Revenue and receipts cycle Flashcards
What is the revenue and receipts cycle?
- Receiving and processing of orders
- Granting credit to creditworthy customers
- Shipping and delivering a service
- Recording of sales
- Receipt of payments
- Goods returned
- Bad debts
What are the internal control objectives, risks and controls with “Receiving and processing of orders?”
(ICO) Orders are received from valid customers and are complete and accurate. All orders received from customers are processed.
(Risk) Fictitious customers place orders- invalid sales orders. Inaccurate or incomplete sales orders. Goods not in store/ unavailable. Sales orders are not processed.
(Controls) Approved customer list maintained- credit customers. Unique login and password for online orders (IT Control). Verbal confirmation of order details captured by sales clerk. Valid price list maintained and provided to sales staff. Sales clerk confirms availability of goods before proceeding to prepare sales order. System automatically displays a message.
What are the internal control objectives, risks, and controls with “Granting credit to creditworthy customers?”
(ICO) Sales transactions are made to creditworthy customers. Credit is granted according to the company policy (adhering to credit limits.
(Risk) Products sold to customers who are not creditworthy. Sales are made to existing customers that exceed their credit limit.
(Control) New debtors complete a credit application form. Credit record reviewed through external credit bureau. Credit limit set by credit controller. Existing customers credit limit is reviewed by credit controller.
What are the internal control objectives, risks, and controls with “Shipping and delivering a service?”
(ICO) Deliveries to customers are authorised and accurate. Deliveries through access point are valid.
(Risk) Incorrect product types and quantities shipped/ delivered. Theft of inventory. Incorrect product types and quantities shipped/ delivered.
(Control) Delivery note details matched with sales order by warehouse manager before shipping the goods. Security personnel check and match types and quantities of goods dispatched with details of the approved delivery note. Only one exit may be used for delivery of goods sold. Physical inspection of vehicles leaving the premises.
What are the internal control objectives, risks, and controls with “Recording of sales?”
(ICO) All credit sales are invoiced accurately. All sales transactions are accurately recorded in records
(RISKS) Dispute over invoice by customer. Incorrect invoicing. Goods sold to customers are not recorded in the accounting records. Inaccurate recording of sales transactions.
(CONTROLS) The customer must sign delivery note as proof of delivery. Debtors clerk must match internal sales order with the delivery notes before preparing invoices. Sales manager must verify the accuracy of documents and approve invoices. Pre-numbering of all sales documents. Sales journal entries must be matched to internal sales order and delivery note.
What are the internal control objectives, risks, and controls with “Receipt of payments?”
(ICO)Debtors’ payments are collected timely. Debtors’ payments are recorded accurately.
(RISKS) Outstanding balances of debtors are not collected. Debtors’ payments are allocated to the incorrect account.
(CONTROLS) Monthly statements are prepared and sent to customers timely. Regular age analysis of depths Ledger must be prepared. Long outstanding debtors are followed up by the debtors’ clerk. Frequent debtors’ reconciliations between debtors’ statements and debtors’ Ledger must be performed by debtors’ control management.
What are the internal control objectives, risks, and controls with “Goods returned?”
(ICO) Only a valid return of goods from a customer is accepted. All returns of goods are recorded accurately.
(RISKS) Unauthorized and invalid goods returned by customers are accepted. Credit note issued for goods returned but goods are not received by the warehouse.
(CONTROLS) A policy exists that explains the condition and procedure for goods returned. Pre-numbered credit notes are prepared for all returns. Credit notes are approved by the warehouse manager after confirming that they adhere to the policy. A copy of the credit note accompanies the goods returned to the warehouse.
What are the internal control objectives, risks, and controls with “Bad debts?”
(ICO) Only authorized bad debts are written off according to the company’s policy.
(RISKS) Unauthorized bad debt balances are written off.
(CONTROLS) A policy exists that explains the conditions and procedures for writing off bad debt. A senior person must be delegated the responsibility for approval of bad debts according to the company policy.
