Mary’s SunShine POOL case

SYSTEM IMPLEMENTATION AND

TRANSACTION PROCESSING PROJECT (300 points)

Mary’s SunShine POOL

BACKGROUND

The objectives of this project are as follows:

· To reinforce your learning the AIS concepts presented in class

· To experience a transaction processing application

· To see the composition of the fields on different tables, such as the fields contained in the general ledger table, the accounts receivable table, etc.

· To see the advantages of the automated features contained in an accounting information system, such as the automatic posting of transactions

· To demonstrate on-line computer controls such as field edits, reasonableness checks, etc.

· To see the interfaces between sub-systems and the general ledger and increase your ability to track information into the financial reports

· To experience implementing an accounting system

· To practice project planning with an inflexible deadline

· To experience an extensive, multi-part project completed as a team.

Assume that Mary’s Sunshine Pool Incorporated has hired you as a consultant to analyze the controls in its existing system and to implement a computerized accounting system. The present accounting system is entirely manual. The new system will be an accounting software package that runs on a microcomputer.

	Requirement	Points
1.	Prepare a project plan in Gantt chart format showing how you and your partner completed the project	20
2.	Prepare a system flowchart of Mary’s Sunshine Pool Company’s transaction processing under the manual system as described in this handout	50
3.	Perform the company set up and process transactions for the company. Print reports.	130
4.	Prepare a one-page memo to the company owners.	75
	Total task points	275
	50 Participation points-to split between your partnership

case materials

MARY’S SUNSHINE POOL INCORPORATED

4000 Chastain Road

Anywhere, XX 12345

Federal Tax ID: 444-43-5513

COMPANY BACKGROUND

Mary’s Sunshine Pool Incorporated is a merchandising firm that sells various pool supplies, e.g., chemicals, diving boards, pumps, ladders, poolside furniture, pool games, floating loungers. At present, Mary’s Sunshine has a manual accounting system; however, the company has hired you to implement an accounting program to be used on a personal computer as of July 1, the beginning of the current fiscal year. Mary and Ed, the stockowners of the company, have made available to you the balance sheet and data from the subsidiary ledgers for the fiscal year ended June 30.

As of June 30, Mary’s Sunshine Pool Company consisted of a showroom and an office in one 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, traveling salesmen, and Fred and Ted Hill, Mary and Ed’s twin sons who work at the distribution center only during the summer months.

Mary’s Sunshine Pool Incorporated owns the land, the showroom/office building, the distribution center building, a delivery truck and two automobiles driven by the traveling salesmen.

REVENUE TRANSACTION PROCESS

Sales are made to users of pool supplies. Pool supplies are displayed and orders for products are taken in the showroom. The traveling salesmen also take orders. The distribution center is located on the same lot as the showroom/office building. It is here that the orders are filled and shipped.

Order Processing

All sales are credit sales, which are subject to the approval of Ed. Ed approves credit based 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 where Ed does not approve the credit, he marks his copy of the sales order accordingly. He makes one copy of all of the disapproved orders and two copies of the approved orders. He sends the one copy of both the approved and disapproved orders and all of the original orders to Mary. He sends 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 for credit and the approved sales and sends the reports along with the marked approved and disapproved sales order to the salespeople. The salespeople notify customers of disapproved credit and then throw the reports and sales orders in their car trunks or wastebaskets. Mary files the copies of the approved orders until a shipping notice is received. Mary throws the copies of the disapproved orders away.

Shipping

Out of town orders are shipped common carrier FOB Destination. Recently, Ed had a brief meeting with the twins about the possibility of sending the bulk of freight shipments through one common carrier, Iron Rooster Trucking Company. The advantage to Mary’s Sunshine 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 practice much 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 bill of lading for the carrier. The twins send their copy of the sales order marked "shipped" and a copy of the bill of lading to Mary.

After an order has been shipped, the twins update the inventory cards to keep an accurate record of items on hand.

At the end of the week, all of the inventory cards are reviewed and a weekly inventory report is prepared.

Accounts Receivable

Mary matches the sales order marked "shipped” to her copy of the sales order. She then prepares a two-part invoice and mails the original to the customer. She records the sales in the sales journal and the receivables in the subsidiary ledger. Mary files by date her copy of the invoice with her copy of the sales order and the shipping documents.

During the summer season, Mary’s Sunshine often has difficulty in shipping customer orders in a timely manner. Supplier delays in delivery to Mary’s Sunshine and increased volume cause delays in outgoing shipments. At the end of some months, Mary prepares and mails customer invoices ahead of actual shipment. She claims this practice more closely matches revenues and expenses. As usual, Mary records the sales in the sales journal and in the accounts receivable subsidiary ledger.

Once per month, Mary prepares a listing of delinquent customers that she sends to the salespeople. They are responsible for collecting the overdue amounts.

Cash Receipts

Mary opens the mail each day; sorts the cash receipts and the vendor invoices to be paid and logs them in the appropriate logs. Mary records the receipts on customers account in the cash receipts journal 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 PROCESS

Every Friday afternoon, the salespeople prepare weekly sales reports from their copies of the sales orders. They send the reports to Ed and then file 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 purchase orders. He mails the original to the vendor, sends one to the twins in the distribution center and one copy to Mary.

As noted above, Fred and Ted have a card file for keeping track of inventory. Each card has a running balance to expedite the preparation of the weekly inventory reports for Ed. When they receive a copy of a purchase order, they pull the cards for the item(s) ordered, record the quantity ordered and the P.O. number, and file the purchase order in numerical order. When the shipment arrives, Fred and Ted pulls the purchase order to make sure that the items received were the items ordered and note any back orders on the purchase order. Then they pull the inventory cards, mark the items received, and prepare a receiving report that is sent to Mary.

As noted above, Mary opens the mail and separates and logs the cash receipts and the invoices to be paid. Invoices are filed in alphabetical order by due date. Each Thursday, Mary pulls the invoices that are due that week and types three-part checks. The checks, along with the invoices, are given to Ed for his approval and signature. After Ed signs the checks, Mary mails the original, files the second copy in check number order, and attaches the third copy to the invoice. She then enters the check in the cash disbursement journal and the accounts payable subsidiary ledger. The third copy of the check and the attached invoice are filed alphabetically by vendor name.

Payroll

A full service payroll processing company called Payroll Paid Promptly (PPP) processes payroll. PPP charges a fee of 10% of the gross payroll for the payroll service. PPP calculates the payroll, creates and mails the checks to the employees and remits all payroll taxes and other withholdings to the appropriate locations. PPP drafts the cash needed for payroll disbursements and their fee directly from Mary’s Pool checking account. They send Mary a report once per month reflecting the transactions made on behalf of Mary’s Pool. Mary prepares a journal entry to reflect the payroll and updates the general ledger.

The employees, who are paid once a month, are as follows:

Lauren Allen, a salesperson at the showroom

Paul Barton and Ernest Callahan, traveling salesmen

Fred and Ted Hill, twins who work at the distribution center

End of Month

At the end of the month Mary makes adjusting journal entries based on her memory of the previous transactions and by consulting the prior month’s balance sheet. She also prepares and mails statements to customers.

Project Plan

Determine the tasks that you will perform to complete the project

Ø Determine how your team will complete the tasks

Ø Prepare a Gantt chart with time and dates indicated

Ø Prepare a final Gantt chart showing when the tasks were competed and how many hours each task took compared to your planned hours.

Hint: think carefully about how you want to complete the tasks and how much you trust your partner to get his/her portion of the project done.

Hint: consult lecture notes (Powerpoint) for an example of a Gantt chart

Prepare a system flowchart

Ø Follow the flowcharting guidelines in your textbook and as we have discussed in class. SEE PAGE 124 (FLOWCHART GUIDELINE 4) FOR USE OF OFF PAGE CONNECTORS.

Ø The final copy of the flowchart should be prepared using flowcharting software or Microsoft office.

Hint: It is usually the easiest to set up the flowchart with a page for each entity.

Set up Company and process transactions

Ø Configure Company (Set Up Information)

You need to start by creating a new company for the business. Read through the entire case before you start setting up your company.

Note: given that this is a class project, the company name should be your names. Complete the company information making up information as you see fit.

The proper date to start recording the transactions is 7/1. The fiscal year is 7/1/CY through 06/30/NY.

You will be establishing the chart of accounts, the vendors, the customers and the inventory and service products. As part of your configuration, you need to decide the coding schemes that will be used for each of these data files. Also, to save yourself time, carefully set up the “default” information for customers, vendors, and inventory items.

The company uses one checking account. The business has used prenumbered invoices and checks in the past. However, given that they need to purchase new forms to accommodate the new software they plan to restart their numbering sequences at 1.

Given the small size of the company and the lack of available accounting expertise, the company has decided to outsource payroll to a company specializing in payroll services. This company provides a monthly report upon which to base the payroll journal entries.

Further, given the small size of the company and the lack of systems experience the new system will be implemented without using e-commerce.

Note: Be very careful working through the company set up options, this is where you establish how your company will function. If you get it wrong to start, it will affect all later transactions and reporting.

Ø Implement a chart of accounts

Packaged software usually comes with several chart of accounts templates. When setting up your company, you should select a standard chart of accounts for the industry and type of product you will be selling. Then go through the chart of accounts and modify it to suit this business. After you have modified the accounts, use the balance sheet provided in Appendix A to load the beginning balances using a Journal Entry.

Ø Load beginning balances

You also need to set up the account balances for the customers, vendors and inventory. The appropriate balances are given in the subsidiary ledgers for customers (Appendix B), vendors (Appendix C), and inventory products (Appendix D).

Inventory

Inventory items are shown in appendix D. The company would like to use the perpetual weighted average cost method to value inventory. There are two applicable price levels for the company: normal pricing and governmental pricing (the government entities get a 2% discount).

Note: Set up your price levels (discounts) before you set up your customers.

Customers

All products are subject to state sales tax. The state sales tax rate is 5%. The open invoice method is used for all customers. Governmental customers get a preferred price (2% discount). In addition, Governmental customers do not pay sales tax. The ship-to and billing address are the same for all the customers. You should assume some reasonable information for any data fields that you feel are critical, but for which information is not provided. Statements are prepared and sent to each customer at the end of each month.

APPENDIX B provides information for the customer subledgers.

Vendors

The only trade accounts payable with outstanding balances at this time are shown in APPENDIX C. The credit terms for all trade creditors are Net 30 and all product purchases are exempt from sales tax. You should assume some reasonable information for the required fields. Additional vendors will be established as invoices are received for payment.

Ø Process transactions

Record the transactions for Mary’s Sunshine listed on the transaction list for July (See Appendix E)

Prepare Memo: Analyze the business

Prepare a one-page memo to Mary’s Sunshine’s proprietor summarizing your opinions on their business and suggest ideas for improving it. The memo should be the last thing that you do and will be based on the previous project outputs such as the income statement, cash flow statement and balance sheet.

Hint: use memo format (to:, from:, subject, etc.). Remember memos must be easy to read. Grammar counts.

Hint: You may want to use some of the ratios that you learned in intermediate accounting.