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Unformatted text preview: Chapter 10 The Revenue Cycle: The Sales and Cash Collections Learning Objectives Learning Describe the activities and data processing Describe operations operations Discuss the key decisions and information Discuss required required Document the process Identify the various threats and internal Identify controls controls Understand a data model of the cycle Basic Revenue/Expenditure Cycle Basic
Receiving Report Purchase Order 1 4 3
Payment Voucher 4 5
Payment 2 3 Invoice Shipping Documents The AIS and Its Subsystems The
Get Get cash cash Funds Give Give cash cash Funds REVENUE CYCLE
Give Give goods goods Get Get cash cash Data Funds Data EXPENDITURE CYCLE
Give Give cash cash Data Get Get goods goods General Ledger & Reporting System
Data Data Finished goods Labor Raw materials HUMAN RESOURCES CYCLE
give give cash cash get get labor labor PRODUCTION CYCLE
Give Give F/G F/G Get Get MLO MLO Revenue Cycle Business Activities Sales order entry Shipping Billing and accounts receivable Cash collection Revenue Cycle Timeline Revenue
Receive Customer PO Prepare Sales Order Ship Goods Send Invoice Receive Payment Revenue Cycle Context Diagram Revenue Goods & Goods & Revenue Cycle DFD Revenue Sales Order Entry DFD Sales Shipping DFD Shipping Invoicing & Cash Collection DFD Invoicing Sales Order Entry Activities Take customer orders – methods? Verify order accuracy – methods? Approve credit – methods? Check inventory availability Respond to customer inquiries Shipping Activities Pick the items and pack the order Picking list
• Items • Quantities • Locations • • • Manual list Radio frequency data communication Bar code scanners Methods Ship the order Check the order
• • • Compare item numbers ordered with item numbers picked Compare quantities ordered with quantities picked Enter corrections on packing slip & backorder if necessary Update inventory records Ship the order
– – • Prepare packing slip (automated or copy of picking slip) • Prepare bill of lading Legal document Identifies the carrier, origination, destination, special instructions, who pays freight Billing Activities Send invoice when items ship Items and quantities shipped Prices and special terms On-line billing On-line payment Cost reduction opportunities
• Vendor sends customer e-mail notification of shipment • Customer sends vendor e-mail notification of receipt • A/R = all shipments yet to be paid A/R Activities Open invoice method • • • • • Two invoice copies sent to customer Customer payments applied against specific invoices Advantages & disadvantages
Prompt payment discounts More uniform cash flow Complex (must maintain data for each invoice) Original copy kept by customer Remittance advice copy returned with payment Balance-forward method • • Example: retailers Cycle billing
– – – Payments applied against total account balance Customer returns enclosed or attached remittance advice Used with large no. of customers making many small payments
Statements prepared for subsets of customers can provide more uniform cash flow Smaller time blocks of computer use Credit memorandum issued to reduce account balance Allowances for returned or damaged goods Write off of uncollectible account Cash Collection DFD Cash
4.4 Post to General Ledger A/R Data A/R Record General Ledger & Reporting System Customer Check & Remittance Advice 4.3 Update A/R A/R Summary Cancelled Checks 4.1 Sort Mail Re m Ad itta vic nc ee Cash Receipts Journal ts eip y c Re ar h mm s Ca Su k ec Ch Bank Deposits 4.2 Update Cash Records Cash Collection Activities Direct remittance method Remittance list method Lockbox method Remittance advice is forwarded directly to A/R by mailroom Check is forwarded to cashier (treasury dept.) Mailroom creates a remittance list of names and amounts received Remittance list is forwarded to A/R Postal address to which customers send payments Bank • Picks up and deposits checks • Forwards remittance advices, remittance list, and check photocopies Electronic funds transfer method Customer sends electronic remittances to bank FEDI combines billing and cash collections Review the Business Forms in R&S Sales Order Bill of Lading Invoice Credit memo AIS Internal Control Objectives Transactions are properly authorized Transactions are valid Valid, authorized transactions are recorded Transactions are recorded accurately Assets and data are safeguarded Business activities are performed efficiently Business and effectively and AIS Internal Control Objectives AIS
Activity Activity Sales Order Entry Threat Incomplete/inaccurate order Credit sales to customers with poor credit with Order legitimacy Stockouts and sales adjustallowances & adjustments allowances Shipping Incorrect items, quantities, Incorrect address Inventory theft Inventory Bill & A/R Failure to bill Billing errors A/R posting errors Cash collections General issues Theft of cash Loss of data Control Control Completion, edit, & reasonableness checks Credit approved by credit department; accurate credit history signatures on paper documents; digital signatures on e-business records e-business Sound inventory control system Reconcile sales order, picking list, & packing slip; barcode Reconcile scanners; automated warehouse functions Restrict physical access to inventory; document all transfers all transfers; reconcile physical counts with records all Separate shipping & billing; partial billing; prenumber shipdocuments & reconcile to invoices; reconcile picking documents slips & BOL with sales orders slips Data entry edit checks; accurate price lists Reconcile A/R subs with A/R control; monthly statements Segregate duties; minimize cash handling; prompt deposit; Segregate use lockboxes; reconcile bank statements Backup and disaster procedures REA Diagrams REA To be reviewed for Access Project Covered in chapter 15 Not on exam END OF CHAPTER 10 END REVIEW FLOWCHARTS ...
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This note was uploaded on 10/02/2010 for the course ACCT 5457 taught by Professor Polm during the Fall '10 term at Rensselaer Polytechnic Institute.
- Fall '10