HI5019 SIS T1 Assessment Solution-Holmes Institute Australia



RCE Limited is a Queensland-based wholesaler that deals in rafting and camping equipment. In particular, RCE Limited serves outdoor sports camping retailers throughout Queensland. Mr. Chris Doubler has recently joined the accounting department of RCE Limited as ahead of the department. Mr. Doubler gathered a wide range of data from his department using different sources to improve the operations of his department. After analyzing this data, Mr. Doubler is concerned about the revenue cycle of RCE Limited.

You are running an accounting consultancy and considered as the best consultant on the accounting information system. Therefore, Mr. Doubler approached you to evaluate their revenue cycle. During the initial meeting, you suspect that the business activities and related data processing operations of the revenue cycle of RCE Limited might not closely be associated with providing goods and services to customers and collecting their cash payments. You further elaborated that the revenue cycle can be categorized into (1) sales order processing procedures (SOPP), and (2) cash receipts procedures (CRP). Consequently, you requested the head of the accounting department to describe the SOPP and the CRP of RCE Limited separately. This description is given below.


The sales department encourages its customers to forward the orders in any form, including mail, e-mail, or fax. The sales clerk first converts these sales orders into standardized sales orders. For this purpose, the sales representative requests the missing information, if any. (In the light of our discussion during the Interactive Tutorials, please mention this missing information.) When the order is received, the sales clerk checks the customer’s creditworthiness of the customer from his computer terminal. The sales clerk thinks that checking the accounting record is not technical and he can perform these duties efficiently. Two years ago, the sales clerk requested the accounting department to provide him with a list of customers whose account receivables are written off. The sales clerk is still using this information to check the creditworthiness of the customers. The sales clerk did not differentiate the new customers from the existing customers and he is using the same procedure to check the creditworthiness of the new customers. The customer’s order is rejected if the customer’s credit is not verified.

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The sales order processing is started after the credit verification. In particular, the sales clerk records the approved standardized sales order in the sales order system through his computer terminal. A digital copy of the order is distributed to the warehouse and the shipping department terminals for further processing. The computer system automatically records the sale in the sales journal. The clerk files the hard copy of the customer order in the sales department without reviewing the entry. Then, the receipt of the digital sales order prompts on the computer terminal of the warehouse manager. This digital sales order has the associated stock release and the shipping notice. These documents play an important role in the transaction processing system. The warehouse manager has access to these documents. For further processing, the warehouse manager prints out the sales order, the stock release, and the shipping notice. Using the stock release copy, a warehouse clerk picks the selected items from the shelves and sends them to the shipping department along with the stock release and the shipping notice. The warehouse manager then updates the inventory subsidiary ledger and the general ledger control account from his computer terminal.

The shipping clerk receives the physical stock, the stock release, and the shipping notice from the warehouse manager. The shipping clerk matches them to the corresponding digital sales order displayed on his terminal. If everything matches, he prints out three hard copies of the bill of lading and a packing slip. The shipping clerk sends two copies of the bill of lading and the packing slip, along with the goods, to the carrier. The stock release copy and the shipping notice are sent to the accounts receivable department. The third bill of lading copy is filed in the shipping department. The account receivable clerk receives the stock release and shipping notice from the shipping clerk. Then, the accounts receivable clerk manually creates a hard-copy invoice, which is immediately mailed to the customer. After mailing the invoice, the clerk uses information on the stock release to update the accounts receivable subsidiary ledger and general ledger from his computer terminal. After the records are updated, the clerk files the stock release and shipping notice in the accounts receivable department. Sometimes, the account receivable clerk reconciles the quantities from the sales order and adjusts the account receivables.


The payments of customers come directly to the general mailroom along with other mail items. The mail clerk performs the different tasks, including (1) sorting the mail, (2) opening the customer payment envelope, (3) removing the customer’s check and remittance advice, and (4) reconciling these two documents. To control the checks and remittance advice, the clerk manually prepares two hard copies of a remittance list. He sends one copy to the accounts receivable department, along with the corresponding remittance advice. The other copy of the remittance list accompanies the checks to the cash receipts department. Once the checks and remittance list arrive in the cash receipts department, the treasurer performs the following tasks: (1) reconciles the documents, (2) endorses the checks, (3) manually prepares three hard copies of a deposit slip, (4) updates the cash receipts journal and the general ledger from his computer terminal, (5) sends the checks and two copies of the deposit slip to the bank, and (6) files the third copy of the deposit slip and the remittance in the department.

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The accounts receivable clerk receives the remittance list and remittance advice from the mailroom and reconciles these two documents. He then updates the accounts receivable subsidiary ledger and the general ledger. Then, the account receivable files the two documents in the department.


Based on the above information, prepare a report for the chief financial officer of RCE Limited to evaluate their revenue cycle. In your report, you need to include the following items:

1. “The additional cost required to establish separate departments for warehousing, shipping, and inventory control is considered a necessary cost for the added benefit of control over inventory.” Discuss this statement in the light of the existing revenue cycle of RCE Limited.

2. In the light of our discussion during Interactive Tutorials, describe potential internal control weaknesses in the sales order processing procedures and cash receipts procedures of RCE Limited.

3. In the light of our discussion during Interactive Tutorials, discuss the potential risks associated with the internal control weaknesses identified in Section (2) above.

4. Based on Section (3) above, what types are frauds are possible. Hint: we have discussed different types of frauds in the interactive tutorial and lectures. Your discussion should be based on these contents.

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