Question

9-28 2 6 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 coupons 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 Which financial statement accounts are impacted by the use of these technologies in a typical grocery store? 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. How might an auditor use technology to test the operating effectiveness of a bar code scanner–based check-out system?

Answer 1

The use in grocery stores of bar code scanning technologies impacts number of financial statement accounts for a grocery. The barcode scanner is used to retrieve unit prices for each product scanned, which is then used to calculate the amount to be posted to the Revenue, Sales Tax Payable, and Cash accounts (and any overnight Receivable accounts related to sales paid by debit and or credit cards that may not be processed 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 customers to the store, the bar scanning technology is used to process amounts recorded in the Sales Returns 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 perpetual inventory records for cost amounts, which impacts the Inventory and Cost of Goods Sold accounts.

Risk Inherent to Sales Processing

Account Effected

How bar scanning technology help reduced risk

1

Wrong selling price used to process sale

Revenues

The system automatically retrive the unit sales price from system master file.

Cash

2

Calculation of amounts due from customer for all items purchased is inaccurate

Revenues

The system extends price, times, quantity and adds each extended amount to calculate the total salesprice, including sales taxes duefrom customer

Cash

Sales Tax Payable

3

Reduction in inventory accounts for items sold is inaccurate

Inventory

The system tracks the number of units removed by product number,which is used to update perpetual inventory record.

Cost of goods sold

4

Not all inventory items taken by customer are included in the processing of the customer’s purchase amount

Revenues

As the system reads each bar code,it generates a sound to indicate to the cashier and customer that each product scanned has been captured by the system

Cash

Inventory

Cost of Goods Sold

5

Coupons and discounts areincorrectly calculated

Sales Discount

The system retrieves coupon and discount information from the master file of promotions and discounts and automatically calculates discount amount.

Cash

How might an auditor use technology to test the operating effectiveness of a bar code scanner–based check-out system

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 otherdiscount 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 tothe 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.