Question

Most grocery stores use bar code scanning technologies that interface with cash registers used to process customer purchases. Cashiers use the scanners to read bar code labels attached to each product, which the system then uses to obtain unit prices, calculate transaction totals, including sales taxes, and update perpetual inventory databases. Similarly, cashiers scan bar codes on coupon or member discount cards presented by the customer to process discounts. Along with the scanning technologies, groceries use point-of-sale technologies that allow customers to swipe debit and credit cards for payment, while still maintaining the ability for customers to pay with cash. Required: a. Which financial statement accounts are impacted by the use of these technologies in a typical grocery store? b. Identify risks inherent to this business process in a grocery store that might affect the financial statement accounts identified in part a. For each risk, describe how these technologies help reduce the inherent risk. c. How does the use of these technologies create new risks for a grocery store? d. How might an auditor use technology to test the operating effectiveness of a bar code scanner based check-out system?

Answer 1

Answer To a) The use in grocery stores of bar code scanning technologies impacts number of financial statements accounts for the grocery. The barcode scanner is used to retrieve unit prices for each product scanned, which is then used to calculate the amount posted to Revenue, Sales Tax Payable and Cash Accounts ( and any overnight Receivables amounts related to sales paid debit and credit cards that may not be possessed until the next business day). Sometimes bar scanning technologies are used to process coupons and other discounts , which would be recorded in the Sales Discount account. Similarly, when goods are returned by the customer to the stores, the bar scanning technology is used to process amounts recorfded in the Sales Return account and related credit to the Cash account. In addition to recording the transaction amounts paid by the customer, the bar scanning technologies are also used to update the perpetual inventory records for cost amounts, which impacts the Inventory and Cost of Goods Sold Account.

Answer to b)

Risks Inherent to Sales Processing	Accounts Affected	How Bar Scanning Technologies Help Reduce Risk
1) Wrong Unit Price is used to process Sale.	Revenues Cash	The system automatically retrieves the unit price from the approved price list master file.
2) Calculation of amounts due from the customer	Revenue Cash Sales Tax Payable	The system extends price times quantity and adds each extended amount to calculate the total sales price, including sales taxes due from customer.
3) Reduction in Inventory accounts for items sold is inaccurate.	Inventory Cost of Goods Sold	The system tracks the number of units removed by product number, which is used to update perpetual inventory records.
4)Not all inventory items taken by the customer are included in the processing of the customers purchase amount.	Revenues cash inventory Cost of Goods Sold	As the system reads each code, it generates a sound to indicate to the cashier that each product scanned has been captured by the system.
5) Coupons and Discounts are incorrecty calculated.	Sales Discounts Cash	The system retrieves coupon and discount information from the master file of promotions and discounts and automatically calculates the discount amount.

Answer to c.) 1) The wrong bar code may be applied to the product, which would retrieve incorrect unit prices for the calculation of the amounts due from the customer.

2.)The master file of unit prices may be outdated, which would systematically process incorrect transaction amounts.

3) The accumulation of the amounts associated with all items purchased, including the calculation of sales taxes, may be mathematically incorrect.

4)The updating of perpetual inventory records may not correctly reflect actual amounts sold.

5) The processing of coupons and discounts may retrieve incorrect discount information.

Answer to d) Below are examples of how the auditor might test the operating effectiveness of the bar code scanner technology:

1. The auditor could select a number of different products and use the bar scanning technology to process the sales amounts for comparison to the auditor’s separate calculation of transaction amounts based on items processed. The auditor could perform the same kind of test using coupons and other discount programs.

2. The auditor may be able to use audit software to test the accuracy of individual customer transactions and to test the summation of all customer transactions processed by a cash register machine, by day, and by store.

3. The auditor may be able to use audit software to test the accuracy of the postings of daily totals to the client’s general ledger system.

4. The auditor may use audit software to review all unit prices in the price list master file to identify unusual price amounts for further investigation (e.g., negative prices, large unit prices, etc.).

5. The auditor may be able to use audit software to identify the most recent date of sale by product number to identify those products that have not been sold to customers for an extended period of time to identify potentially obsolete inventory still on hand.