The Revenue Cycle_ Sales to Cash Collections

The Revenue Cycle: Sales to Cash Collections
Chapter 12
12-1
Learning Objectives
Describe the basic business activities and related information processing operations performed in the revenue cycle.Discuss the key decisions that need to be made in the revenue cycle, and identify the information needed to make those decisions.Identify major threats in the revenue cycle, and evaluate the adequacy of various control procedures for dealing with those threats.
12-2
Basic Revenue Cycle Activities
Sales order entryShippingBillingCash Collections
12-3
Sales Order Entry Processing Steps
Take the customer orderSource document: sales orderApprove customer creditCheck inventory availabilityRespond to customer inquiries
12-4
Sales Order Entry Processing
Threats
Controls
Incomplete/inaccurate ordersInvalid ordersUncollectible accountsStockouts and excess inventoryLoss of customers
1 a. Data entry edit controlsb. Restrict access to master data tomaintain accuracy2 a. Signature to authorize sale3 a. Credit limits checked and if sale exceedslimit, specific authorization needed4 a. Perpetual inventory systemb. RFID or bar code technologyc. Physical inventory counts
12-5
Shipping Process
Pick and pack the orderSource documents: picking ticketShip the orderSource documents: Packing slip, Bill of lading
12-6
Shipping Process
Threats
Controls
Picking wrong item or quantity to shipTheftFail to ship the goodsShip to wrong address
1 a. Bar code technologyb. Reconcile picking list to sales order2 a. Restrict physical access to inventoryb. Document inventory transfersc. Physical counts of inventory andreconcile to quantities recorded3 a. Reconcile shipping documents to salesorders, picking lists, and packing slips4 a. Data entry edit controls
12-7
Billing Process
Invoicing the customerSource document: sales invoiceUpdating accounts receivableSource document: credit memo and monthly statements
12-8
Billing Process
Threats
Controls
Failure to bill customerBilling errorsPosting errors in accounts receivableInaccurate or invalid credit memos
1 a. Reconcile invoices with sales orders andshipping documentsb. Separate shipping and billing functions2 a. Data entry edit controlsb. Configure system for automaticallyenter price data3 a. Reconcile subsidiary accounts receivablebalance to the amount for accountsreceivable in the general ledger4 a. Segregation of authorization andrecording function for credit memos
12-9
Cash Collection Process
Process customer payment and update their account balanceRemittanceDeposit payments to the bank
12-10
Cash Collection Process
Threats
Control
Theft of cashCashflow problems
1 a. Proper segregation of cash handling andposting to customer accounts, authorizecredit memos, or reconcile bank accountb. Use lockboxc. Deposit all cash receipts daily2 a. Lockboxb. Discounts for early paymentc. Cash flow budgeting
12-11
Key Terms
Revenue cycleSales orderElectronic data interchange (EDI)Credit limitAccounts receivable aging reportBack orderPicking ticketCustomer relationship management systems (CRM)Packing slipBill of ladingSales invoiceOpen-invoice method
Remittance adviceBalance-forward methodMonthly statementCycle billingCredit memoRemittance listLockboxElectronic lockboxElectronic funds transfer (EFT)Financial electronic data interchange (FEDI)Universal payment identification code (UPIC)Cash flow budget
12-12