Accounts-AW524

Accounts-AW524 Online Services

 

Revenue Transaction Cycle

 
Sales are made to users of pool supplies. Pool supplies are displayed and orders for products are taken in the showroom. The traveling salesmen also take orders. The distribution center is located on the same lot as the showroom/office building. It is here that the orders are filled and shipped.
 

Order Processing

 
All sales are credit sales, which are subject to the approval of Ed. Ed approves credit based on his “gut” feeling for each individual case and on the opinions of his bowling buddies. Generally, Ed wants to make the sales and few orders are not approved. In the few cases where Ed does not approve the credit, he marks his copy of the sales order accordingly. He makes a copy of all of the disapproved orders and two copies of the approved orders. He sends one copy of both the approved and disapproved orders and all of the original orders to Mary. He sends a copy of the approved orders to the twins so they can fill them.
 
Mary prepares a report for each salesperson listing both the sales orders turned down for credit and the approved sales and sends the reports along with the marked sales orders to the salespeople. The salespeople notify customers of disapproved credit and then throw the reports and disapproved sales orders in their car trunks or wastebaskets. The salespeople file the original approved sales orders for later use. Mary files the copies of the approved orders until a shipping notice is received. The copies of the disapproved orders are thrown away.
 

Shipping

 
Out of town orders are shipped common carrier FOB Destination. Recently, Ed had a brief meeting with the twins about the possibility of sending the bulk of freight shipments through one common carrier, Iron Rooster Trucking Company. The advantage to Mary’s Sunshine would be a rebate paid quarterly of up to 15% of freight charges. Based on prior years’ business, this rebate would total in excess of $15,000 per year. Without giving this practice much thought, Ed told the twins to begin using Iron Rooster as much as possible.
 
The twins take all of the approved orders, find and box the merchandise and prepare a bill of lading for the carrier. The twins send their copy of the sales order marked “shipped” and a copy of the bill of lading to Mary.
 
After an order has been shipped, the twins update the inventory cards to keep an accurate record of items on hand.
 
At the end of the week, all of the inventory cards are reviewed and a weekly inventory report is prepared.
 

Accounts Receivable

 
Mary matches the sales order marked “shipped” to her copy of the sales order. She then prepares a two-part invoice and mails the original to the customer. She records the sales in the sales journal and the receivables in the subsidiary ledger. Mary files by date her copy of the invoice with her copy of the sales order and the shipping documents.
 
During the summer season, Mary’s Sunshine often has difficulty in shipping customer orders in a timely manner. Supplier delays in delivery to Mary’s Sunshine and increased volume cause delays in outgoing shipments. At the end of some months, Mary prepares and mails customer invoices ahead of actual shipment. She claims this practice more closely matches revenues and expenses. As usual, Mary records the sales in the sales journal and in the accounts receivable subsidiary ledger.
 
Customers are allowed to take a 2% discount if they pay within 10 days of the billing date; otherwise, the net amount is due in 30 days.
 
nce per month, Mary prepares a listing of delinquent customers that she sends to the salespeople. They are responsible for collecting the overdue amounts.

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Related Services

Cash Receipts

 
Mary opens the mail each day; sorts the cash receipts and the invoices to be paid and logs them in the appropriate logs. Mary records the receipts on customers account in the cash receipts journal and in the accounts receivable subsidiary ledger. After recording all the cash receipts, she prepares a deposit slip and takes the cash to the bank.
 

Disbursement Cycle

 

Purchasing

 
Every Friday afternoon, the salespeople prepare weekly sales reports from their copies of the sales orders. They send the reports to Ed and then refile their sales orders by customer name. Ed reviews the weekly sales reports and the weekly inventory reports prepared by Fred and Ted. Ed “eyeballs” the numbers, notes any shortages in inventory, and prepares 3-part purchase orders. He mails the original to the vendor, sends one to the twins in the distribution center and one copy to Mary.
 
As noted above, Fred and Ted have a card file for keeping track of inventory. Each card has a running balance to expedite the preparation of the weekly inventory reports for Ed. When they receive a copy of a purchase order, they pull the cards for the item(s) ordered, record the quantity ordered and the P.O. number, and file the purchase order in numerical order. When the shipment arrives, Fred and Ted pulls the purchase order to make sure that the items received were the items ordered and note any back orders on the purchase order. Then they pull the inventory cards, mark the items received, and prepare a receiving report that is sent to Mary.
 

Cash Disbursements

 
As noted above, Mary opens the mail and separates and logs the cash receipts and the invoices to be paid. Invoices are filed in alphabetical order by due date. Each Thursday, Mary pulls the invoices that are due that week and types three-part checks. The checks, along with the invoices, are given to Ed for his approval and signature. After Ed signs the checks, Mary mails the original, files the second copy in check number order, and attaches the third copy to the invoice. She then enters the check in the cash disbursement journal and the accounts payable subsidiary ledger. The third copy of the check and the attached invoice are filed alphabetically by vendor name.
 

Payroll

 
A full service payroll processing company called Payroll Paid Promptly (PPP) processes payroll. PPP calculates the payroll, creates and mails the checks to the employees and remits all payroll taxes and other withholdings to the appropriate locations. They send Mary a report once per month reflecting the transactions made on behalf of PPP. Mary prepares a journal entry to reflect the payroll and updates the general ledger. PPP charges a fee of 10% of the gross payroll for the payroll service. Mary prepares the check for these services once per month.
 
The employees, who are paid once a month, are as follows
 
Lauren Allen, a salesperson at the showroom
Paul Barton and Ernest Callahan, traveling salesmen
Fred and Ted Hill, twins who work at the distribution center

product code: Accounts-AW524


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