Chapter 12: Revenue Cycle Flashcards
revenue cycles primary objective
to provide the right product in the right place at the right time for the right price.
4 basic revenue cycle activities
- sales order entry - take order
- shipping - process order
- billing - invoice
- cash collections
Revenue cycle
the end-to-end processes necessary to convert service or produce sales into cash.
Give goods/services, get cash
Electronic Data INterchange (EDI)
Structured data formats over secure network
Electric Funds Transfer (EFT)
Direct transfer between bank accounts. Coupled with lockbox remittance data for financial EDI (FEDI)
General issues throughout revenue cycle
- inaccurate or invalid master data
- unauthorized disclosure of sensitive data
- loss or destruction of data
- poor performance
Sales Order Entry threats (5)
- Incomplete/inaccurate orders
- Invalid Orders
- uncollectible accounts
- stock outs or excess inventory
- Loss of customer
Incomplete or inaccurate orders
- data entry edit controls
2. restriction of access to master data
Invalid Orders
digital signatures or written signatures
Uncollectible accounts
- credit limits.
- specific authorization to approve sales to new customers or sales that exceed customer’s credit limit
- Aging of A/R
Stockouts or excess inventory
- perpetual inventory control system
- use of bar-codes/RFID
- Training
- periodic physical counts of inventory
- sales forecasts and activity reports
Loss of Customers
CRM systems, self-help web sites, and proper evaluation of customer service ratings
Who is in charge of credit approvals
key control - credit manager/ treasurer.
who can establish credit limits
general authorization
who controls past due AR, exceeded limits, and change limits
specific authorization
who does the sales department report to
vice president of marketing
3 steps of sales order entry
- sales order entry
- credit check
- check inventory
steps to shipping
pick, pack , ship
2 steps to billing
invoicing and AR update
what triggers the pick and pack process
the picking ticket generated by the sales order
who creates the packing slip
shipping department
who creates bill of lading
shipping department
packing slip
lists the quanitty and description of each item included in the shipment
bill of lading
a legal contract that defines responsibility for the goods in transit. Id the carrier,s ource, destination, and any special shipping instruction, and who pays the carrier.
picking the wrong items or quantity
reconciliation of sales order and picking slip.
RFID/ barcodes
theft of inventory
- physical inventory counts
- warehouse and shipping department sign off goods.
- RFID/ barcodes
- Restriction of physical inventory
Shipping errors
- Reconciliation of shipping documents, sales order, picking slip, packing slip.
- RFID
- data entry controls
When is the invoice created
during billing
Sales Invoice
notifies customers of the amount to be paid and where to send payment
what does invoice create
accounting entry for revenue/AR
Who does the Accounts Receivable report to
the controller.
What does the AR function perform (2 tasks)
- uses info from on the sales invoice to debit customer accounts
- credit those accounts when payments are received.
Open Invoice Method
customers pay each invoice. Two invoices are sent to the customer and one is returned with payment
Balance Forward method
customers pay accounting to a monthly statement
Remittance advice
copy of the invoice which is a turnaround document where customers payments are then applied against specific invoices.
Cycle Billing
bill 25% of customers each week.
Credit Memo
authorizes the crediting of the customers account when goods are returned
Who approves returns
credit manager
who is in control of cash handling
cashier who reports to the treasurer
what does the cashier do
handles customer remittances and deposits then in the back
remittance list
a document identifying the names and amounts of all customer remittances and is sent to the AR
lockbox
a postal address to which customers send their remittances. the bank picks up the checks from the post office box and deposits them in the companies account.
electronic lockbox
bank electronically sends the company information about the customer account number and the amount remitted as soon as it receives and scans those checks.
Electronic Fund Transfer (EFT)
CUSTOMERS SEND THEIR REMITTANCES ELECTRONICALLY TO THE COMPANY’S BANK AND THUS ELIMINATE THE DELAY ASSOCIATED WITH THE TINE THE PAYMENT is in the mail system
duties which should be segregated in cash handling cycle
- handing cash/checks and posting remittances to customer accounts
- handling cash/checks and authorizing credit memos
- handing cash and reconciling the bank statement.
cashflow budget
best control procedure to reduce the rusk of unanticipated cash shortfalls which provides estimates of cash inflows and outflows/ it can alert an organization to a pending short term cash shortage.
checks should be
endorsed immediately.
lapping
when accounts receivable handles cash handling and record keeping.
Failure to bill
- segregate billing, record, and adjustments
- reconcile invoice, sales order, picking tickets, shipping docs
- account for pre-numbered docs
Billing Errors
- segregation of billing and shipping
- use software to create invoice based on sales order price and quantity shipped
- restrict access to pricing data
Posting Errors in AR
- data entry controls
- ERP
- monthly statements to customers
- reconcile AR subsidiary and GL
Inaccurate or invalid credit memos
- segregate to credit manager
2. Application control requires evidence of return or specific authorization
Theft of cash
- segregate cash handling and AR
- reconcile bank account to GL (independent person)
- eliminate cash handling, EFT, FEDI, lockboxes.
- immediately endorse checks
- count cash and compare to sales report (independent person)
- daily deposits to the bank
Cash Flow problems
- cashflow budget.
- followup on past due AR
- discounts for prompt payments
- EFT, FEDI, lockboxes, credit cards
