Develop an entity relationship diagram

Assignment Help Accounting Standards

Reference no: EM13165418

Learning Objectives

This case involves four of the major learning objectives of a typical accounting information systems course including:

creating business process documentation

(Entity Relationship models and Data Flow Diagrams)

creating a logical flowchart of the revenue process
integrating internal controls in a computerized accounting system
implementing appropriate segregation of duties in the business process

Introduction

"Dad, this is a really good idea and we think that we can make a lot of money!" exclaimed Abby Schafer as she presented her request for capital financing to her potential venture capital source (also known as "Dad"). The venture capitalist listened intently to the presentation and concluded that the project was intriguing, but he insisted that the managers of Schafer Lemonade Stand (SLS) have computerized accounting information systems (AIS) developed for their business processes, and have their internal controls examined. You have been retained as an independent consultant to perform the system analysis, documentation, design, and implementation of their accounting system including recommendation of relevant internal controls.

Background

Abby and Emma Schafer, two children who live beside a golf course, were tired of asking Dad for money and were trying to figure out a way to earn money on their own. Noticing the large number of overheated looking golfers who walked by their house, Abby and Emma decided to start a lemonade stand.

The golf course near the Schafer house is a private course with an established membership group. Members are allowed to "charge" all activities and products used and/or acquired at the course to their "account." The golf course sends a statement to each member at the end of each month as an invoice for the month's activity. When surveyed, the members of the golf course indicated that it would be desirable to have a lemonade stand offering cool refreshing lemonade for patrons located on the course. Abby and Emma decided to exhibit an entrepreneurial spirit and start Schafer Lemonade Stand (SLS). Their request for venture capital to their Dad (above) resulted in his requirement for reports detailing how the children will operate their business (what the accounting system will look like).

After interviewing Abby and Emma you found that SLS opened a bank account and an account at the grocery store (with terms 2/10 net 30). SLS will offer many flavors of lemonade including; blackberry, blueberry, cherry, cinnamon, fuzzy navel, grape, green apple, kiwi, lemon, lemon lime, lime, orange, orange pineapple, peach, peppermint, red raspberry, strawberry, strawberry banana and watermelon. Currently, the children divide the work and profits equally and all profits go into a bank account where ¾ are saved for college and ¼ are available for the girls to spend.

The golf course requires a membership to play on the course. Anyone playing will be able to stop at the lemonade stand and purchase a drink on their membership account. The lemonade stand will be located beside the clubhouse and members can feasibly stop before the round, at the halfway point, and after the round of golf. Abby takes the money to the bank for deposit, and Emma updates the books to record the receipt of cash for each member's account. Also at the end of the month, Dad must be provided with a report on the operations of the business (sales and cash receipts). Abby completes the bank reconciliation each month when she receives a bank statement.

Revenue Narrative

The Sales Order Process

The revenue process begins with the member order. A member walks up to the cabana and orally tells the sales clerk what product(s) they would like and their member number. First, the sales clerk (Emma) checks the customer's credit (a list of members in good standing). If the customer's credit is approved, the sales clerk creates an order using the PC based sales system and prints three copies of the sales order. The member signs the first copy of the sales order. The sales order has a place for the date, member number, member signature, and details for each product purchased of product description, quantity, price, and receipt total. At the end of the day, Emma prepares a report of the total sales, and sales by customer. The first copy of the sales order is sent to the production function for packaging and delivery to the customer. The second copy is sent to shipping. The last copy is filed numerically at the point of sale for the billing department.

When production receives the stock release (one copy of the order), the operator (Abby) pours the selected product from an individual bottle into a cup with ice. The operator then uses the stock release to update the inventory ledger quantity. In order to maintain sufficient records of all the inventory, the inventory ledger is kept by hand. A journal voucher is created once per day and used to update quantity on hand in inventory on the system and is then filed by date. The stock release and product are then sent to the shipping department.

The shipping department (Emma) receives the product, and the stock release form. The product and stock release are matched to the second copy of the sales order (shipping notice) which had been filed numerically. The product and documents are reconciled. The shipping notice is then re-filed. The goods are delivered to the customer with a packing slip. At month end, the billing department has the system create a statement for each member and a total sales report for the month and delivers all statements and the sales report to the golf course management. A remittance advice is attached to the bottom of each member's statement. Members issue a separate check to the SLS for their lemonade purchases.

The Cash Receipts Process

The golf course manager sends out the member's statement and collects the payments. The cash receipts system begins when the golf course returns the remittance advice and the check for each member's purchases. The golf course is sent 10% of the total lemonade sales as a service charge and rent for the lemonade stand. The mail clerk (Abby) receives the checks and remittance advices. These documents are reconciled and used to prepare two copies of a remittance list. A copy of the remittance list is sent to the controller. The remaining copy is sent to treasury (Abby) with the checks and the remittance advices.

The treasury clerk (Abby) uses the copy of the remittance list and the remittance advices to update cash received and accounts receivable. The remittance list and the remittance advices are filed. The treasury clerk also prepares a deposit slip. The treasury clerk takes the deposit slip to the bank with the checks for deposit. The deposit slip receipt from the bank is filed.

Requirements

1 Create a list of activities for the Lemonade stand including a column for activity description, process type (e.g., input, process/maintenance, output), and data involved in each activity.

2 Develop an Entity Relationship (ER) diagram with cardinalities based on the procedures described in the narrative and requirement 1 above.

3 Prepare data flow diagrams (Context and Level 0) of the systems described.

4 Create logical flowcharts of the Sales Order and Cash Receipts Processes.

Reference no: EM13165418

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