizers may charge community dues to members; Big Marker also retains 10% of that revenue. Big Marker also will attempt to find corporate sponsors for communities; a corporate sponsor would contribute funds to maintain and help run the community, and all those funds go directly to the community itself. Big Marker also monitors each community's activity. If a community hosts no events for two months, the organizer(s) receive an email offering assistance. Big Marker queries its database to determine which communities fall into that category. The average mem- ber of Big Marker belongs to three or four communities; communities have no upper limit as to membership. Similarly, each member may join as many communities as he/she wishes. Although each community has just one "community hero, the same community hero may serve in that capacity for multiple communities. All bill-paying activity at Big Marker happens electronically in one of the three ways: via the company's credit card, via automatic debit from the Bank of America operating account, or via electronic check from the Bank of America operating account