1. Process Description

Describe the procedures, documents, and departments involved when insufficient inventory is available to fill a customer’s approved order.

Response:

There are several procedures, documents and departments that are involved when insufficient inventory is available to fill a customer’s approved order. When there is insufficient inventory to fill a customer’s approved order, the sales order entry department must be notified in order to keep other items from being ordered or to notify the sales department that these items are out of stock or on back order.   The purchasing department must be notified so that inventory can be ordered and rushed, depending on the urgency of the approved order.   The accounts receivable department must be notified in order to keep a customer’s approved order from being invoiced and the receiving department must be notified in order to make sure that once the inventory is received that the shipping department is made aware so that the customer’s order can be finalized.   Additionally, purchasing and receiving have to look at their inventory totals and compare them against what the computer system is telling the sales order department.  

Additionally, once credit has been approved for the customer, it is essential that the customer’s account is not charged until the order actually ships.   This goes hand in hand with notifying accounts receivable that there is a shortage in inventory.   Additionally, accounts payable needs to be notified to make sure that an order was not placed on hold by the vendor in which the inventory that was thought to have been received, to ensure that there isn’t a problem on the supplier end as a result of payment or credit terms with the organization itself.   Finally all procedures for updating and reconciling reports in each of the departments must be reviewed by management to find out where the breakdown in communication occurred to cause the inventory shortage in the first place.

2. Process Description

Refer to Figure 9.1 and explain where the batch totals come from and which accounts in the general ledger are affected by the end-of-day batch process.

Response:

Batch processing using sequential files:

Activities that are performed manually include:

-order taking

-credit checking -warehousing -shipping

(a) Obtaining and recording customer orders

Orders may be by phone or from a salesperson

A sales order is prepared. Copies are used for credit authorization, packing slips, stock release and shipping notices.

One copy of the sales order form is placed in the “open order file” by customer name

(b) Credit approval May send to credit department for approval or refer to list of approved customers with

maximum credit

Approval is returned to sales department

(c) Processing shipping orders Sales department send copy of sales order to warehouse to authorize stock release.

One copy of the invoice is sent with the goods to the shipping department. One copy is retained in the warehouse to provide a record of the transactions.

Copies of the sales invoice for (1) packing slip and (2) shipping notice are sent from the sales department directly to the shipping department.

When goods are shipped, the shipping notice copy is sent to the billing department

Shipping clerk prepares a “bill of lading” (contract with transport company to deliver goods). This document, when signed by the carrier, establishes ownership (fob destination or shipping point)