In: Accounting
Katrupi, Inc., has five departments that handle all
sales, billing, and collection processes. The five
departments are sales, billing, accounts receivable,
warehouse, and general ledger. These processes
occur as follows:
a. A customer mails a purchase order to Katrupi,
and it is forwarded to the sales department.
b. A sales clerk in the sales department prepares a
four‐copy sales order. Two copies are forwarded
to billing, one copy to the warehouse, and one
copy to general ledger. The sales clerk posts the
sale to the sales journal.
c. Upon receiving the sales order, the warehouse
picks goods from the warehouse, updates the
inventory subsidiary ledger, and ships the goods to
customers. The copy of the sales order is given to
the common carrier to accompany the shipment.
d. Upon receiving the sales order, the billing
department looks up prices in the price list and
adds these prices to the sales order. One copy is
sent to the customer as the invoice. The second
copy is forwarded to accounts receivable.
e. Upon receiving the sales order from billing, the
accounts receivable temporarily stores the sales
order until the customer mails a check and
remittance advice to accounts receivable. The
accounts receivable department matches the
check to an open sales order, posts to the
accounts receivable subsidiary ledger and the
cash receipts journal, and deposits checks in the
bank daily.
f. Upon receiving the sales order from the sales
department, the general journal and general
ledger are updated.
Problem: Describe any weaknesses in these processes or
internal controls. As you identify weaknesses, also
describe your suggested improvement.
Weakness : Co-ordination / Internal communication between the departments.
It is evident that the communication of an order flows from sales department to other 4 departments. Hence the remaining 4 departments work on the basis of the sales order received irrespective of the fact that the inventory have been despatched or not, sales is recorded in the books of accounts. Upon receiving the sales order General ledger and general journal are updated irrespective of the actual scenario of sales being made. It may be possible that goods have not been despatched and still lying in the warehouses whereas sale have been recorded in the books. This may cause mismatch.
Recommendation : katrupi Inc comprises of 5 departments based upon their functions but it is to be kept in mind that they are part of same organisation and work in sync so that organisation runs effectively and efficiently. As soon as the goods are despatched other departments should be notified to record the event of sales and bill to be raised in the name of the customer. Effective communication is the key to make the internal controls stronger so that such scenarios doesn't arise where goods are still lying in warehouse but sales recorded (on the basis of sales order) leading to mismatch of results.
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