Problem 1: Case 30 points

Tune Fork is a large wholesaler of sheet music, music books, musical instruments, and other
music related supplies. The company acquired a midrange computer system last year, and an
inventory control system has already been implemented. Now the systems department is
developing a new accounts receivable system.

The Figure on the next page is a diagram of the proposed accounts receivable system as
designed by the systems department. The objectives of the new system are:

1. to produce current and timely information that can be used to control bad debts,
2. to provide information to the sales department regarding customers whose
accounts are delinquent,
3. to produce monthly statements for customers,
4. and to produce notices to customers regarding a change in the status of their
charge privileges.

Input data for the system are taken from four source documents: approved credit applications,
sales invoices, cash payment remittances, and credit memoranda. The accounts receivable
(A/R) file is maintained on magnetic disk by customer account number. The record for each
customer contains identification information, last month=s balance, current month=s transactions
(detailed), and current balance.

Some of the output items generated from the system are identified and described briefly:

1. Accounts receivable register (weekly)--a listing of all customers and account

balances included in the accounts receivable file.

2. Aging schedule (monthly)--a schedule of all customers with outstanding balances,

detailing the amount owed by age classifications: 0-30 days, 30-60 days, 60-90 days,
over 90 days old.

3. Delinquency and write off registers (monthly)--

(A) a listing of those accounts that are delinquent and
(B) a listing of customers= accounts that have been closed and written off; related
notices are prepared and sent to those customers.
REQUIRED:

Part 1: (20 points)

Tune Fork=s system department must develop the system controls for the new accounts
receivable system. Identify and explain the controls that must be instituted within the new
system. When appropriate describe the location in the flowchart where the control should be
introduced. (You may include controls from all categories we discussed in class. Some controls
are already indicated on the flowchart--you may include these in your answer. Be sure to give
as broad an answer as possible with controls from as many categories as apply to the Tune
Fork=s system.)

(Include at least 10 controls in your answer.)

Solution to Part 1:
The system controls which should be instituted in Tune-Fork=s new system are listed below.

Sample:

1. Batch totals are accumulated prior to input but there is no indication that they are used.
These batch totals should be compared to output to be sure all data is entered and
processed.
2.