Topic 5 - Revenue Cycle Flashcards
What are the sales order entry processing steps?
- Take the customer order (Source document: sales order)
- Approve customer credit
- Check inventory availability
- Respond to customer inquiries
What are the basic revenue cycle activities?
- Sales order entry
- Shipping
- Billing
- Cash collections
What are the threats in sales order entry processing?
- Incomplete/inaccurate orders
- Invalid orders
- Uncollectible accounts
- Stockouts and excess inventory
- Loss of customers
What are the controls for incomplete/inaccurate orders (sales order entry processing)?
- Data entry edit controls
2. Restrict access to master data to maintain accuracy
What are the controls for invalid orders (sales order entry processing)?
- Signature to authorize sale
What are the controls for uncollectible accounts (sales order entry processing)?
- Credit limits checked and if sale exceeds limit, specific authorization needed
What are the controls for stockouts and excess inventory (sales order entry processing)?
- Perpetual inventory system
- RFID or bar code technology
- Physical inventory counts
What are the steps in the shipping process?
- Pick and pack the order (source document: picking ticket)
2. Ship the order (source documents: packing slip and bill of lading)
What are the threats in the shipping process?
- Picking the wrong item or quantity to ship
- Theft
- Fail to ship goods
- Ship to wrong address
What are the controls for picking the wrong item or quantity to ship (shipping process)?
- Bar code technology
2. Reconcile picking list to sales order
What are the controls for theft (shipping process)?
- Restrict physical access to inventory
- Document inventory transfers
- Physical counts of inventory and reconcile to quantities recorded
What are the controls for failing to ships the goods (shipping process)?
- Reconcile shipping documents to sales orders, picking lists, and packing slips
What are the controls for shipping to the wrong address (shipping process)?
- Data entry edit controls
What are the steps in the billing process?
- Invoicing the customer (source document: sales invoice)
2. Updating accounts receivable (source document: credit memo and monthly statements)
What are the threats in the billing process?
- Failure to bill customer
- Billing errors
- Posting errors in accounts receivable
- Inaccurate or invalid credit memos
What are the controls for failure to bill customer (billing process)?
- Reconcile invoices with sales orders and shipping documents.
- Separate shipping and billing functions
What are the controls for billing errors (billing process)?
- Data entry edit controls
2. Configure system for automatically enter price data
What are the controls for posting errors in accounts receivable (billing process)?
- Reconcile subsidiary accounts receivable balance to the amount for accounts receivable in the general ledger
What are the controls for inaccurate or invalid credit memos (billing process)?
- Segregation of authorization and recording function to credit memos.
What are the steps in the cash collection process?
- Process customer payment and update their account balance (source document: remittance advice)
- Deposit payments to the bank
What are the threats in the cash collection process?
- Theft of cash
2. Cashflow problems
What are the controls for theft of cash (cash collection process)?
- Prepare segregation of cash handling and posting to customer accounts, authorize credit memos, or reconcile bank account
- Use lockbox
- Deposit all cash receipts daily
What are the controls for cashflow problems (cash collection process)?
- Lockbox
- Discounts for early payment
- Cash flow budgeting
What is credit limit?
Maximum possible account balance for a customer.
What is customer relationship management (CRM) systems?
System that contains customer-related data organized in a manner to facilitate customer service, sales, and retention.
What is a credit memo?
A document used to authorize reducing the balance in a customer account.
What is the open-invoice method?
Method for maintaining accounts receivable in which customers typically pay according to each invoice.
What is the balance forward method?
Method of maintaining accounts receivable in which customers typically pay according to the amount shown on a monthly statement, rather than by individual invoices.
What is cycle billing?
Process of dividing customer account master file into subsets and preparing invoices for one subset at a time.
What is financial electronic data interchange (FEDI)?
The combination of EFT and EDI that enable both remittance data and funds transfer instructions to be included in one electronic package.
What is a lockbox?
A postal address to which customers send their remittances.
What is a remittance advice?
Turnaround document returned by customers with payments.
What is a back order?
Document used to indicate stockouts exist.
What is a picking ticket?
Document that authorizes the removal of merchandise from inventory.
What is the bill of lading?
Document used to establish responsibility for shipping goods via a third party.
Which document often accompanies merchandise shipped to a customer?
packing slip (specifies what is being shipped).
Which method is most likely used when a company offers customers discounts for prompt payment?
open-invoice method because it facilitates aging each invoice to verify whether a discount should be granted.
What revenue cycle activity can potentially be eliminated by technology?
billing (with the use of integrated ERP systems)
For good internal control, who should approve credit memos?
credit manager
For good internal control over customer remittances, the mailroom clerk should separate checks from the remittance advices and send the customer payments to which department?
cashier (cashier function has custody of cash accounts).
What provides a means to both improve the efficiency of processing customer payments and also enhance control over those payments?
lockboxes
