The Revenue Cycle - Accounting and Information Systems Department

Report
Chapter 4
The
Revenue
Cycle
COPYRIGHT © 2007 Thomson South-Western, a part of The Thomson Corporation. Thomson, the Star logo, and SouthWestern are trademarks used herein under license
1
Objectives for Chapter 4
 Tasks performed in the revenue cycle, regardless of
whether manual or computerized
 Functional departments in the revenue cycle and the
flow of revenue transactions through the organization
 Documents, journals, and accounts needed for audit
trails, the maintenance of records, decision making, and
financial reporting
 Risks associated with the revenue cycle and the controls
that reduce these risks
 The operational and control implications of technology
used to automate and reengineer the revenue cycle
Sales Order
Customer
Purchase Order
1
Credit / Customer
Service
2
REVENUE CYCLE
(SUBSYSTEMS)
Cash Receipts/
Collections
6
Shipping
3
Billing/ Accounts
Receivable
4/5
Revenue Cycle (Subsystem)
Databases
Master files
Customer master file
Accounts Receivable
master file
Inventory master file
Transaction Files
Sales Order transaction file
Other Files
 Tax Details reference file
 Shipping and Price Data
reference file
 Credit reference file
 Sales history file
 Cash Receipts history file
Open Sales Order
transaction file
Sales Invoice transaction
file
Cash Receipts transaction
file
4
Manual Sales Order Processing
– Sales & Credit Departments
Begins with customer placing order
Sales department captures essential details on
sales order form.
Transaction is authorized by credit
department; returned to Sales Dept.
Sales information is released to:
Billing
Warehouse
Shipping
See next slide
for flowchart
6
Manual Sales Order Processing
- Warehouse
 Merchandise is picked from Warehouse and sent to
Shipping, with SO.
 Memo to Inventory Control.
 Other SO filed in Warehouse.
See next slide
for flowchart
(yellow
symbols)
8
Manual Sales Order
Processing - Shipping
 Shipping reconciles merchandise received from
Warehouse with sales information on packing slip.
 Merchandise, packing slip (PS), and bill of lading
(BOL) are prepared by Shipping and sent to
Customer.
 Copy of BOL and SO are filed in Shipping.
See next slide
for flowchart
9
10
Manual Sales Order Processing
– Billing
Shipping information is also sent to
Billing. Billing compiles and reconciles
relevant facts and issues invoice to
Customer and updates sales journal.
See next slide
for flowchart
(blue symbols)
11
12
Manual Sales Order Processing
– Accounts Receivable
A/R records information in customer’s
account in accounts receivable subsidiary
ledger and files invoice.
See next slide
for flowchart
(purple
symbols)
14
Manual Sales Order Processing
– Inventory Control
Inventory Control adjusts inventory
subsidiary ledger and files Memo.
See next slide
for flowchart
15
16
Manual Sales Order Processing
– General Ledger (not flowcharted)
Billing, A/R, and Inventory Control
submits summary information to General
Ledger dept., which then reconciles data
and posts to control accounts in G/L.
17
Manual Cash Receipts Processes
– Mail Room & Cash Receipts
Customer checks and remittance advices are received
in the Mail Room.
A mail room clerk prepares a list of checks (Cash Prelist)
and sends the prelist and the checks to Cash Receipts.
The Remittance Advices are sent to A/R.
Cash Receipts:
verifies the accuracy and completeness of the checks
updates the cash receipts journal
prepares a deposit slip, which is sent to Bank with checks
files Prelist by date
prepares a journal voucher to send to G/L (not flowcharted)
19
Manual Cash Receipts Processes
– Accounts Receivable
A/R posts from the remittance advices to the
accounts receivable subsidiary ledger.
Remittance advices are filed alphabetically.
Periodically, a summary of the postings is sent to
G/L. (not flowcharted)
G/L department: (not flowcharted)
reconciles the journal voucher from Cash Receipts
with the summaries from A/R
updates the general ledger control accounts
21
Control Activities
22
Two Broad Categories
Computer Controls
General
Application
Physical
controls are
GENERAL
Physical Controls
Access Control
Accounting Records
Authorization
Independent
Verification
Segregation of Duties
Supervision
(compensating control)
23
Examples of Access Controls
(Revenue Cycle)
Limit access to assets
Within revenue cycle, assets to protect
are cash and inventories; restrict access
to records such as accounts receivable
subsidiary ledger and cash journal.
Manual or CBIS
24
Examples of Accounting
Records (Revenue Cycle)
With properly maintained audit trail, possible to
track transactions through systems and find
when & where errors were made:
pre-numbered source documents (e.g., sales orders)
special journals (Sales, Cash Receipts)
subsidiary ledgers (A/R)
general ledger
files
Manual or CBIS
25
Authorization Controls
Watch for difference
between General
Proper authorization of transactions Authorization
(documentation) should occur so that only
andvalid
transactions get processed.
Specific Authorization
Examples of authorization in revenue cycle:
sale is made on credit (authorization)
cash refund is requested (authorization)
posting a cash payment received to a
customer’s account (cash pre-list)
Manual or CBIS
26
Examples of Independent
Verification (Revenue Cycle)
Physical procedures & recordkeeping should be
independently reviewed at various points in system
to check for accuracy and completeness:
Shipping verifies goods sent from Warehouse
are correct in type and quantity
Billing reconciles shipping notice with sales
order
General Ledger reconciles journal vouchers
from Billing, Inventory Control, Cash Receipts,
and Accounts Receivable
Manual or CBIS
27
Segregation of Functions
Three Rules
1. Transaction authorization should be
separate from transaction processing.
2. Asset custody should be separate from
asset recordkeeping.
3. The organization should be structured so
that fraud requires collusion between
two or more individuals.
Manual
28
Examples of Segregation of
Functions (Revenue Cycle)
 Sales Order Processing
credit authorization separate from SO processing
inventory control separate from warehouse
accounts receivable sub-ledger separate from
general ledger control account
 Cash Receipts Processing
cash receipts separate from accounting records
accounts receivable sub-ledger separate from
general ledger
Manual
29
Examples of Supervision
(Revenue Cycle)
Supervision of
employees
serves as
deterrent to
dishonest acts
-particularly
important in
mailroom.
Manual or CBIS
30
Supervision in Revenue Cycle
Supervision of employees serves as
deterrent to dishonest acts particularly important in mailroom.
Mailroom is first point-of-contact in
organization for customer payments
Manual or CBIS
31
Automating Revenue Cycle
32
Characteristics of Automated
Revenue Cycle
 Authorizations and data access can be performed
through computer screens.
 Reduced paper documents.
 Manual journals and ledgers are changed to
electronic transaction and master files.
 Input is still frequently from hard copy
documents and goes through one or more
computerized processes.
 Processes store data in electronic files or prepare
data in the form of a printed report.
33
Advantages of Real-Time
Processing
Shortens cash cycle of firm by reducing
time between order date and billing date
Fewer clerical errors, reducing incorrect
items being shipped and bill discrepancies
Reduces amount of expensive paper
documents and storage costs
Better inventory management - can lead
to competitive advantage
34
Example of Reengineered Sales
Order/Invoice Processing in Revenue Cycle
 Manual procedures & physical documents replaced by
interactive computer terminals.
 Real time input/output occurs, with some master files
still being updated using batches.
real-time - entry of customer order, printout of
stock release, packing slip and bill of lading; update
of credit file, inventory file, and open sales orders
file
batch - printout of invoice, update of closed sales
order (journal), accounts receivable and general
ledger control account
35
Reengineered Cash
Receipts Process
Mail room is frequent target for reengineering.
Companies send customers preprinted envelopes and
remittance advices.
Upon receipt, preprinted envelopes are set aside and
information on envelope is scanned – providing control
procedure against theft.
Machines are also available to open envelopes, scan
remittance advices and checks, and separate checks.
36
Point-of-Sale Systems
Point of sale systems are used extensively in
retail establishments.
Customers pick inventory from shelves and take to
cashier.
Clerk scans universal product code (UPC). POS
system is connected to inventory file, where
price and description are retrieved.
Inventory levels are updated and reorder needs can
immediately be detected.
Point-of-Sale Systems
System computes amount due. Payment is either
cash, check, debit or credit card in most cases.
No accounts receivables
If checks, debit or credit cards are used, on-line link
to receive approval is necessary.
At end of day or cashier’s shift, money and receipts
in drawer are reconciled to internal cash register
tape or printout from computer’s database.
Cash over and under must be recorded
Author’s Example of Computerized POS
Reengineering Using Electronic
Data Interchange (EDI)
EDI helps to expedite transactions.
The customer’s computer:
Determines inventory is needed
Selects supplier with whom business has a
formal business agreement
Dials supplier’s computer and places order
Exchange is completely automated.
No human intervention or management
EDI System
Our Company
Wal-Mart
Application Purchases
Software
System
Sales Order
System
EDI
Translation
Software
Communications
Software
EDI
Translation
Software
Direct Connection
Application
Software
Many
Transactions
Communications
Software
Other
Mailbox
Wal-Mart’s
mailbox
VAN
Other
Mailbox
Our Company’s
mailbox
Few
Transactions
Reengineering Using the
Internet
Typically, no formal business agreements
Unlike EDI, where formal agreements exist
Most orders require credit cards.
Mainly done with e-mail systems, and thus
some turnaround time is necessary
“Intelligent agents” needed to eliminate this
time lag.
Security and control over data is big
concern with Internet transactions.
Control Considerations
for CBISs
Access Control - magnetic records are
vulnerable to both authorized/
unauthorized exposure and should be
protected.
Must limit access to data files
Must limit access to computer
programs
43
Control Considerations
for CBISs
Accounting Records - rest on reliability
and security of magnetically stored data.
Accountant/auditor should be skeptical
about accepting accuracy of printouts of
journals and ledgers.
Backup is concern for direct access files;
system must ensure backup of all files is
continuously kept because of “destructive backup”
issues with direct access files *
* Destructive backup means newer files write over the older files.
44
Control Considerations
for CBISs
Authorization - in real-time systems,
authorizations are automated:
programmed decision rules must be
closely monitored.
45
Control Considerations
for CBISs
Independent Verification – consolidating
accounting tasks under one computer program
can remove traditional independent verification
controls. These controls help:
perform batch control balancing after each computer
run
Produce reports and summaries for end users and
management to review
46
Control Considerations
for CBISs
Segregation of Functions - some
consolidation of tasks by computer; protect
computer programs--coding, processing and
maintenance should be separated (internally
developed systems).
Supervision - in POS systems, cash register’s
internal tape or database is a type of
supervision.
47
Microcomputer-Based
Accounting Systems
 Used by small firms & some large, decentralized firms
 Frequently, one (or few) individuals perform entire
accounting function
 Most systems are divided into modules controlled by
menu-driven program:
general ledger
inventory control
payroll
cash disbursements
purchases and accounts payable
cash receipts
sales order/invoicing
48
Microcomputer Control
Issues
Access Control - access controls to data tend to
be weak; consider encryption and/or disk locking
devices to compensate
Accounting Records - computer disk failures
cause data losses; maintain periodic backups and
off-site storage
Segregation of Duties –
tend to be inadequate
should be compensated for with increased supervision,
detailed management reports, frequent independent
verification
49
50

similar documents