Murray case study: Sales cycle
Ordering
For all new customers, a sales manager completes a credit application which is checked with a
credit agency and a credit limit is entered onto the sales system by the credit controller. The sales
system prompts sales managers to complete an annual credit check for existing customers, and
the credit controller amends or approves existing credit limits for these customers. Approved
customers are assigned with a unique customer
account number.
Orders are placed with the sales team. The orders are entered onto the sales system by a sales
assistant. The system automatically checks that the goods are available and that the order will not
take the customer over their credit limit. The system generates two order confirmations, one of
which is sent to the customer by mail/email confirming the goods ordered and likely dispatch
date, the other is retained on file.
Goods dispatch
The warehouse receives the order electronically and goods dispatch notes (GDNs) are generated
automatically. A member of the warehouse team packs the goods from the GDN and a second
member of the team double checks the goods packed to the GDN, signing the GDN to
evidence the check. Two copies of the GDN are sent with the goods ordered. One copy is
retained by the customer and the other is signed by the customer and returned to Murray Co to
confirm receipt of the goods and retained by the warehouse. A copy of the GDN is sent to the
sales team who update the system, confirming dispatch of the goods. A weekly report is sent
automatically to the sales manager who follows up on any incomplete orders with the warehouse
manager.
Invoicing
Once dispatched, a copy of the GDN is sent to the accounts team at head office and a
sequentially numbered sales invoice is raised from the GDN. Periodically a computer sequence
check is performed for any missing sales invoice numbers.
When the invoice is sent to the customer, the system GDN is marked as "invoiced". A system
report is reviewed by the senior accountant on a fortnightly basis for any GDNs that have not
been invoiced. The report is printed and signed as evidence of review. The system generates
customer invoices using the company price list, which is updated quarterly. Discounts must be
requested by a sales manager and authorized by the sales director to allow the accounts team to
raise an invoice.
Recording transaction
The receivables ledger is reviewed for credit balances by the senior accountant on a monthly
basis and the receivables ledger is reconciled with the receivables ledger control account on a
monthly basis by the sales ledger manager and reviewed by the company accountant. Monthly
customer statements are sent to customers.
Cash receipt
Receipts are counted by the office assistant, recorded by the cashier in the cash book, and the
sales ledger clerk is notified of the receipt. The sales ledger clerk agrees the amount received to
the amount invoiced and marks the invoice as paid.
The credit controller reviews the aged receivables analysis on a fortnightly basis and investigates
any old balances. Overdue debts are chased with a telephone call initially, followed by a copy
invoice, and then a warning letter before the debt is passed to a debt collection agency.
Required:
Identify and explain the controls in Murray Co's sales system and suggest how the auditor would
test those controls.
