Accounting Information Systems 7th Edition by Cynthia Heagy,Constance Lehmann

Exercise 6

Value Clothing is a large distributor of all types of clothing acquired from buyouts, overstocks, and factory seconds. All sales are on account with terms of net 30 days from date of die monthly statement. The number of delinquent accounts and uncollectible accounts has increased significantly during the last 12 months. Management has determined that the information generated from the present accounts receivable system is inadequate and is not timely. Top management has requested a new system to satisfy the following objectives:
1. Produce current and timely reports regarding customers that would provide useful information
a. aid in controlling bad debts.
b. notify the sales department of customer accounts that are delinquent (accounts that should lose charging privileges).
c. notify the sales department of customers whose accounts are considered uncollectible (accounts that should be closed and written off).
2. Produce timely notices to customers regarding:
a. amounts owed to Value Clothing.
b. a change of status of their accounts (e.g., loss of charge privileges, account closed).
3. Incorporate the necessary procedures and controls to minimize die chance for errors in customers' accounts.
A project team that you have been working with has selected a new accounting system with, what you believe, is a good customer (accounts receivable) module. A brief description of the reports and other output generated by the new system is given below:
1. Accounts Receivable Register-a daily alphabetical listing of all customers' accounts that shows balance as of the last statement, activity since the last statement, and account balance.
2. Customer Statements-monthly statements for each customer showing activity since the last statement and account balance; the top portion of the statement is returned with the payment and serves as the cash payment remittance.
3. Aging Schedule-All Customers-a monthly schedule of all customers with outstanding balances displaying the total amount owed, with the total classified into age groups: 30 days, 30 to 60 days, 60 to 90 days, and more than 90 days; the schedule includes totals and percentages for each age category.
4. Aging Schedule-Past Due Customers-a schedule prepared monthly that includes only those customers whose accounts are past due (i.e., more than 30 days outstanding classified by age). The credit manager uses this schedule to decide which customers will receive delinquent notices, which will receive temporary suspension of charge privileges, or which will have their accounts closed.
5. Activity Reports-monthly reports that show:
a. customers who have not purchased any merchandise for 90 days.
b. customers whose account balance exceeds their credit limit.
c. customers whose accounts are delinquent, yet they have current sales on account.
6. Delinquency and Write-off Register-a monthly alphabetical listing of customers' accounts that are:
a. delinquent.
b. closed.
These listings show name, account number, and balance. Related notices are prepared and sent to these customers.
7. Summary Journal Entries-entries are prepared monthly to record write-offs to the accounts receivable file.
Required:
a. Identify the data that should be captured and stored for each customer.
b. Review the proposed reports to be generated by the new accounts receivable system.
1. Discuss whether the proposed reports should be adequate to satisfy the objectives enumerated.
2. Recommend changes, if any, that should be made in description of the proposed reports and other output generated by the new accounts receivable system.
[CMA adapted]