HI5019 Revenue Cycle In Rainbow Illusion Assessment Answer

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Question :

Assessment Details and Submission Guidelines
TrimesterT1 2019
Unit CodeHI5019
Unit TitleStrategic Information Systems for Business and Enterprise
Assessment TypeIndividual assignment
Assessment TitleCase Study – Rainbow Illusion
Purpose of the assessment (with ULO Mapping)
Students are required to:
  • Describe the various transaction cycles, financial reporting, management reporting systems and e-commerce. (ULO 2)
  • Understand the risks inherent in computer-based systems/ERP, including e- commerce, the role of ethics and the various internal control processes that need to be in place. (ULO 4)
  • Appreciate the opportunities for computer fraud and the security measures in electronic commerce that need to be taken to overcome this. (ULO 5)

Background

Assignment Specifications

Rainbow Illusion is a 30-store retail chain concentrated in New South Wales and Victoria that sells ready-to-wear clothes for young females. Each store has a full-time manager and an assistant man- ager, both of whom are paid a salary. The cashiers and sales personnel are typically young people working part-time who are paid an hourly wage plus a commission based on sales volume. The company uses unsophisticated cash registers with four-part sales invoices to record each transaction. These sales invoices are used regardless of the payment type (cash, cheque, or bankcard).

On the sales floor, the salesperson manually records his or her employee number and the transaction (clothes, class, description, quantity, and unit price), totals the sales invoice, calculates the discount when appropriate, calculates the sales tax, and pre- pares the grand total. The salesperson then gives the sales invoice to the cashier, retaining one copy in the sales book.

The cashier reviews the invoice and inputs the sale. The cash register mechanically validates the invoice, automatically assigning a consecutive number to the transaction. The cashier is also responsible for getting credit approval on charge sales and approving sales paid by cheque. The cashier gives one copy of the invoice to the customer and retains the second copy as a store copy and the third for a bankcard, if a deposit is needed. Returns are handled in exactly the reverse manner, with the cashier issuing a return slip.

At the end of each day, the cashier sequentially orders the sales invoices and takes cash register totals for cash, bankcard, cheque sales, and cash and credit card returns. These totals are reconciled by the assistant manager to the cash register tapes, the total of the consecutively numbered sales invoices, and the return slips. The assistant manager prepares a daily reconciliation report for the store manager’s review.

The manager reviews cash, cheque, and credit card sales and then prepares the daily bank deposit (credit card sales invoices are included in the deposit). The manager makes the deposit at the bank and files the validated deposit slip.

The cash register tapes, sales invoices, and return slips are forwarded daily to the central data processing department at corporate headquarters for processing. The data processing department returns a weekly sales and commission activity report to the manager for review.

Required

Prepare a report to Chief Executive Officer of Rainbow Illusion to evaluate its processes, risks and internal controls for its revenue cycle. In your report, you need to include the following items:

  • Identify six strengths in Rainbow Illusion’s system for controlling sales transactions.
  • For each strength identified, explain what problem(s) Rainbow Illusion has avoided by incorporating the strength in the system for controlling sales transactions.
  • Identify two situational pressures in a company like Rainbow Illusion that would increase the likelihood of fraud.
  • Explain why some companies would choose to install a distributed computer system rather than a centralised one.

Assignment Structure

The report should include the following components:

  • Assignment cover page clearly stating your name and student number
  • A table of contents, executive summary
  • A brief introduction or overview of what the report is about.
  • Body of the report with sections to answer the above issues and with appropriate section headings
  • Conclusion
  • List of references

The report should be grounded on relevant literature and all references must be properly cited and included in the reference list.

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Answer :

Revenue cycle in rainbow illusion



Executive Summary

In this report, a key understanding of the adopted system design in the business functioning of the organization has been taken into consideration. This report is based on the system adaption of the Rainbow Illusion Company. The Rainbow Illusion is a multi-store retail chain and it's every branch works as an independent unit. It is so because of the system being used by the rainbow Illusion. In this report, the focus or analysis will shed light on the strengths of this system and how it affects the business and its processes.  In addition to this, particular aspects of the revenue cycle of the company and its advantages and disadvantages are also discussed with the practical examples. 

Introduction

With the ramified economic changes, every organization needs to strengthen its business sustainability by adapting towards the advance technologies and system process. All the businesses around the world have their revenue cycles. The revenue cycle explained as the complete journey of any product or services from the very beginning to the point of sale. It often starts when a customer orders the product or service, then business delivers the product and service and finally, the customer makes the payment for that product and service. The revenue cycle importance is most in any accounting system. Revenue cycle helps the accountant of the company in keeping the track of the sales and profits made by the company so it is important to track the revenue cycle by implementing a good system.  It has been found that some companies use the centralized computer system for the revenue calculation and processes while some companies use the distributed system. In the following report, we would evaluate the processes applied by the Rainbow Illusion, its revenue cycle, strengths and drawbacks of the system used for sales transactions.

Rainbow Illusion is retail store deals in ready to wear clothes of young females and have 30 stores around Victoria and New South Wales. Company is currently using the manual process to record its revenue cycle. Wherein salesperson manually records the detail of sales and makes sales invoice, then the details are recorded by cashier in the unsophisticated cash register and another two invoice are generated to be given to the customer and one to keep as store copy. Cashier manually checks all the data of the day. Assistant Manager then reconciles the daily report and gives it to the store manager. All the details then send to the central data processing system. 

Strengths of System in Rainbow Illusion

Rainbow Illusion is using the manual system for recording their sales and making sales invoices. The whole system is manual and there is no use of software in any process. Rainbow Illusion also using much-unsophisticated cash registers to making the sales invoices. Following are the strengths of the system used by Rainbow Illusion:

Young people on a part-time basis and incentive-based on sales volume: 

The company is mostly recruiting people who are very young and can be paid on an hourly basis. Also, they are given the incentives on the sales they have done.

Use of unsophisticated cash registers:  

The company is using the unsophisticated cash registers to record the transactions and it is done with four-part sales invoices. The use of unsophisticated registers let the company do not spend a large amount of money on the expensive software which is not of much use in a company which is not very widespread. A basic system is quite sufficient (Menkveld, 2012).

Passing of sales invoices to the cashier:

The Salesperson each day passes all the sales invoices which they have made throughout the day to the cashier. The cashier, in turn, reviews these orders and then inputs the sales. This act as the double-check of sales and order.

Returns handling:

The returns made by the customer in Rainbow Illusion are done in the same manner as the sales are done. The return receipts are made by the salesperson by describing the sale and then return invoice is created and then at the end of the day is handed over to the cashier.

Duties of Cashier and salesperson are different

The duties of salesperson include the sale of clothes and preparation of sales invoice manually. Calculation of discount and sales tax and deciding the total of the sale. Whereas cashier is being tasked with the management of the cash register and input of the sales (Nguyen, and Nanmanas, 2007).

Mechanically assignment of the numbers to the sales transaction by the cash registers

The cash registers provide the numbers mechanically and there is no manual control on it by the cashier and salesperson.

Reducing the complexities of the process 

It is found that the calculation of discount and sales tax and deciding the total of the sale. This helps in ease in the process and creating a clear cut ledger for the company. It allows the company to use the centralized computer system for the revenue calculation process in place of the old distributed system which will increase strengthen the recording process in business. 

Problems Avoided due to the use of the current system in Rainbow Illusion

As Rainbow Illusion is using a manual system for the revenue cycle and all the processes, there are many problems it has avoided. Every strength we have discussed above is a reason a problem is overcome.

Young people on a part-time basis and incentive-based on sales volume:

Since the people recruited by the company are young, they are more enthusiastic, motivated and energetic. They work for part-time to earn some money so wants to earn as much as they can. This leads to slow queue management. The people don't have to wait in queue for a long time and are serviced very fast, because these young people make invoices fast. Also, incentive thing motivates them to convince the customer to buy the things. Hourly payment reduces the cost and encourages healthy competition.

Use of unsophisticated cash registers:  

As the registers are unsophisticated, they can be used by young people with no experience. They are very easy to operate and manage and the recruits do not require the formal technical training to operate them. It helps in saving training cost and time and increases productivity because the person would not get imitated by the complex systems. Also, these systems work faster than most of the software who takes so much time to run and update. The requirement of the internet is much less. 

Passing of sales invoices to the cashier:

At the end of the day, all the sales invoices are handed over to cashier who then reviews all the orders made and the sales done and then inputs the sale into the system. It let to the double-checking of the figures on the same day. Since the discount and the sales tax is being calculated by the salesperson only and he is the one to calculate the total, it quite possible to make the human error. So while reviewing cashier would be able to find out the mistake the same day and the errors would not keep on accumulating (Formigo, 2019).

Returns handling:

The returns made by the customer in Rainbow Illusion are done in the same manner as the sales are done. The return receipts are made by the salesperson by describing the sale and then return invoice is created and then at the end of the day is handed over to the cashier. As the process is quite similar, the salesperson does not have to remember different processes for different things and the whole system would be quite uncomplicated. This will also lead to the quick service to the customer as the salesperson would not get confused as what he/ she needs to do. 

Duties of Cashier and salesperson are different

The use of a separate person for sales and cashier leads to the prevention of any kind of frauds, thefts, and errors. The mistake made at one end can be recognized and corrected by the other one. The salesperson can some time to increase their incentives can make duplicate or wrong entries which can be checked by the cashier. It acts as a two-point review system. If cashier made any mistakes, then they have the assistant manager and store manager above who can find out the mistake (Na, et al. 2011).

Mechanically assignment of the numbers to the sales transaction by the cash registers

This helps in eradicating the theft from the system and also helps if there is any kind of loss of invoice. It helps in the audit trail as well. If any employee has removed any invoice for his/ her gain, it would be caught by the lack of that invoice number. So no employee can misplace any invoice without notice. 

Fraudulent Situations in System of Rainbow Illusions

The company is mainly using the manual system to record the data, therefore there are some pressure points where frauds can occur within the company. Two such situations are:

Shoplifting by salesperson or cashier or Manager:

Since the company does not have a daily stock report with the sales report. There is no way of finding when and by whom shoplifting is done. If the stock is checked daily against the sales, the fraud can find out on the same day. However, this issue could be mitigated through the internal control system detecting this sort of cases. There should be one person who will take a direct report from the managers for daily transactions.

Fraud by the cashier:

The cashier gets all the invoices from the salesperson and put the sale in inputs. Also, he is the one responsible for credit approval on sales. So he can approve some fraudulent credit or can misplace the invoice and can keep the money with himself. The manager has only the invoices which the cashier provides, so any fraud caused by the cashier can go undetected (Singh, and Wheeler, 2012).

Distributed Computer System versus Centralised Computer System

Rainbow Illusion is using a distributed computer system against the centralized one. As the advantages of the centralized computer systems are many, disadvantages are no less in the number. Following are the disadvantages of the use of a centralized computer system over the distributed computer system.

  1. Complicated System: The software used by the centralized computer system are mostly very complex and complicated and requires the technical knowledge of how to use it. Rainbow Illusion is mostly employing young people with hourly based pay who are not so technical (Schnelle, 2016).
  2. Costly: The system of the centralized computer is itself very costly and then require maintenance from time to time. That too from the technical people. It all costs the company too much. Then, to run these system employees required should be technical, who are costly as well. Therefore the company who wants to save the costs go with the distributed computer systems.
  3. Loss of Data: Since all the data of the company gets stored and saved at one place, any corruption of system can lead to the loss of data for entire organization which is not the case with distributed computer systems.
  4. Profit and Loss: It is easy to calculate the profits and losses made by a specific branch and then strategies accordingly.
  5. Customer Interactions: Since the company is having a distributed computer system, every store has its data with them. They have a customer list, what they buy and how much they spend. It will help the store to have better interactions with the clients.
  6. Business process complexities- It is found that the company has a huge process and facing complexities in most of the business process. Therefore, by adopting this system most of the process could be bifurcated and strengthen to increase the effectiveness of business.
  7. Use of network: The centralized system needs 24 hours of internet services and very good internet speeds. Whenever there is no internet connection or speed is low, data doesn't get transferred to the main system and it leads to the slow service rate and high frustration with employees and customers as well.
  8. The complication of the data: the data from all the stores can cause overload in the centralized computer system which can lead to the crash of system and thus it will cause loss of money, manpower, productivity, and revenue. Abrupt failure in the system can cause so much trouble for the company (Laforge, and Tureaud, 2013).
  9. Server Maintenance: for the centralized system, one person is needed for maintaining the server. For maintenance whenever the server is down, it will affect in all the stores but in a distributed system, maintenance can be done at different times and maintenance at one location will not affect the other store.

Conclusion

The report concludes that the rainbow illusions is using the manual and mechanical system for sales transactions. Whereas it has some disadvantage, the advantages by far surpass them. There can be many points where frauds can occur but they can be identified and corrected in this system. It is analyzed that with the retail chain operating in two states only it is better to have a simple system than a very complicated one. Furthermore, it helps the company in saving money by recruiting young, enthusiastic and less experienced workforce who can be managed by the much-experienced store manager. It increases the healthy competition within the company as well. This new system will be helpful for the company to strengthen the system process and increase the overall effectiveness of the process program. The transfer of data to the central processing system each day helps in saving of data at two places which can avoid the loss of data. Each store is managed as self and the independent unit which gives the employees a sense of ownership as well.