BUSINESS PROCESS IN ACCOUNTING

QUESTION

Assessment Item 1
Assignment 1
Value:  10%
Due Date:  27 March 2012
Submission method options:  Post (Electronic submission via EASTS
is not
permitted)

Question 1  (30 marks)

Word limit: 600 words

Strides for Strides manufactures and sells athletic wear to retail stores, who then
stock the goods and sell them to customers. Its range of products includes warmup
tracksuits,
body
suits,
running
shoes
and
spikes.
The
business
process
followed

by
Strides
for
Strides
in
supplying
retail
stores
is
as
follows:

The
retail
store
will
send
an
order
to
Strides
for
Strides,
where
it
will
be
received

by

the customer service representative. Orders are generated by and originate
from the retail stores and can come at an ad hoc and irregular basis. Retail stores,
while all being long-standing and regular customers, have typically ordered at the
last minute, resulting in irregular demand levels across the year. Two copies of the
order form are made, with one being sent to the warehouse assistant, who checks
that all goods are available for dispatch to the retail store. The second copy goes
to the accounts receivable office.

Once confirmed as available, the goods are packed, manually recorded on the
goods release form (two copies are prepared) and sent to the shipping department
for dispatch. A courier collects goods and a goods release form every morning and
afternoon and delivers these to the retail store. Once delivery details are
confirmed, an invoice is prepared by accounts receivable, based on the details in
the customer order and the goods release form. Paper invoices are sent out at the
end of each week. Retail stores currently have standard payment terms of 2/15,
n/35. Payment is made in the form of a cheque, which is sent back to the customer
service representative who forwards it on to the accounts receivable office. Strides
for Strides has recently noticed that it is having inventory management problems
due to the spasmodic and irregular nature of orders. This has impacted on its own
ability to meet customer demands. It is also concerned that incorrect quantities of
goods may be packed and shipped, and not detected until the goods reach the
retail stores. This introduces extra costs of handling returns and allowances.
Strides for Strides has also noticed that its accounts receivable turnover has
dropped from 11.7 times per year to 9.5 times per year over the last twelve
months.

An independent consultant has suggested that by re-engineering the process these
problems could be addressed.

1

Required

(a) For the business process described above, identify:
(i)  the participants.
(ii)  the inputs.
(iii)  the outputs.

(b) Identify and describe any inefficiencies that are present in the current
system.

(c) Suggest ways that the business process inefficiencies could be corrected
through business process re-engineering.

(d) Describe some of the issues that may be faced by Strides for Strides in re-
engineering processes. Propose some strategies for dealing with these
issues.

(Adapted from Considine, B., Parkes, A., Olesen, K., Speer, D. M. & Lee, M. T.
(2010). Accounting information systems: Understanding business processes (3rd
ed.). Milton, Qld: John Wiley & Sons, p. 98)

2

Question 2  (70 marks)
Presented below are the purchases and cash payments journals for Reynolds
Hardware for its first month of operations.
Purchases Journal                                                 P1
Date Account debited Post ref. Inventory  Dr
Accounts Payable  Cr

Sep 5 Dixon’s Timbers  8160
6 Brabham Pty Ltd  9000
15 J Wakefield  4704
17 K. Hill  18360
20 J. Wakefield  10560
50784

3

Cash Payments Journal CP1
Date Account credited Post
ref.

4

Other
Accounts
Dr
Accounts
Payable
Dr
Discount
Received
Cr
Sep 1 Supplies  720   720
1 Office Equipment  5000   5000
2 Prepaid Rent  7200   7200
10 Brabham Pty Ltd   9000 90 8910
15 Dixon’s Timber   8160  8160
20 P. Reynolds, Drawings  3000   3000
21 K. Hill  _____ 18360 184 18176
15920 35520 274 51166

In addition, the following transactions have not been journalised for September
2011. The cost of all inventory sold was 65% of the sales price.
Sep
3 The owner, P. Reynolds invested $95000 cash.
6 Sold inventory on account to Gilbert Ltd $6480 terms 1/7, n/30.
7 Made cash sales totalling $4800.
8 Sold inventory on account to Mays Ltd $4500, terms 1/7, n/30.
12 Sold inventory on account to L. Lemansky $5800, terms 1/14, n/30.
13 Received payment for sale made on 8
th
September – Mays Ltd.
16 Received payment for sale made on 12
th
September – L. Lemansky.
20 Received payment for sale made 6
th
September – Gilbert Ltd.
25 Sold inventory on account to S. Kane $4800, terms 1/7, n/30.
27 Made cash sales totalling $5740.
28 Sold inventory on account to Gilbert Ltd $3180 terms 1/7, n/30.
30 Interest received $260.

Cash
Cr
Required
a. Open the following accounts in the general ledger. (Note steps a & d can be
combined, you do not have to show ledgers twice.)

111 Cash 306 P. Reynolds, Drawings
112 Accounts Receivable 401 Sales
131 Inventory 405 Discount Received
141 Prepaid Rent 407 Interest Income
171 Store Supplies 505 Cost of Goods Sold
188 Office Equipment 614 Discount Allowed
190 Accumulated Depreciation 631 Supplies Expense
201 Accounts Payable 711 Depreciaiton Expense
301 P. Reynolds, Capital 729 Rent Expense

b. Journalise each transaction that has not been journalised into the sales
journal, or a cash receipts journal.
c. Post to the accounts receivable and accounts payable subsidiary ledgers.
Follow the sequence of transactions as shown in the problem.
d. Post the individual entries and totals to the general ledger.
e. Prepare an unadjusted trial balance as at 30

5

th
September 2011.
f. Determine that the subsidiary ledgers agree with the control accounts in the
general ledger.
g. The following adjustments at the end of September are necessary.
1.  A count of supplies indicates that $168 is still on hand.
2.  Depreciation on equipment for September is $50.
3.  Recognise rent expense of $600 for September.
Prepare the adjusting entries and then post the adjusting entries to the general
ledger.
h. Prepare an adjusted trial balance as at 30
th
September 2011.
All journals should be prepared using Microsoft Excel, or similar spreadsheet
software.

SOLUTION

(a) For the business process described above, identify:

(i) The participants.

(ii) The inputs.

(iii) The output

Ans. The process is a manufacturing and retailing process, the retailing is not done by the manufacturer but by various retail outlets. Retailing means selling to the final customer (Kotler & Keller, 2008).

i) Hence the participants in the entire business process, from the starting of the supply chain are:

1. Suppliers of raw materials for making the product, in this case athletic wear.
2. Manufacturer of product (Strides for Strides is manufacturer in this case and product is athletic wear)
3. Delivery or Courier firm
4. Retailers
5. Customers

ii) The Inputs are all the raw material required for making the athletic wear. In this case the manufacturer is producing warm-up tracksuits, body suits, running shoes and spikes. Hence raw materials or inputs would include cloth, fabric, laces, chains, soles, leather or leather substitute, thread etc.

iii) The output in this case is athletic wear. The manufacturer Strides for Strides is manufacturing tracksuits, body suits, running shoes and spikes and these are its output.

(b) Identify and describe any inefficiencies that are present in the current system

Ans. The inefficiencies present in the current system is mainly due to the firm’s inability to systematize its order to remittance cycle. It receives orders from various retailers on ad hoc and irregular basis, also the accounts receivables turnover has declined from 11.7 times per year to 9.5 times per year. If the manufacturer is not able to predict and produce according to demand then it will face shortages of some items in demand and surplus of other items which are less in demand. The firm needs to decide upon an inventory management method. The inventory management method is based upon the demand pattern. Hence the firm needs to get an idea regarding the demand pattern and produce and manage its inventory accordingly. Also in order to improve efficiency the firm can do away with paper based systems and adopt computer based systems. Computer based systems are quick and can be accessed by multiple users simultaneously. Reports and data can be retrieved quickly using computer based systems and this enables getting a better grasp on the entire business process and demand patterns, also the payment procedure can be made online instead of by cheques.

(c) Suggest ways that the business process inefficiencies could be corrected through business process re-engineering

Ans. The business process reengineering would require the following:

• Demand pattern needs to be determined for each product using appropriate demand prediction methods.

• The production and inventory management will need to be tuned with the demand patterns.

• An appropriate inventory management method has to be decided. (Khan & Jain, 2007)

• Cooperation from retailers will be required to be sought

• The process would have to be made computer based and online.

(d) Describe some of the issues that may be faced by Strides for Strides in reengineering processes. Propose some strategies for dealing with these Issues.

Ans. Business Reengineering process is a change process and a change process is generally associated with resistance from several sources..

The major issues that may be faced by Strides and Strides in reengineering process are as follows:

Employee Related Issues: Employees are accustomed to work in a particular way and may have difficulty in learning new ways.

Retailer Related Issues: Retailers are also accustomed to fulfilling their demands in a particular way and may offer resistance for changing to a new system.

Strategies for Dealing with Issues

The firm can view the entire reinvestment process as an investment for better returns.

It can chalk out a clear plan of action with the help of its consultant and even calculate its return on investment. It also needs to assess the various sources and reasons from and due to which resistance is expected and prepare in advance for overcoming them.

It can conduct training and demo session for its staff. It can seek cooperation from its various retailers; know their processes and try to systematize their as well as its own business processes. It needs to identify ways by which it can create a win win situation for itself as well as its retailers.

Reference

Kotler,P., Keller, K.L. (2008). Marketing Management.India:Prentice Hall.

Khan, M.Y., & Jain, P.K. (2007). Financial Management Text and Problems. India: Tata McGraw-Hill Publishing Company Ltd.

JC43

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