Lesson 7.1 - Test of controls in business process - Revenue and receipts cycle

Question 1

List some basic functions of the revenue and receipts cycle?

Answer 1

Order department
- receiving customer orders
- Authorizing the sale

Warehouse/dispatch
- Processing the order
- Dispatch

Invoicing

Recording sales and raising the debtor

Receiving and recording payment from debtors

Credit management
- Evaluating credit worthiness
- Collecting amounts owed

Question 2

List documents commonly used in the revenue and receipts cycle.

Answer 2

• Customer order
• internal sales order
• picking slip
• invoice
• Delivery note
• Statement
• Credit application form
• Receipt
• Remittance advice
• Credit note
• Deposit slip
• Price list
• Back-order note
• Goods returned voucher
• Masterfile amendment form
• Log variance reports

Question 3

Orders department - receiving customer orders

List 6 control activities generally effected in the orders department within the revenue and receipts cycle for receiving customer orders.

Answer 3

1. All internal sales orders should be sequency numbered.
2. Customers are checked against approved customers list in the case of credit sales (does not apply to cash sales).
3. Attach customer order to internal sales order and have second staff member cross check.
4. For phone orders:
   - request customer account number
   - Request customer’s order reference
   - confirm delivery details
5. Order clerk to sign all ISOs to indicate performance of control activities
6. Sequence checks to be performed on ISOs for completeness and matched to delivery notes to ensure all orders have been acted upon.

Question 4

Order department - Sales authorization

List control activities generally effected in the orders department within the revenue and receipts cycle.

Answer 4

1. Credit controller should check
   - customer has not supplied fictious details
   - customer’s credit status is satisfactory
2. ISO (used to create picking slip) to be authorized by signature of the credit controller before being sent to the warehouse.

Where the order is a prospective customer, credit application procedures must be conducted before the order is filled.

Question 5

Warehouse

List control activities generally effected in the Warehouse department within the revenue and receipts cycle.

Answer 5

1. Picker to initial the picking slip for each item picked
2. Supervisory checks should be carried out by the warehouse foreman to ensure that all goods picked are supported by signed picking slips
3. Warehouse clerk to:
   3.1 checks goods to picking slip
   3.2 prepare delivery notes from picking slip (cross referenced)
   3.3 prepare back orders from picking slips where goods are not in stock
   3.4 send copy of the back order to order clerk to notify the customer
   3.5 send back order note to buying department
4. Order clerk to follow up on back orders frequently
5. Delivery notes and picking slips to be filled numerically

Question 6

Dispatch

List control activities generally effected in the dispatch department

Answer 6

1. On receipt of the goods, picking slip and delivery notes from the warehouse
   1.1 check quantities and description of goods against the authorized picking slip
   1.2 sign picking slip and delivery note to acknowledge receipt of goods
   1.3 Retain two copies of delivery note and return picking slips to warehouse
2. Gate controls should check goods to be delivered appear on the delivery list and are supported by delivery notes. Both copies of delivery notes should be date stamped by gate control
3. Customers should sign both copies of delivery notes and retain one copy.

Question 7

Invoicing

List control activities generally effected in the invoicing department

Answer 7

1. Internal sales orders should be filed numerically
2. Signed delivery notes should be matched to ISO and filed sequentially
3. ISOs remaining in the temporary file should be investigated
4. Invoice clerk should:

5.1 compare details on the ISO and delivery note
5.2 check prices quoted to the customer against the official price list
5.3 prepare numerically sequenced invoice cross referenced to the delivery note / customer order

6. Supervisor to check casts, discounts and customer details

Question 8

Recording of sales

List control activities generally effected in the accounting department

Answer 8

1. Invoices captured to the sales journal should be numerically sequenced
   1.1 sequence to be continued period to period
   1.2 the numbers of any cancelled invoices to be recorded in the sales journal and marked “cancelled”.
2. Prior to entry in the sales journal, invoices to be added to control total. The control total is then compared to sales journal after entry of individual invoices (batch control system)
3. Independent staff member to:
   3.1 sequence check sales journal entries and follow up on any missing invoices
   3.2 compare customer name and amount entered into sales journal to invoice for accuracy
4. Recon between debtors ledger and debtors control account in the GL

Question 9

Receipt mail room / cashier

List control activities generally effected in the receipt of cash.

Answer 9

1. Post must be opened by two people working together
2. All payments received in the post should be recorded in a remittance register and receipt made out for each payment received
3. Prenumbered receipts for all payments received
4. Cash to be banked daily
5. Cash to be reconciled to the receipts before accepting them for banking.

Question 10

Recording of cash receipts

List control activities generally effected in the recording of cash receipts.

Answer 10

1. Cash receipt journal should be written up on a daily basis by date and receipt number
2. Supervisory staff should review cash receipt journal for missing dates and gaps in the sequence
3. The cash book should be reconciled to the bank statement monthly by a employee independent of the banking or recording of cash.