figure 10.1 overview activity diagram for elerbe, supplier …€¦ · 459 599 05/27/03 034-11-2222...

Signs checks (E10)

Accounts 24. Gives checks to controller.payable clerk

Controller 25. Signs checks.

Completes payment (E11)

Accounts 26. Mails checks.payable clerk 27. Prints cash payments journal.

28. Selects option to post payments.

Computer 29. Updates the General_Ledger_Transfer Table and balance duein Supplier Table.

30. Sets Post_Date field in payment record to the current date.

487The Acquisition Cycle—Purchase Invoices and Payments Chapter 10

Table 10.2Concluded

Figure 10.1Overview ActivityDiagram for ELERBE,Inc.—Invoicing/Payment Process

Supplier AccountsPayable Clerk

Controller Computer

Send Invoice

S: Supplier

GL: General_Ledger

PY: Payment

I: Invoice

P: Purchase_Order

Record SupplierInvoice (E6)

ApprovePayment (E8)

PrepareChecks (E9)

SignChecks (E10)

CompletePayment and

Post (E11)

Select Invoicesfor Payment

(E7)

S: Supplier

I: Invoice

GL: General_Ledger_Transfer

I: Invoice[in progress]

Invoice

Cash Requirements

C: CashRequirements

Report

CH: Checks

Checks

R: Receipt

Actor Activity

62006_JonesRama_CH10.qxd 5/23/2002 11:59 AM Page 487

Documenting ELERBE’s Data DesignIn this section, we will document the data design for the AIS described in Exhibit10.2 using a UML class diagram and record layouts. UML class diagrams were dis-cussed in Chapter 5. If necessary, review that material before proceeding.

Events and Tables Used. Chapters 2 and 5 discussed transaction and mastertables. We used event analysis to identify the need for transaction tables and asso-ciated master tables. Table 10.3 shows the events in ELERBE’s process related toprocessing supplier invoices and making payments. The event numbers will be usedto connect the UML class diagram with the menu, data entry screens, and data ta-bles. As seen from Table 10.3, only three of the events are recorded in transactiontables (E6, E9, and E11).

488 Part III Transaction Cycles and Accounting Applications

Figure 10.2Detailed ActivityDiagram for ELERBE,Inc.—Record SupplierInvoices (E6)

Supplier AccountsPayable Clerk

Computer

Sends1 Invoice

S: Supplier

P: Purchase_Order

I: Invoice

R: Receipt

Prints8 PurchasesJournal

Compares5 Invoicewith PO/Receipt

S: Supplier

I: Invoice

GL: General_Ledger_Transfer

Assembles2 Batch

Counts3 Invoices

Calculates4 Totals

Record7 Invoice

Enters6 Invoice

Posts11 Invoices

Reviews9 PurchasesJournal

Updates12 General_Ledger_Transfer

Table and SupplierBalance Due

Makes10

Corrections

Invoice

I: Invoice[in progress]

I:Invoice

Sets13

Post Date


Table 10.4 Record Layouts for Acquisition Cycle


Figure 10.3UML Class Diagramfor ELERBE, Inc.—Acquisition Cycle

Inventory

General_Ledger_Transfer

Supplier

(E3)Requisition

(E4)Purchase_

Order

(E5)Receipt

(E6)Invoice

(E9, E11) Payment

Employee(AccountsPayableClerk)

Employee(Requestor)

Employee(Manager)

Employee (Receiving

Clerk)

Employee(Controller)

Employee(Purchasing

Officer)

Notes: (1) All of the cardinalities between the events and agents are (m,1). All of the cardinalities be-tween the events and Inventory Table or events and General_Ledger_Transfer Table are (m,m). (2) ACash-in-Bank Table could have been connected to the Payment Table and placed to the left. This wasnot done because in this case, there is only one bank account for cash; thus, there is no benefit increating a table of one record only.

Supplier Table

Sup- Contact Tele- G/L_ Dis- Discount Balance YTD_plier# Name Address _Person phone# Account Due count _Rate _Due Purchases

349 Smith Fall River Jon 508-555- 1100 30 10 .02 $0 $0Supply Stevens 1851

Employee# Name Position

122-22-3333 Mike Morgan Inventory clerk

613-20-7891 Deborah Parker Supervisor

074-31-2525 Stephen Larson Purchasing officer

131-31-3131 Kevin Smith Receiving clerk

034-11-2222 Mary Brown Accounts payable clerk

Employee Table

(continued)


class diagram, the activity diagram, and the menu as well as their individual limi-tations as to scope.

Focus on Problem Solving 10.d

Comparison of Documentation Tools (P1, P4)ELERBE, Inc.

Required: Review the documentation prepared for the invoicing and cash payments part of the ac-quisition cycle. Relate the events listed in Table 10.1 to these diagrams. If an event is represented on


Acquisition Cycle Menu

A. Maintain

1. Supplier 2. Inventory 3. Employee

B. Record event

1. Enter requisition (select goods and services for purchase) (E3)

2. Enter purchase order (E4)

3. Receive goods (E5)

4. Enter purchase invoice (E6)

5. Select invoices for payment (E7)

6. Print checks (E9)

C. Process data

1. Post (E6, E11)

2. Purge records

D. Display/print reports

Event Reports

1. New purchase orders report 2. Purchases journal (E6)

3. Cash payments journal (E11)

Reference Lists

4. Supplier list 5. Inventory list Summary and Detailed Status Reports

6. Open purchase orders report 7. Open payables report (E7)

8. Cash requirements report (E7)

9. Accounts payable detailed ledger 10. Accounts payable summary ledger

E. Query

1. Query events 2. Query suppliers 3. Query inventory

F. Exit

Figure 10.4Acquisition CycleMenu for ELERBE,Inc.

(continued)

62006_JonesRama_CH10.qxd 5/23/2002 11:59 AM 97

Step 1: Accumulate a batch of invoices. Every week, the accounts payableclerk accumulates a batch of invoices. Assume that ELERBE received only threebills during a particular week and calculated the batch control totals in Table 10.5.


Table 10.5Batch Totals forInvoice Data Entry

Batch Total Value

Count 3

Total amount due $440

Hash total 1396 (sum of Supplier#s)

Date 05/29/03

Step 2: Enter each invoice. One of the three bills to be recorded is shown inFigure 10.5. Note that the bill is a continuation of the example started with therequisition in Chapter 9. Figure 10.5 presents a sample invoice received from thesupplier.

Figure 10.5Purchase InvoiceReceived by ELERBE

Smith Supply

Fall River, MA

Invoice# 5510

Customer: ELERBE Invoice Date: 05/27/03

Customer PO#: 599

Item# Description Quantity Price Extended Price

56-103 Blank CD 10 $11 $110

53-408 CD Labels 5 18 90

Total $200

Delivery charge 5

Total amount due $205

Due date 06/26/03 2% discount if paid by 06/06/03

To record the purchase invoice, the accounts payable clerk selects item B4from the menu shown in Figure 10.4. The only data entered are the Pur-chase_Order#, Supplier_PI#, credit terms, Purchase_Invoice_Date and the generalledger distribution. The general ledger account numbers and amounts that are en-tered will be used by the system to record the effect of the invoice on the ac-counts in the general ledger module. After the user has entered the invoice andselected SAVE on the data entry screen, records are added to the Invoice and In-voice_Detail tables. Carefully review the data entry screen and record layouts inFigure 10.6.


Figure 10.6 Enter Purchase Invoice Screen and Record Layouts


Enter Purchase Invoice (Menu item B4)SAVE

Purchase Order#Purchase Order DateRequisition#Employee# (Requestor)Supplier#DepartmentItem#, Quantity, PriceItem#, Quantity, Price

59905/17/03

1077122-22-3333

349Inventory Control

$1118

402419

125

Information Display

Receipt#Employee# (Receiver)Receiving DateReceived Quantity

Item#, QuantityItem#, Quantity

1405131-31-3131

05/26/0310

105

402419

Purchase Order#Voucher#Supplier's Purchase Invoice#Purchase Invoice DateDue DateDiscount DateDiscount Rate

599459

551005/27/0306/26/0306/06/03

2%

GL#110065003100

AccountInventoryFreight-InAccounts Payable

GL Distribution Amount 200 5 (205)

Data Entry Section

General Ledger Distribution

*The Information Display appears after the user enters the Purchase_Order# in the Data Entry Section.The data shaded in gray are not entered by the user. They are either computer-generated (Voucher#) or a display of data readfrom a table.

Invoice Table

Voucher# G/L_Account# Amount

459 1100 200

459 6500 5

459 3100 (205)

Assume that the other two invoices (indicated on the batch document in Table 10.5)have also been entered. The next step is to print a list of the invoices.

Step 3: Print an edit report. After the three invoices in the batch have been en-tered, the accounts payable clerk wants a printout of the events that were entered.The clerk returns to the menu and selects item D2, Display/Print Purchases Journal.The clerk then enters the report criteria in the screen shown in Figure 10.7.

Invoice_Detail Table

Pur- Em- Sup- G/L_chase Invoice ployee# plier Due_ Disc_ Post_ Post To_

Voucher# _Order# _Date (AP clerk) _PI# Date Date Rate Date _Date Pay? Paid?

459 599 05/27/03 034-11-2222 5510 06/27/03 06/07/03 .02



Figure 10.7Display/PrintPurchases Journal

Accounting ApplicationReport NameDocument TypeDate RangeUnposted, Posted, or BothOn Hold?Required AttributesOrder ByGroup BySummary FiguresDetail or Summary?

PurchasingPurchasing JournalPurchase InvoicesAllUnpostedNoVch#, PO#, Supplier#, PI#, PI, Date, GL#, AmountVoucher#Voucher#Total of Amounts DueDetail

Display/Print Open Payables (Menu item D7)PRINT

The inverted triangle (�) indicates that upon selecting this field the user is presented with a drop-down box of choices. Shaded items were predetermined when the clerk selected the purchases jour-nal report from the menu.

By requesting only unposted transactions, the accounts payable clerk is assuredof seeing only the new items that have just been entered. This allows the clerk tomake a careful review of the data entered and to search for errors before posting.In addition, if the company has a policy of making journal entries for new trans-actions, the report will provide a good basis for a journal entry because it will notinclude any transactions that have already been journalized.

The printed purchases journal is shown in Figure 10.8. The report conforms tothe criteria selected by the user. Only unposted transactions have been printed. Thegeneral ledger detail items (Account# and Amount) have been grouped by voucher.The title identifies the report as a journal. An event report that has implications forthe general ledger is frequently referred to as a journal.

Figure 10.8 Purchases Journal

Purchases Journal 05/29/03

Document Type: Vouchers Unposted transactions only. Detail grouped by Voucher#.

Purchase Purchase PurchaseVoucher# Order# Supplier# Invoice# Invoice Date GL Account# Amount

459 599 349 5510 05/27/03 1100 $200

6500 5

460 614 720 432 05/29/03 1100 20

461 602 327 322 05/29/03 6200 215

Total $440

*GL# 1100 � Parts Inventory; GL# 6500 � Freight-In; GL# 6200 � Office Supplies Expense.


if payment is made within 10 days of the invoice date. Consider the question posedin box 10.l to understand why companies may pay bills weekly.

Focus on Problem Solving 10.l

Timing of Bill Payment and Purchase Discounts (P4)

Many suppliers give customers a discount if they make payment within 10 days. As noted, many com-panies pay bills once a week.

Required: Discuss why paying bills weekly is effective. Why may companies choose not to pay billsmore frequently (daily)?

The solution to this Focus on Problem Solving box appears on page 523. Check your answer and make sure you understandthe solution before reading further.

ELERBE pays its bills on Fridays, and this particular Friday is June 2. Thereare three steps in the process of choosing bills for payment at ELERBE:

Steps in the process of selecting bills for payment Menu item

1. Print an open payables report to get a list of all unpaid bills. D7

2. Select invoices for payment. B5

3. Print a cash requirements report—a listing of invoices selected in Step 2. D8

Each of the steps will now be considered in turn.

Step 1: Print an open payables report to get a list of all unpaid bills. Theaccounts payable clerk selects menu item D7 and then enters the report require-ments using the screen shown in Figure 10.9.


Figure 10.9Criteria for theContent of the OpenPayables Report

Accounting ApplicationReport NameDocument TypePaid?Date RangeRequired AttributesOrder ByGroup BySummary FiguresOther Calculations

PurchasingOpen PayablesPurchase InvoiceNoAllVoucher#, Supplier#, Disc Date#, Due Date#, AmountEarlier of due date or unexpired discount dateNoNoNo

Display/Print Open Payables (Menu item D7)PRINT

The inverted triangle symbol (�) indicates that upon clicking this field, the user is presented with adrop-down box of choices.Shaded items were predetermined when the clerk selected the purchases journal report from the menu.


The open payables report is given in Figure 10.10. It is consistent with the re-port specifications set by the user in Figure 10.9. The first voucher in the report isthe one we have followed throughout this chapter.

Figure 10.10 Open Payables Report

Open Payables Report: 06/02/03

Document type: Purchase invoice Paid?: No

Date range: All Supplier: All


Voucher# Supplier# Disc_Date Due_Date Amount Discount Net Cumulative

459 349 06/07 06/27 $205 $4 $201 $201

430 103 06/05 $150 $150 $351

441 251 06/01 06/25 $200 lost $200 $551

460 720 06/29 $20 $20 $571

461 327 06/29 $215 $215 $786

Total $790 $786

The accounts payable clerk will use the open payables report for deciding whatinvoices to pay. The open payables report should be designed to provide relevantinformation (to make effective payment decisions). Furthermore, the informationshould be organized to make the payment process efficient. Complete box 10.m toconsider whether the order of items in the report is suitable.

Focus on Problem Solving 10.m

Ordering of Invoices in an Open Payables Report (P5)ELERBE, Inc.

Required: Examine the open payables report. In what order should the invoice records be shownto help the accounts payable clerk select invoices for payment? Do you think the report in Figure10.10 orders the information in this way?


Step 2: Select invoices for payment. The accounts payable clerk selects menuitem B5. A list of unpaid bills is presented, and the clerk clicks on the ones to bepaid. The company is making payments on June 2, 2003. The goal is to pay billson time to preserve the company’s credit reputation and to take any opportunitiesavailable for early payment discounts. What bills should the company pay? Con-sider this by reading box 10.n and answering the questions posed.


The event of selecting appropriate invoices for payments is key to addressing theexecution risks of late, missed, or duplicate payments. Complete the requirementsin box 10.o to consider how this event helps in addressing these risks. Other exe-cution risks such as wrong supplier or wrong amounts are better controlled whilerecording the invoice itself (event E6) since event E7 only uses existing informationabout these items.

Focus on Problem Solving 10.o

Suitability of Report Criteria for Internal Control Purposes (P3)ELERBE, Inc.

Required:1. Consider the invoice selection screen in Figure 10.11. How do the report criteria in this screen

help reduce these risks?a. Make a duplicate paymentb. Failure to make a paymentc. Late payment


Figure 10.11Selecting Bills forPayment UsingPeachtree Accountingv.6.0

The choices made by the user in this screen are to pay any invoices due before June 11, 2003, andany invoices with discount dates before June 11. (We assume that paid invoices are automaticallyprohibited from selection.)

(continued)


2. Based on these invoice selection criteria, would the report that resulted from Figure 10.11 be use-ful to an auditor who is attempting to verify the amount of accounts payable reported in the bal-ance sheet?

3. What should be the balance in the general ledger account, Accounts Payable? (Hint: You can de-termine the amount based on information in one of the reports that you have already read.)


Prepare Checks (Event E9)Once the bills have been selected and approved for payment, the accounts payableclerk is ready to print the checks.

The accounts payable clerk loads a batch of prenumbered, blank checks inthe printer and then returns to the menu and selects item B6, “Print checks.”This selection results in printing a batch of checks, updating the purchase in-voice records to show payment, and adding cash payment records to theCash_Payment Table. Carefully review the sample of the check and check stubin Figure 10.12 and notice that they are consistent with the purchase invoicerecorded earlier. The check stub helps the supplier process the payment correctlyand makes sure that ELERBE gets credit for the discount. Observe that theCheck# appears twice, once in the stub and once in the check. The Check# waspreprinted on the check itself, but the matching Check# on the stub is printedby the system.

Figure 10.12 Example of Printed Check with Check Stub


(concluded)

Invoice # Invoice Date Voucher# Gross Amount Disc. Taken Net Payment Check# 102

5510 05/27/03 459 $205 $4 $201 Date: 06/02/03

TWO HUNDRED AND ONE AND 00/100 DOLLARS

Pay to the order of:

Smith Supply1234 Adams StreetFall River, MA 02816

Date: 06/02/03 Check#: 102Amount: $201.00

Data in blue are printed by the computer. Everything else was preprinted on the checks by the service that provides blankchecks to the company.


▪ Required sequence of events. The system could prevent the printing of acheck if there is no related purchase invoice record.

▪ Limitation of access to assets and information. Only a few employees aregiven access to the blank checks.

▪ Sequence of prenumbered documents. The Check# on the check ispreprinted, and the Check# on the stub is printed by the computer. If one ofthe checks is lost or stolen, the Check# printed on the stub will not agreewith the Check# that was preprinted on the check, and the theft or loss willbe revealed. In addition, if a check is taken from the bottom of the pile ofblank checks, the Check# will be much higher than the others. When thebank statement arrives, the canceled check will stand out because it is wayout of order.

▪ Positive pay system. The company sends the bank a list of legitimate checks,and the bank clears only those checks.

Efficiency. Rather than printing and mailing checks, many companies use elec-tronic funds transfer (EFT) services to pay their suppliers. Under this process, thecompany sends an electronic message to a bank or third party that serves as a clear-inghouse, decreasing the balance in the payor’s bank and increasing the balance inthe payee’s bank. Using an EFT service reduces mailing time so that bills can bepaid on the same day as the due date or discount date.

Complete Payment Process—Signing and Mailing Checks (Event E11)After the checks are printed, the accounts payable clerk obtains the controller’s sig-nature. The signed checks are then mailed. The clerk chooses menu item D3 andprints the cash payments journal (Figure 10.13). The report becomes an audit trailfor supporting transactions posted to the general ledger.


Figure 10.13Cash PaymentsJournal

Cash Payments Journal

All checks printed on 06/02/03.

Date Check# Voucher# Supplier# DR CR CR? ? ?

06/02/03 101 430 103 150 150

06/02/03 102 459 349 205 201 4

Total 355 351 4

Complete the requirements in box 10.q to test and expand your understand-ing of the cash payments journal.


End of Period ActivitiesPrint Accounts Payable Ledger. Monthly, or more frequently, the com-pany may want to print a report that indicates the amount owed to each sup-plier, as well as the details of purchase and payment transactions for each supplier.Such a report could be useful to the treasurer or accounts payable clerk. Figure10.14 gives a representation of an accounts payable ledger which is in the for-mat of a grouped detail report. After reviewing the report, answer the questionsin box 10.r.

Focus on Problem Solving 10.r

Interpreting the Accounts Payable Ledger Report (P5)ELERBE, Inc.

Required: Review the accounts payable ledger in Figure 10.14. What general ledger account shouldhave a balance equal to the amount of the grand total? Would the report be useful to an auditor whowas certifying the financial statements?



Accounts Payable LedgerCriteria: All suppliers; all outstanding invoices; all other transactions with the supplier during the month of June; ordered and grouped by Supplier#.

Supplier# Name 349 Smith Supply

Voucher# Date Amount 459 05/27/03 $ 205 459 06/02/03 (205) 583 06/14/03 302 Total amount owed $ 302

Supplier# Name 460 Green Maintenance

Voucher# Date Amount 601 06/15/03 $ 425 Total amount owed $ 425

Etc. Grand Total $5,432

Figure 10.14Accounts PayableLedger


figure 10.1 overview activity diagram for elerbe, supplier …€¦ · 459 599 05/27/03 034-11-2222...

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