Green Pond Nursery Supply (GPNS) is a gardencenter wholesaler in eastern Pennsylvania that sellsand distributes a wide range of garden productsand equipment including organic fertilizers, premiumflower and grass seeds, organic pesticides, and gardenspreaders. GPNS’s customers are primarilysmall garden centers and landscape companies in theMid-Atlantic states. Sales are on credit.GPNS’s current information system includes manualprocedures supported by independent (nonnetworked)PCs in each department. Communicationsbetween departments are entirely throughhard-copy documents. Recently, GPNS has beenreceiving complaints from suppliers regarding paymenterrors. Management believes that these complaintsstem, in part, from their antiquated computersystem. You have been hired to assess GPNS’s proceduresand internal controls. The following is adescription of GPNS’s expenditure cycle.Purchasing ProcessThe purchasing agent receives an inventory statusreport from the inventory control department,which identifies the items that need to be reordered.The agent selects the suppliers, enters this informationinto the computer terminal to create a digitalpurchase order, and then prints three hard copies ofthe purchase order. He sends one copy to the supplier;one copy to the AP department, where it isfiled temporarily, and files the third copy in the purchasingdepartment.When the goods are received, the receivingdepartment inspects and verifies them using thepacking slip, which is attached to the goods. Thereceiving clerk manually prepares two hard copiesof a receiving report. One copy accompanies thegoods to the warehouse for storage. The receivingclerk sends the second copy to the purchasing agentwho closes the open purchase order. The purchaseagent then forwards the receiving report to the inventorycontrol clerk.The inventory control clerk receives the receivingreport and updates the inventory subsidiary. At theclose of business, the clerk prepares an inventory summary,which he sends to the general ledger clerk.Accounts Payable and Cash DisbursementsProceduresThe AP clerk receives the supplier’s invoice andreconciles it with the purchase order in the temporaryfile. From her computer terminal, the clerkrecords the purchase in the purchases journal andrecords the liability by adding a record to the APsubsidiary ledger. The purchases order and invoiceare then filed in the department.Each day, the AP clerk visually searches the APsubsidiary ledger from her terminal for invoices thatare due to be paid. The clerk prepares the check andrecords it in the digital check register. The negotiableportion of the check is mailed to the vendor, and acheck copy is filed. The clerk then closes the liabilityin the AP subsidiary ledger and prepares a journalvoucher, which she sends to the general ledger clerk.Upon receipt of the inventory summary and journalvoucher, the general ledger clerk updates theinventory control, AP control, and cash accounts.Requireda. Create a data flow diagram of the current system.b. Create a system flowchart of the existing system.c. Analyze the physical internal control weaknessesin the system.d. (Optional) Prepare a system flowchart of a redesignedcomputer-based system that resolves thecontrol weaknesses that you identified. Explainyour solution.

Green Pond Nursery Supply (GPNS) is a gardencenter wholesaler in eastern Pennsylvania that sellsand distributes a wide range of garden productsand equipment including organic fertilizers, premiumflower and grass seeds, organic pesticides, and gardenspreaders. GPNS’s customers are primarilysmall garden centers and landscape companies in theMid-Atlantic states. Sales are on credit.GPNS’s current information system includes manualprocedures supported by independent (nonnetworked)PCs in each department. Communicationsbetween departments are entirely throughhard-copy documents. Recently, GPNS has beenreceiving complaints from suppliers regarding paymenterrors. Management believes that these complaintsstem, in part, from their antiquated computersystem. You have been hired to assess GPNS’s proceduresand internal controls. The following is adescription of GPNS’s expenditure cycle.Purchasing ProcessThe purchasing agent receives an inventory statusreport from the inventory control department,which identifies the items that need to be reordered.The agent selects the suppliers, enters this informationinto the computer terminal to create a digitalpurchase order, and then prints three hard copies ofthe purchase order. He sends one copy to the supplier;one copy to the AP department, where it isfiled temporarily, and files the third copy in the purchasingdepartment.When the goods are received, the receivingdepartment inspects and verifies them using thepacking slip, which is attached to the goods. Thereceiving clerk manually prepares two hard copiesof a receiving report. One copy accompanies thegoods to the warehouse for storage. The receivingclerk sends the second copy to the purchasing agentwho closes the open purchase order. The purchaseagent then forwards the receiving report to the inventorycontrol clerk.The inventory control clerk receives the receivingreport and updates the inventory subsidiary. At theclose of business, the clerk prepares an inventory summary,which he sends to the general ledger clerk.Accounts Payable and Cash DisbursementsProceduresThe AP clerk receives the supplier’s invoice andreconciles it with the purchase order in the temporaryfile. From her computer terminal, the clerkrecords the purchase in the purchases journal andrecords the liability by adding a record to the APsubsidiary ledger. The purchases order and invoiceare then filed in the department.Each day, the AP clerk visually searches the APsubsidiary ledger from her terminal for invoices thatare due to be paid. The clerk prepares the check andrecords it in the digital check register. The negotiableportion of the check is mailed to the vendor, and acheck copy is filed. The clerk then closes the liabilityin the AP subsidiary ledger and prepares a journalvoucher, which she sends to the general ledger clerk.Upon receipt of the inventory summary and journalvoucher, the general ledger clerk updates theinventory control, AP control, and cash accounts.Requireda. Create a data flow diagram of the current system.b. Create a system flowchart of the existing system.c. Analyze the physical internal control weaknessesin the system.d. (Optional) Prepare a system flowchart of a redesignedcomputer-based system that resolves thecontrol weaknesses that you identified. Explainyour solution.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

Green Pond Nursery Supply (GPNS) is a garden
center wholesaler in eastern Pennsylvania that sells
and distributes a wide range of garden products
and equipment including organic fertilizers, premium
flower and grass seeds, organic pesticides, and garden
spreaders. GPNS’s customers are primarily
small garden centers and landscape companies in the
Mid-Atlantic states. Sales are on credit.
GPNS’s current information system includes manual
procedures supported by independent (nonnetworked)
PCs in each department. Communications
between departments are entirely through
hard-copy documents. Recently, GPNS has been
receiving complaints from suppliers regarding payment
errors. Management believes that these complaints
stem, in part, from their antiquated computer
system. You have been hired to assess GPNS’s procedures
and internal controls. The following is a
description of GPNS’s expenditure cycle.
Purchasing Process
The purchasing agent receives an inventory status
report from the inventory control department,
which identifies the items that need to be reordered.
The agent selects the suppliers, enters this information
into the computer terminal to create a digital
purchase order, and then prints three hard copies of
the purchase order. He sends one copy to the supplier;
one copy to the AP department, where it is
filed temporarily, and files the third copy in the purchasing
department.
When the goods are received, the receiving
department inspects and verifies them using the
packing slip, which is attached to the goods. The
receiving clerk manually prepares two hard copies
of a receiving report. One copy accompanies the
goods to the warehouse for storage. The receiving
clerk sends the second copy to the purchasing agent
who closes the open purchase order. The purchase
agent then forwards the receiving report to the inventory
control clerk.
The inventory control clerk receives the receiving
report and updates the inventory subsidiary. At the
close of business, the clerk prepares an inventory summary,
which he sends to the general ledger clerk.
Accounts Payable and Cash Disbursements
Procedures
The AP clerk receives the supplier’s invoice and
reconciles it with the purchase order in the temporary
file. From her computer terminal, the clerk
records the purchase in the purchases journal and
records the liability by adding a record to the AP
subsidiary ledger. The purchases order and invoice
are then filed in the department.
Each day, the AP clerk visually searches the AP
subsidiary ledger from her terminal for invoices that
are due to be paid. The clerk prepares the check and
records it in the digital check register. The negotiable
portion of the check is mailed to the vendor, and a
check copy is filed. The clerk then closes the liability
in the AP subsidiary ledger and prepares a journal
voucher, which she sends to the general ledger clerk.
Upon receipt of the inventory summary and journal
voucher, the general ledger clerk updates the
inventory control, AP control, and cash accounts.
Required
a. Create a data flow diagram of the current system.
b. Create a system flowchart of the existing system.
c. Analyze the physical internal control weaknesses
in the system.
d. (Optional) Prepare a system flowchart of a redesigned
computer-based system that resolves the
control weaknesses that you identified. Explain
your solution.

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