Revenue Cycle ( Topic 7 ) Flashcards
Revenue cycle
The revenue cycle is a recurring set of business activities and related information process- ing operations associated with providing goods and services to customers and collecting cash in payment for those sales
The primary external exchange of information is with customers.
Information about revenue cycle activities also flows to the other accounting cycles
Revenue cycle -
Key decisions
- Who are our major customers
- What products and services do they want?
- Who are our competitors
- What is the optimal pricing of our products and services?
- How can we maximize revenue?
Revenue Cycle
Threats and Controls
Threats
- Inaccurate or invalid master data
- Unauthorised disclosure of sensitive information
- Loss or destruction of data
- Poor performance
Controls
1 a- Data processing integrity controls
b- Restrict access to master data
c- Review of all changes to master data
- a. Access controls
b- Encryption
c. Tokinzation of customer personal information - a. Back up and disaster recovery procedures
- Managerial reports
Basic Revenue Cycle Activities
- Sales order entry
- Shipping
- Billing
- Cash Collections
Sales Order Entry Processing Steps
- Take the customer order
- Approve customer credit
- Check inventory availability
- Respond to customer inquiries
( Described in greater detail in notes )
Sales order entry processing
- Treats and Controls
Threats
- Incomplete /inaccurate orders
- Invalid orders
- Uncollectible orders
- Stockouts and excess inventory
- Loss of customers
Controls
1.
a- Data entry controls
b- Restrict access to master data to maintain accuracy
2a. Signature to authorise sale
3a. Credit limits checked and if sale exceeds limit specific authorisation is needed
b. aging of accounts receivable
4 a. Perpetual inventory system
b. RFID or bar code technology
c. Physical inventory counts
d. Sales forecast and activity reports
Shipping Process
• Pick and pack the order
– Source documents: picking ticket
( The picking ticket generated by the sales order entry process triggers the pick and pack process. Warehouse workers use the picking ticket to identify which products, and the quantity of each product, to remove from inventory)
• Ship the order
-The shipping department should compare the physical count of inventory with the quantities indicated on the picking ticket and with the quantities indicated on the sales order.
– Source documents: Packing slip, Bill of lading
packing slip
- A document listing the quantity and description of each item included in a shipment
bill of lading
A legal contract that defines responsibility for goods while they are in transit.
Shipping Process
Threats/Risks and Controls
Threats and Risks
- Picking wrong item or quantity to ship
- Theft
- Shipping errors ( fail to ship goods , wrong quantities, wrong items, shipped to wrong address, duplication)
Controls
- a. Bar code Technology
b. Reconcile pricking list to sales order
2 a. Restrict physical access to inventory
b Document inventory transfers
c. Physical counts of inventory and reconcile to quantities recorded
3 a. Reconcile shipping documents to sales orders , packing lists and packing slips
b. Data entry edit controls
Billing Process
• Invoicing the customer
– Source document: sales invoice -A document notifying customers of the amount of a sale and where to send payment.
• Updating accounts receivable
-The accounts receivable function, which reports to the controller, performs two basic tasks: It uses the information on the sales invoice to debit customer accounts and subsequently credits those accounts when payments are received.
– Source document: credit memo and monthly statements
credit memo
A document, ap- proved by the credit manager, authorizing the billing depart- ment to credit a customer’s account.
monthly statement
A document listing all transactions that occurred during the past month and informing customers of their current account balance.
Billing process
- Threats and risk
- Controls
Threats
- failure to bill customer
- billing errors
- posting errors in acct receivable
- Inaccurate or invalid credit memos
Controls
- a. Reconcile invoices with sales orders and shipping documents
b. Seperate shipping and billing functions
2 a. Data entry edit controls
b. Configure system for automatically enter price data
c. Data entry edit controls
d. Reconciliation of shipping documents to sales orders
3 a. Reconcile subsidiary accounts receivable balance to the amount for accounts receivable in the general ledger
b. Mail monthly statements to customers
4 a. Segregation of authorisation and recording function for credit memos
Cash collection process
• Process customer payment and update their account balance
– Remittance
- remittance list - A document listing names and amounts of all customer payments received in the mail.
-Another way to speed up the processing of customer payments involves the use of a lock- box arrangement with a bank. A lockbox is a postal address to which customers send their remittances
• Deposit payments to the bank
