National Merchandising case

(adapted by Prof. Al Bento, University of Baltimore)
Version 4.1, January 2004


National Merchandising receives invoices from its vendors by mail. Every morning the mailroom manager, Ross Manning, delivers all invoices and all mail addressed to the attention of the accounts payable department to Ginny Anderson, the accounts payable clerk, who accumulates invoices throughout the week in an accordion folder. On Thursday, she reviews, prices and posts the invoices.

Thursdays mornings, Ginny checks if the invoices were signed or not by the vendors, and if the invoices were accepted or not by an authorized employee at National Merchandising. If they are not, she mails the invoices back to the vendors with the corresponding reason(s). If the orders are signed and were accepted she checks if a purchase order is on file. If it is she approves the invoices. If there is no purchase order on file she sends the order to the purchase department for approval. If the purchase department secures the approval of the invoice and sends it back to accounts payable, Ginny files it with the other approved invoices. If the invoice is not approved by the purchase department she mails it back to the vendor, again, with the corresponding reason(s). Then, she verifies all price, shipping and handling, and tax computations, corrects the totals as needed, files the corrected invoices in a payable invoices file, and enters the invoice number and total in an invoice log file.

Thursdays afternoons, Ginny retrieves the invoices from the payable invoices file and adds the amount due and invoice number to the vendor's ledger card -- a record of all accounting transactions for the particular vendor -- and to the general ledger. Finally, she logs the accounts payable transactions in the accounts payable file, using information from the invoice log file and payable invoices file. The invoices themselves are stored alphabetically in a filing cabinet.

Checks for payments to vendors are written and signed each Friday. Harry Deming, manager of accounts payable, review all accounts and outstanding invoices, and determines which ones should be paid. He writes the check and at the same time enters the amount of the check, the name of the vendor, and the numbers of the invoices paid, in the checkbook. The same information is entered on the vendor's ledger card and the general ledger. The checks are sent in one batch, with the appropriate invoices, to the controller, Ann Williams, who reviews and signs each check. In some cases, she disapproves the payment and returns the check to Harry unsigned. The signed checks are placed in individual envelopes and taken to the mailroom for mailing to the vendor.

Automating the accounts payable system

Ann Williams decided to have the accounts payable system automated. She had a meeting with John Parkins, the MIS manager, and obtained his concurrence for developing the system. A senior systems analyst, Carl Sagan, was assigned to act as a leader of the systems development project. He interviewed Ginny, Harry and Ann and prepared the context (or high-level) and the Level 0DFDs, later approved by Ann. It was also agreed that Ann's signature would be scanned and that the future system would print the checks automatically, including Ann's signature.