Case Study Rainbow Illusion
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 manager, 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
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.
Prepare a report to Chief Executive Officer of Rainbow Illusion to evaluate its processes, risks and
a internal controls for its revenue cycle. In your report, you need to include the following items:
b Identify six strengths in Rainbow Illusion’s system for controlling sales transactions.
c For each strength identified, explain what problem(s) Rainbow Illusion has avoided by
d incorporating the strength in the system for controlling sales transactions.
e Identify two situational pressures in a company like Rainbow Illusion that would increase
Explain why some companies would choose to install a distributed computer system rather
than a centralised one.
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