• EDI is more than just a technology. EDI technology was devised to expedite routine transaction between manufactures and wholesalers, and between wholesalers and retailers.

• EDI represents a strategic business arrangement between buyer and seller in which they agree, to the terms of their relationship. 

• EDI poses unique control problems for organizations. Risk of EDI is that a trading partner, or someone masquerading as a trading partner, will access firm's accounting records in a way that is unauthorized by the trading partner agreement.

• It involves the exchange of goods directly for cash in transaction at the point of sale.

• Inventory is kept on the store’s shelves, not in a separate warehouse.

 To ensure that only valid        transaction are processed.

To provide independence to the credit authorization process. 

To allow for operational flexibility in unusual circumstances.

• Customer contacting sales department.
• Sales department clerk manually records the essential details. 
• Multipart document is filed while one copy of it is sent to credit department for approval.

• Review the customer's credit history in the customer records file to verify customer's creditworthiness.
• Access an online credit bureau for new customers.
• Customer order and credit approval are then placed in the customer order file.

• Receives the stock release copy of the sales order and uses this to locate the inventory.
• The inventory items and stock release are sent to the shipping department.
• Record the inventory reduction in the stock records file.

• Reconciles the products received with the shipping notice copy of the sales order received.
• Prepare a bill of lading, package the product and ship to customer.
• Record transaction and sends the shipping notice and stock release document to the billing department.

• The shipping notice provides proof that the product has been shipped and is the trigger document that initiates the billing process.
• Compile the relevant facts about the transaction and bills the customer.
• Enters the transaction into sales journal file, distributes stock release and ledger copies of the sales order.
• Shipping notice is sent where it is filed in the customer order file.
• Periodically prints out a hard copy journal voucher and send it to general ledger department.

• AR & IC clerks update their subsidiary ledgers.
• Search their respective files for the correct records by entering the primary key data.
• AR clerk updates the current balance field in the AR record.
• IC clerk updates the quantity-on-hand field.
• A record is added to the purchase requisition file. 
• Periodically, AR and IC clerks prepare hand-copy journal vouchers and account summaries and send to GL department (reconciliation and posting to the GL accounts).

• Customer payments and remittance advices arrive at the mail room. 
• Clerk sends the checks and a copy of remittance list to the cashier in cash receipts department.
• Remittance advices and a copy of remittance list are sent to the AR department.

• The cashier records the checks and promptly sends them to the bank including two copies of deposit slip.
• Periodically, employee prepares a journal voucher and sends it to GL department.

• Uses the remittance advice to reduce the customer's account balances.
• Prepares summary of changes to account balances and sent to GL department.

• GL clerk reconciles the information (receipt of journal voucher & account summary) and posts to the control accounts.

• Periodically performs a bank reconciliation by comparing deposit slips returned from the bank, account summaries used to post to the accounts and journal vouchers.

Verifies that the goods sent from the warehouse are correct.

Product code scanner will reduce the risk of human error in shipping incorrect product.

The computer logic should check to determine if the reduction in inventory drops the inventory quantity-on-hand.

• Typically, Internet sales are credit card transactions that are sent to the seller’s e-mail file.

• Example include B2B and business-to-consumer (B2C) transactions.

• Connecting to the Internet exposes the organization to threats from computer hackers, viruses, and transaction fraud.

• Most organizations take these threats seriously and implement controls, including password techniques, message encryption, and firewalls, to minimize their risk.

The remittance list or cash prelist verify that customer checks and remittance advice match.

Audit trail can discover where an error occurred.

Allow every transaction to be identified uniquely, would be easier to verify and trace the transactions.

The system provides a concise record of and entire class of events ; Sales Journal and Cash Receipt Journal.

Used for capturing transaction event details in the revenue cycle.

Checks for missing data, would reduce the risk.

1. Checks the availability of the items requested and performs a credit check.
2. If credit is approved:
   ✔ A record is added to the sales invoice file.
   ✔ Transmits a digital stock release document to warehouse.
   ✔ Sends a digital copy of the packing slip to the shipping department. 
3. Warehouse clerk's terminal:
   ✔ Immediately produces a hard copy printout  of the electronically transmitted stock release document.
   ✔ Picks out the goods and sends them to shipping department, along with a copy of the stock release.
4. Shipping department: 
   ✔ Reconciling the goods with the packing slip.
   ✔ Preparing them for shipment and select carrier.
   ✔ Access the system and transmit a digital shipping notice (when goods shipped).
5. System automatically perform accounting tasks:
   ✔ Updates the customer's credit history.
   ✔ Reduces the quantity-on-hand field in the inventory subsidiary records.
   ✔ If the quantity-on-hand has fallen below the reorder point, add a record to the purchase requisition in file.
   ✔ Place an "on-order" flag in the inventory record.
   ✔ Insert a shipped date in sales invoice.
   ✔ Update the GL accounts.
   ✔ Produces and distributes various management reports.

• Opens the envelopes containing checks and remittance advices.
• Endorses the checks for deposit only.
• Reconciles the checks and remittance advices and prepares a remittance list.
• Send all of them to the cash receipts department.

• Reconciles the checks and remittance advices with the remittance list and prepares deposit slips.
• Accesses the cash receipts system via terminal. 
• Creates a record in the remittance file for each remittance advice received.
• Files the remittance list, remittance advices and one copy of the deposit slip.
• Deposits the checks in the bank.

• Closes the sales invoices that are covered by the customer.
• Posts to the GL accounts.
• Prepares and distributes various management reports.

• Periodically performs a reconciliation of remittance lists, bank deposit slips, cash receipts journals  and GL cash accounts.

The remittance list provides a control against the loss or theft of checks and remittance advices as they flow through the system.

By closely supervising employees who perform potentially incompatible functions can compensate for this control weakness.

Help prevent and detect unauthorized access to the firm's assets ; Warehouse security such as fences, alarms and guards.

Ensures that no single individual or department processes a transaction in its entirely.

Hard-copy accounting records and department PC's that contain accounting information on hard drive should be kept in secure areas.

The organization should be structured that the perpetration of a fraud requires collusion between two or more individuals.

Organization management should implement a robust password control policy to prevent unauthorized access.

Permit simultaneous access to a control system by many users with different access privileges.

• A copy of prelist.
• Deposit slips  from bank.
• Related journal voucher.