The Revenue Cycle: Sales to Cash Collections

Report
The Revenue Cycle: Sales to Cash
Collections
Chapter 12
Copyright © 2015 Pearson Education, Inc.
12-1
Learning Objectives
• Describe the basic business activities and related information
processing operations performed in the revenue cycle.
• Discuss the key decisions that need to be made in the revenue
cycle, and identify the information needed to make those
decisions.
• Identify major threats in the revenue cycle, and evaluate the
adequacy of various control procedures for dealing with those
threats.
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Basic Revenue Cycle Activities
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Sales order entry
Shipping
Billing
Cash Collections
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Sales Order Entry Processing Steps
• Take the customer order
▫ Source document: sales order
• Approve customer credit
• Check inventory availability
• Respond to customer inquiries
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12-4
Sales Order Entry Processing
Threats
Controls
1.
2.
3.
4.
5.
1 a. Data entry edit controls
b. Restrict access to master data to
maintain accuracy
2 a. Signature to authorize sale
3 a. Credit limits checked and if sale exceeds
limit, specific authorization needed
4 a. Perpetual inventory system
b. RFID or bar code technology
c. Physical inventory counts
Incomplete/inaccurate orders
Invalid orders
Uncollectible accounts
Stockouts and excess inventory
Loss of customers
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Shipping Process
• Pick and pack the order
▫ Source documents: picking ticket
• Ship the order
▫ Source documents: Packing slip, Bill of lading
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Shipping Process
Threats
Controls
1.
2.
3.
4.
1 a. Bar code technology
b. Reconcile picking 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, picking lists, and packing slips
4 a. Data entry edit controls
Picking wrong item or quantity to ship
Theft
Fail to ship the goods
Ship to wrong address
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12-7
Billing Process
• Invoicing the customer
▫ Source document: sales invoice
• Updating accounts receivable
▫ Source document: credit memo and monthly statements
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12-8
Billing Process
Threats
Controls
1.
2.
3.
4.
1 a. Reconcile invoices with sales orders and
shipping documents
b. Separate shipping and billing functions
2 a. Data entry edit controls
b. Configure system for automatically
enter price data
3 a. Reconcile subsidiary accounts receivable
balance to the amount for accounts
receivable in the general ledger
4 a. Segregation of authorization and
recording function for credit memos
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Failure to bill customer
Billing errors
Posting errors in accounts receivable
Inaccurate or invalid credit memos
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Cash Collection Process
• Process customer payment and update their account balance
▫ Remittance
• Deposit payments to the bank
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Cash Collection Process
Threats
Control
1. Theft of cash
2. Cashflow problems
1 a. Proper segregation of cash handling and
posting to customer accounts, authorize
credit memos, or reconcile bank account
b. Use lockbox
c. Deposit all cash receipts daily
2 a. Lockbox
b. Discounts for early payment
c. Cash flow budgeting
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Key Terms
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Revenue cycle
Sales order
Electronic data interchange (EDI)
Credit limit
Accounts receivable aging report
Back order
Picking ticket
Customer relationship management
systems (CRM)
Packing slip
Bill of lading
Sales invoice
Open-invoice method
Copyright © 2015 Pearson Education, Inc.
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Remittance advice
Balance-forward method
Monthly statement
Cycle billing
Credit memo
Remittance list
Lockbox
Electronic lockbox
Electronic funds transfer (EFT)
Financial electronic data interchange
(FEDI)
• Universal payment identification code
(UPIC)
• Cash flow budget
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