Exhibit 3-4

CLIENT COMPANY: The Lakeside Company

SYSTEM: Revenue and Cash Receipts Cycle- Distributorship
MEMO PREPARATION: Horace Clarke- 12/02/88
SYSTEM REVIEW AND UP-DATE:
Part A Revenue Recognition Distributorship
All distributorship sales are made by telephone. Either the customer or the Lakeside
representative calls in each order. The Sales Division immediately records the incoming order
on a prenumbered sales invoice. The sales invoice is prepared in five copies with the last three
being retained in a temporary file by invoice number. The first copy is sent to Stan Wisdon in the
Inventory Department who verifies the availability of the purchased items. If the merchandise is
in the warehouse, it can be sent out almost immediately. However, if any items must be ordered
from Cypress, the waiting time may be up to three weeks. Wisdon estimates the ship-out date,
completes and initials the sales invoice, and returns it to the Sales Division.
The second copy of the sales invoice goes to George Miller, Assistant to the President.
Miller maintains the accounts receivable subsidiary ledger. He also keeps a list of stores with
approved credit limits. However, acceptance of new customers and changes in available credit
are decisions made solely by Mr. Rogers, the president. Before approving a sale, Miller
compares the sales invoice to the list of stores and their credit limits. He also checks the current
age of the customers account receivable balance. If the store is on the approved list, is under
the credit limitation, and has no overdue balances, Miller initials the sales invoice and returns it
to the Sales Division. If, for any reason, Miller cannot approve the sale, the invoice is forwarded
to Rogers who reviews all pertinent information. He then makes a final decision as to whether to
accept or reject the order. Rogers indicates his decision on the invoice and forwards it to the
Sales Division. If the order is rejected, the customer is contacted and all copies of the sales
invoice are attached and placed in a permanent file by invoice number.
For approved orders, the Sales Division matches all five copies of the sales invoice. The
approximate shipping date is indicated on the fifth copy and mailed to the customer as a
confirmation. The first copy is initialed by C.A. Land in the Sales Division and returned to
Wisdon in the Inventory Department as approval for making the shipment. The other three
copies of the sales invoice are stamped Approved and remain in the Sales Division in a
temporary file by invoice number.
Upon receiving the approved sales invoice, the Inventory Department packs and ships
the merchandise and Wisdon prepares a five-copy bill of lading. One copy is included with the
shipment while the second copy is mailed to the customer. The third copy is routed to the
Controllers Office. The fourth copy of the bill of lading goes to the Sales Division with the final
copy being retained by the Inventory Department. It is stapled to the first copy of the sales
invoice and placed in a permanent file, by bill of lading number.
When the third copy of the bill of lading is received by Ms. Luck in the Controllers Office,
the quantity of inventory, its description, the bill of lading number, and the date of shipment are

recorded in an inventory sales journal. Having entered the appropriate information, Luck places
the bill of lading in a temporary file by sales invoice number, which has been manually recorded
on the document. Lakeside uses the services of an outside computer center to maintain a
perpetual inventory record. At the end of each week, Luck forwards information on all sales and
purchases to the center, which possesses the data and returns updated records to the
company. When the fourth copy of the bill of lading is received in the Sales Division, Land
matches it with the three approved copies of the sales invoice. He compares the quantity and
description of the order with the items that were shipped. If they agree, he prices each sale from
an updated price list that is maintained by the Sales Division. The sales invoices are then
extended and footed, and the due date is added. The fourth copy of the bill of lading is attached
to the second copy of the sales invoice and filed in a temporary file by due date. The third copy
of the approved sales invoice is sent to Miller, Assistant to the President, while the fourth copy
goes to the Controllers Office. Miller uses his copy to update the accounts receivable subsidiary
ledger and then files the sales invoice in a permanent file by customer name.
The Controllers Office matches the sales invoice to the bill of lading, verifies the pricing
against an updated price list, and mathematically checks the extensions and footings. The sales
invoice is then recorded in the Sales Journal as a debit to Accounts Receivable and a credit to
Sales. Sales figures are also classified by geographic district so that commissions can be
appropriately accrued. Lakeside representatives receive a percentage of every sale made within
a specified territory. After recording the sale, the bill of lading is placed in a permanent file by
customer name.
The controller then mails the sales invoice, which informs the customer of the amount
payable, the date due, and the discount terms. According to the invoice, payment should be
made by check (payable to Lakeside Company). The customer is also asked to return the
bottom portion of the sales invoice, which indicates the customers name, the sales invoice
number, the gross amount payable, the discount terms, and the due date.