A flower anytime sells flowers wholesale. Customers telephone the company and their orders are taken by clerks who take details of the flowers to be delivered, the address to which they are to be delivered, and account details of the customer. The clerks input these details into the company‘s computer system (whilst the order is being taken), which is integrated with the company‘s inventory control system. The company‘s standard credit terms are payment one month from the order (all orders are dispatched within 48 hours) and most customers pay by bank transfer. An accounts receivable ledger is maintained and statements are sent to customers once a month. Credit limits are set by the credit controller according to a standard formula and are automatically applied by the computer system, as are the prices of flowers. Required; describe and explain the purpose of the internal controls you might expect to see in the sales system at Flowers Anytime over the: Receipt, processing and recording of orders and Collection of cash

  • Internal controls
    (i) Receipt, processing and recording
  •  All orders taken should be recorded on a pre-numbered multi-part document generated by the computer. One part might be a copy for the customer, one might form the invoice, one might be for the dispatch department and one might be retained for accounts receivable ledger purposes.
  •  Manual or computer systems should perform checks on the completeness of the sequence of pre-numbered documents at various stages. Any documents unaccounted for should be traced and investigated.
  • The computer system should apply the credit limits set by the credit controller and the system should reject any orders that exceed customer credit limits at the point at which the order is taken, so that the customer can be advised. Any override of credit limits should be authorised by the credit controller.
  •  From time to time, there should be an independent check to ensure that the credit limits within the system are being properly calculated and properly applied to individual transactions. Similar considerations apply to prices maintained within the system. The computer system should also reject any order for which there are no flowers available so that orders cannot be taken for flowers that cannot be delivered.
  •  All invoices should be posted to the sales daybook, the accounts receivable ledger and the accounts receivable control account automatically by the system and the accounts receivable ledger and the accounts receivable control account should be reconciled each month in order for sales and receivables records to be kept up to date.
  •  There should be controls in place to deal with credit notes and other discrepancies involving the price, type or quality of flowers delivered in order to maintain the accuracy of records and customer goodwill.(ii) Collection of cash
  •  At the end of each period, the system should produce a list of overdue receivables. There should be procedures for chasing these customers and for putting a ‗stop‘ on accounts where amounts are significant in order to control bad debts;
  •  When bank transfers are received from customers, they should be input into the system and matched with individual transactions and controls should ensure that the correct amounts are allocated to the correct customers and transactions.
  •  An exception report should be produced for any unallocated bank transfers. Exceptions should be promptly investigated. This will ensure that receivables information is accurate and up to date and that customers are not chased for amounts that have been paid
  •  Bank reconciliation should be performed on a monthly basis in order to ensure that the company‘s cash records are complete, accurate and up to date.



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