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Mary?s Sunshine Pool Incorporated is a merchandising firm




Question;COMPANY BACKGROUNDMary?s Sunshine Pool Incorporated is a merchandising firm that sells various poolsupplies, e.g., chemicals, diving boards, pumps, ladders, poolside furniture, pool games, floatingloungers. At present, Mary?s Sunshine has a manual accounting system, however, the companyhas hired you to implement an accounting program to be used on a personal computer as of July1, the beginning of the current fiscal year. Mary and Ed, the stockowners of the company, havemade available to you the balance sheet and data from the subsidiary ledgers for the fiscal yearended June 30.As of June 30, Mary?s Sunshine Pool Company consisted of a showroom and an office inone building, a distribution center in another building, and five employees. The employees are:Lauren Allen, a salesperson at the showroom, Paul Barton and Ernest Callahan, travelingsalesmen, and Fred and Ted Hill, Mary and Ed?s twin sons who work at the distribution centeronly during the summer months.Mary?s Sunshine Pool Incorporated owns the land, the showroom/office building, thedistribution center building, a delivery truck and two automobiles driven by the travelingsalesmen.REVENUE TRANSACTION CYCLESales are made to users of pool supplies. Pool supplies are displayed and orders forproducts are taken in the showroom. The traveling salesmen also take orders. The distributioncenter is located on the same lot as the showroom/office building. It is here that the orders arefilled and shipped.Order ProcessingAll sales are credit sales, which are subject to the approval of Ed. Ed approves creditbased on his "gut" feeling for each individual case and on the opinions of his bowling buddies.Generally, Ed wants to make the sales and few orders are not approved. In the few cases whereEd does not approve the credit, he marks his copy of the sales order accordingly. He makes acopy of all of the disapproved orders and two copies of the approved orders. He sends the onecopy of both the approved and disapproved orders and all of the original orders to Mary. Hesends a copy of the approved orders to the twins so they can fill them.Mary prepares a report for each salesperson listing both the sales orders turned down forcredit and the approved sales and sends the reports along with the marked sales order to thesalespeople. The salespeople notify customers of disapproved credit and then throw the reportsand sales orders in their car trunks or wastebaskets. Mary files the copies of the approved ordersuntil a shipping notice is received. The copies of the disapproved orders are thrown away.ShippingOut of town orders are shipped common carrier FOB Destination. Recently, Ed had abrief meeting with the twins about the possibility of sending the bulk of freight shipmentsthrough one common carrier, Iron Rooster Trucking Company. The advantage to Mary?sSunshine would be a rebate paid quarterly of up to 15% of freight charges. Based on prior years'business, this rebate would total in excess of $15,000 per year. Without giving this practicemuch thought, Ed told the twins to begin using Iron Rooster as much as possible.The twins take all of the approved orders, find and box the merchandise and prepare a billof lading for the carrier. The twins send their copy of the sales order marked "shipped" and acopy of the bill of lading to Mary.After an order has been shipped, the twins update the inventory cards to keep an accuraterecord of items on hand.At the end of the week, all of the inventory cards are reviewed and a weekly shipmentsreport is prepared.Accounts ReceivableMary matches the sales order marked "shipped? to her copy of the sales order. She thenprepares a two-part invoice and mails the original to the customer. She records the sales in thesales journal and the receivables in the subsidiary ledger. Mary files by date her copy of theinvoice with her copy of the sales order and the shipping documents.During the summer season, Mary?s Sunshine often has difficulty in shipping customerorders in a timely manner. Supplier delays in delivery to Mary?s Sunshine and increased volumecause delays in outgoing shipments. At the end of some months, Mary prepares and mailscustomer invoices ahead of actual shipment. She claims this practice more closely matchesrevenues and expenses. As usual, Mary records the sales in the sales journal and in the accountsreceivable subsidiary ledger.Customers are allowed to take a 2% discount if they pay within 10 days of the billingdate, otherwise, the net amount is due in 30 days.Once per month, Mary prepares a listing of delinquent customers that she sends to thesalespeople. They are responsible for collecting the overdue amounts.Cash ReceiptsMary opens the mail each day, sorts the cash receipts and the invoices to be paid and logsthem in the appropriate logs. Mary records the receipts on customers account in the cash receiptsjournal and in the accounts receivable subsidiary ledger. After recording all the cash receipts,she prepares a deposit slip and takes the cash to the bank.DISBURSEMENT CYCLEPurchasingEvery Friday afternoon, the salespeople prepare weekly sales reports from their copies ofthe sales orders. They send the reports to Ed and then refile their sales orders by customer name.Ed reviews the weekly sales reports and the weekly inventory reports prepared by Fred and Ted.Ed "eyeballs" the numbers, notes any shortages in inventory, and prepares 3-part purchaseorders. He mails the original to the vendor, sends one to the twins in the distribution center andone copy to Mary.As noted above, Fred and Ted have a card file for keeping track of inventory. Each cardhas a running balance to expedite the preparation of the weekly inventory reports for Ed. Whenthey receive a copy of a purchase order, they pull the cards for the item(s) ordered, record thequantity ordered and the P.O. number, and file the purchase order in numerical order. When theshipment arrives, Fred and Ted pulls the purchase order to make sure that the items receivedwere the items ordered and note any back orders on the purchase order. Then they pull theinventory cards, mark the items received, and prepare a receiving report that is sent to Mary.Cash DisbursementsAs noted above, Mary opens the mail and separates and logs the cash receipts and theinvoices to be paid. Invoices are filed in alphabetical order by due date. Each Thursday, Marypulls the invoices that are due that week and types three-part checks. The checks, along with theinvoices, are given to Ed for his approval and signature. After Ed signs the checks, Mary mailsthe original, files the second copy in check number order, and attaches the third copy to theinvoice. She then enters the check in the cash disbursement journal and the accounts payablesubsidiary ledger. The third copy of the check and the attached invoice are filed alphabeticallyby vendor name.PayrollA full service payroll processing company called Payroll Paid Promptly (PPP) processespayroll. PPP calculates the payroll, creates and mails the checks to the employees and remits allpayroll taxes and other withholdings to the appropriate locations. They send Mary a report onceper month reflecting the transactions made on behalf of PPP. Mary prepares a journal entry toreflect the payroll and updates the general ledger. PPP charges a fee of 10% of the gross payrollfor the payroll service. Mary prepares the check for these services once per month.The employees, who are paid once a month, are as follows:Lauren Allen, a salesperson at the showroomPaul Barton and Ernest Callahan, traveling salesmenFred and Ted Hill, twins who work at the distribution center


Paper#43441 | Written in 18-Jul-2015

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