sales/collection process

Question 1

Define a business process

Answer 1

A business process is a set of procedures and policies designed to create value for a stakeholder

Question 2

Porter’s value chain

Answer 2

Primary activities: Inbound logistics, operations, outbound logistics, marketing & sales, service

Support activities: Procurement, information technology, human resource management, infrastructure

Question 3

The purpose of the sales/collection process

Answer 3

To provide goods and services to clients and to collect payment

Question 4

The steps of the sales/collection process

Answer 4

1. Take a customer’s order
2. Approve the customer’s credit
3. Fill order based on approved credit
4. Ship product (if necessary)
5. Bill the customer
6. Collect payment
7. Process uncollectible receivables as necessary

Question 5

Step 1: Take a customer’s order

Answer 5

Produces a sales order document (paper/electronic), electronic data interchange, type and quantity

Question 6

Step 2: Approve the customer’s credit

Answer 6

Mostly business to business, produces accounts receivable/ credit history report, constantly monitor AR to establish credit limit

Question 7

Step 3: Fill order based on approved credit

Answer 7

May need to back order, RFDC, RFID, produces a picking ticket and packing slip

Question 8

Step 4: Ship product (if necessary)

Answer 8

Shipping department compares physical count with order, inventory master file is updated, produces a packing slip and bill of lading

Question 9

Step 5: Bill the customer

Answer 9

Company can offer discount for fast payment, creates a sales invoice (paper/electronic), electronic can save printing, postage and risk of human error

Question 10

Step 6: Collect payment

Answer 10

A remittance list identifies names and amounts of customer remittances and send to AR, remittance advice advises company that they are remitting payment, involves a lockbox and EFT, credit cards etc.

Question 11

Step 7: Process uncollectible receivables as necessary

Answer 11

Open invoice (customer pays per invoice) or balance forward (a monthly statement), the accounts receivable ageing schedule is typically used here.

Question 12

Connecting the generic structure of AIS and S/C process

Answer 12

Inputs - sales order
Processes - Journal entries
Outputs - AR ageing schedule
Storage - Accounts receivable, inventory and customer master files, transaction files, junction files
Internal Controls - Pre numbered sales order, authorisation control

Question 13

What are the source documents for the S/C process

Answer 13

Customer order; summarises items and prices
Picking list; Guide selection of items from warehouse
Packing list/slip; Specifies shipment contents
Bill of lading; Specifies the t+c’s of freight
Customer cheque; Remit payment
Remittance advice; provides evidence of payment for AIS
Deposit slip; Transfer cash receipts to bank
Customer invoice; to bill client

Question 14

What assets need to be protected?

Answer 14

Cash, inventory and data

Question 15

Internal controls for the sales/collection process

Answer 15

• segregation of duties
• adequate documentation
• insurance
• proper inventory storage,
• employee training,
• daily cash deposits,
• document matching,
• information technology