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 © 2006 Prentice Hall Business Publishi ng Accounting Information Systems, 10/e Romney/Stein bart 1 of 161 C HAPTER 10 The Revenue Cycle: Sales and Cash Collections

AIS 10 Revenue Cycle

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  © 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart 1 of 161

C HAPTER 10

The Revenue Cycle:

Sales and Cash Collections

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INTRODUCTION

Questions to be addressed in this chapter include: ± What are the basic business activities and

data processing operations that areperformed in the revenue cycle?

 ± What decisions need to be made in therevenue cycle, and what information is

needed to make these decisions? ± What are the major threats in the revenue

cycle and the controls related to thosethreats?

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INTRODUCTION

The revenue cycle is a recurring set of businessactivities and related information processingoperations associated with:

 ± Providing goods and services to customers ± Collecting their cash payments

The primary external exchange of information iswith customers.

 

 

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INTRODUCTION

Information about revenue cycle activities flows to other accounting cycles, e.g.:

 ± The expenditure and production cycles

 ± ,  

Receive information about sales transactions so they¶llknow when to initiate the purchase or production of 

more inventory.

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INTRODUCTION

 ± The human resources/payroll cycle

 ±   Uses information about sales to calculate

commissions and bonuses.

The general ledger and reporting function

 

Uses information produced by the revenue cycle inpreparing financial statements and performancereports.

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INTRODUCTION

The primary objective of the revenuecycle:

 ± Provide the right product in the right place atthe right time for the right price.

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INTRODUCTION

Decisions that must be made: ± Should we customize products?

 ± How much inventory should we carry andwhere?

 ± How should we deliver our product?

 ± How should we price our product?

 ± Should we give customers credit? If so, howmuch and on what terms?

 ± How can we process payments to maximizecash flow?

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INTRODUCTION

Management also has to evaluate theefficiency and effectiveness of revenuecycle processes:

 ± Requires data about: Events that occur 

Resources used

Agents who participate ± The data needs to be accurate, reliable, and

timely.

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INTRODUCTION

In this chapter, we¶ll look at:

 ± How the three basic AIS functions are carriedout in the revenue cycle, i.e.:

Capturing and processing data

Storing and organizing the data for decisions

Providing controls to safeguard resources(including data)

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REVENUE CYCLE BUSINESSACTIVITIES

Four basic business activities areperformed in the revenue cycle:

 ± Sales order entry ± Shipping

 ± Billing

 ± Cash collection

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REVENUE CYCLE BUSINESSACTIVITIES

Four basic business activities areperformed in the revenue cycle:

 ± Sales order entry ± Shipping

 ± Billing

 ± Cash collection

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SALES ORDER ENTRY

Sales order entry is performed by the salesorder department.

The sales order department typically reports to

the VP of Marketing.

Steps in the sales order entry process include: ± Take the customer¶s order 

 ± Check the customer¶s credit ± Check inventory availability

 ± Respond to customer inquiries (may be done bycustomer service or sales order entry)

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1.1TakeOrder 

Customer 

Shipping

1.2ApproveCredit

1.3Check

Inv.Avail.

BillingWare-house

Purchas-ing

1.4Resp. to

Cust. Inq.

Customer 

Sales Order 

Customer 

Inventory

Orders

Orders

ApprovedOrders

PickingList

SalesOrder 

SalesOrder 

      I    n    q    u      i    r      i    e    s

      R    e    s    p    o    n    s    e

DFD for 

Sales Order Entry

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SALES ORDER ENTRY

Sales order entry is performed by the salesorder department.

The sales order department typically reports to

the VP of Marketing.

Steps in the process include: ± Take the customer¶s order 

 ± Check the customer¶s credit ± Check inventory availability

 ± Respond to customer inquiries (may be done bycustomer service or sales order entry)

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SALES ORDER ENTRY

Take customer orders

 ± Order data are received on a sales order document which may be completed andreceived:

In the store

By mail

By phone On a website

By a salesperson in the field

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SALES ORDER ENTRY

The sales order (paper or electronic)indicates:

 ± Item numbers ordered ± Quantities

 ± Prices

 ± Salesperson

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SALES ORDER ENTRY

To reduce human error, customers shouldenter data themselves as much aspossible:

 ± On websites

 ± On OCR forms

 ± Via phone menus

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SALES ORDER ENTRY

How IT can improve efficiency andeffectiveness:

 ± Orders entered online can be routed directlyto the warehouse for picking and shipping.

 ± Sales history can be used to customizesolicitations.

 ± Choice boards can be used to customizeorders.

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SALES ORDER ENTRY

 ± Electronic data interchange (EDI) can beused to link a company directly with itscustomers to receive orders or even manage

the customer¶s inventory. ± Email and instant messaging are used to

notify sales staff of price changes and

promotions. ± Laptops and handheld devices can equipsales staff with presentations, prices,marketing and technical data, etc.

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SALES ORDER ENTRY

Recall that one objective of the AIS is toensure the accuracy and reliability of the datacollected. With respect to sales order data, the

following edit checks should be performed: ± Validity checks on the customer account and

inventory item numbers.

 ± Completeness test to make sure all needed

information was collected.

 ± Reasonableness tests comparing the quantityordered to past history.

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1.1TakeOrder 

Customer 

Shipping

1.2ApproveCredit

1.3Check

Inv.Avail.

BillingWare-house

Purchas-ing

1.4Resp. to

Cust. Inq.

Customer 

Sales Order 

Customer 

Inventory

Orders

Orders

ApprovedOrders

PickingList

SalesOrder 

SalesOrder 

      I    n    q    u      i    r      i    e    s

      R    e    s    p    o    n    s    e

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SALES ORDER ENTRY

Credit sales should be approved beforethe order is processed any further.

There are two types of credit authorization: ± General authorization

For existing customers below their credit limit who

don¶t have past-due balances. Credit limits vary by customer based on past history

and ability to pay.

General authorization involves checking the customer master file to verify the account and status.

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SALES ORDER ENTRY

Credit sales should be approved beforethe order is processed any further.

 ± Specific authorization

For customers who are: ± New

 ± Have past-due balances

 ± Are placing orders that would exceed their credit limit

Specific authorization is done by the credit manager,who reports to the treasurer.

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SALES ORDER ENTRY

How can IT improve the process?

 ± Automatic checking of credit limits andbalances

 ± Emails or IMs to the credit manager for accounts needing specific authorization

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1.1TakeOrder 

Customer 

Shipping

1.2ApproveCredit

1.3Check

Inv.Avail.

BillingWare-house

Purchas-ing

1.4Resp. to

Cust. Inq.

Customer 

Sales Order 

Customer 

Inventory

Orders

Orders

ApprovedOrders

PickingList

SalesOrder 

SalesOrder 

      I    n    q    u      i    r      i    e    s

      R    e    s    p    o    n    s    e

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SALES ORDER ENTRY

Sales order entry is performed by the salesorder department.

The sales order department typically reports to

the VP of Marketing. Steps in the process include:

 ± Take the customer¶s order 

 ± Check the customer¶s credit

 ± Check inventory availability

 ± Respond to customer inquiries (may be done bycustomer service or sales order entry)

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SALES ORDER ENTRY

When the order has been received and thecustomer¶s credit approved, the next stepis to ensure there is sufficient inventory to

fill the order and advise the customer of the delivery date.

The sales order clerk can usuallyreference a screen displaying: ± Quantity on hand

 ± Quantity already committed to others

 ± Quantity on order 

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SALES ORDER ENTRY

If there are enough units to fill the order:

 ± Complete the sales order 

 ± Update the quantity available field in theinventory file

 ± Notify the following departments of the sale: Shipping

Inventory Billing

 ± Send an acknowledgment to the customer 

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SALES ORDER ENTRY

If there¶s not enough to fill the order,initiate a back order.

 ± For manufacturing companies, notify theproduction department that more should bemanufactured.

 ± For retail companies, notify purchasing that

more should be purchased.

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SALES ORDER ENTRY

Accurate inventory records are needed socustomers can be accurately advised of their order status.

 ± Requires careful data entry in the sales andshipping processes.

 ± Can be problematic in retail establishments:

Clerks running a similar item over the scanner several times instead of running each item

Mishandling of sales returns such that returnedmerchandise isn¶t re-entered in inventory records

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1.1TakeOrder 

Customer 

Shipping

1.2ApproveCredit

1.3Check

Inv.Avail.

BillingWare-house

Purchas-ing

1.4Resp. toCust. Inq.

Customer 

Sales Order 

Customer 

Inventory

Orders

Orders

ApprovedOrders

PickingList

SalesOrder 

SalesOrder 

      I    n    q    u      i    r      i    e    s

      R    e    s    p    o    n    s    e

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SALES ORDER ENTRY

Sales order entry is performed by the salesorder department.

The sales order department typically reports to

the VP of Marketing. Steps in the process include:

 ± Take the customer¶s order 

 ± Check the customer¶s credit

 ± Check inventory availability

 ± Respond to customer inquiries (may be done bycustomer service or sales order entry)

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SALES ORDER ENTRY

Another step in the sales order entryprocess is responding to customer inquiries:

 ± May occur before or after the order is placed

 ± The quality of this customer service can becritical to company success

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SALES ORDER ENTRY

Many companies use Customer Relationship Management (CRM) systemsto support this process:

 ± Organizes customer data to facilitate efficientand personalized service

 ± Provides data about customer needs and

business practices so they can be contactedproactively about the need to reorder 

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SALES ORDER ENTRY

The goal of CRM is to retain customers:

 ± Rule of thumb: It takes 5 times as much effortto attract a new customer as it does to retain

an existing one.

 ± CRMs should be seen as tools to improve thelevel of customer service and encourage

loyalty²not as a way to keep them off your back.

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SALES ORDER ENTRY

Transaction processing technology can beused to improve customer relationships:

 ± POS systems can link to the customer master file to:

Automatically update accounts receivable.

Print customized coupons (e.g., if the customer  just bought yogurt, print a yogurt coupon toencourage repeat sales).

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SALES ORDER ENTRY

IT should be used to automate responses toroutine customer requests.

Examples:

 ± Providing telephone menus or websites that leadcustomers to answers about Account balances

Order status

Frequently asked questions (FAQs)

 ± Online chat or instant messaging These methods free up customer service reps to

deal with less routine issues.

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SALES ORDER ENTRY

The effectiveness of a website depends onits design: ± Review records of customer interactions to

identify potential problems. ± A poorly-designed, difficult-to-use website can

create customer ill will.

 ± A well-designed site can provide insights that

lead to increased sales, e.g., by analyzingwebsite traffic to determine products of greatest interest.

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SALES ORDER ENTRY

Sales order entry involved the steps of:

 ± Taking the customer¶s order 

 ± Checking the customer¶s credit

 ± Checking inventory availability

 ± Responding to customer inquiries

We have now completed sales order entryand are ready to move to the next step.

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REVENUE CYCLE BUSINESSACTIVITIES

Four basic business activities areperformed in the revenue cycle:

 ± Sales order entry

 ± Shipping

 ± Billing

 ± Cash collection

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SHIPPING

The second basic activity in the revenue cycle isfilling customer orders and shipping the desiredmerchandise.

The process consists of two steps ± Picking and packing the order 

 ± Shipping the order 

The warehouse department typically picks the order 

The shipping departments packs and ships theorder 

Both functions include custody of inventory andultimately report to the VP of Manufacturing.

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2.1Pick &

Pack

Sales Order 

2.2Ship

Goods

SalesOrder 

Entry

Shipping

Carrier 

Inventory

ShipmentsBilling &Accts.

Rec.

Picking List

Goods &PackingList

Goods,Packing Slip,

& Bill of Lading

Bill of Lading &Packing Slip

SalesOrder 

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SHIPPING

The second basic activity in the revenue cycle isfilling customer orders and shipping the desiredmerchandise.

The process consists of two steps ± Picking and packing the order  ± Shipping the order 

The warehouse department typically picks the order 

The shipping departments packs and ships theorder 

Both functions include custody of inventory andultimately report to the VP of Manufacturing.

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SHIPPING

A picking ticket is printed by sales order entryand triggers the pick-and-pack process

The picking ticket identifies:

 ± Which products to pick

 ± What quantity

Warehouse workers record the quantities pickedon the picking ticket, which may be a paper or electronic document.

The picked inventory is then transferred to theshipping department.

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SHIPPING

Technology can speed the movement of inventory and improve the accuracy of perpetualinventory records:

 ± Bar code scanners ± Conveyer belts

 ± Wireless technology so workers can receiveinstructions without returning to dispatch

 ± Radio frequency identification (RFID) tags: Eliminate the need to align goods with scanner 

Allow inventory to be tracked as it moves through warehouse

Can store up to 128 bytes of data

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2.1Pick &

Pack

Sales Order 

2.2Ship

Goods

SalesOrder 

Entry

Carrier 

Inventory

ShipmentsBilling &Accts.

Rec.

Picking List

Goods &PackingList

Goods,Packing Slip,

& Bill of Lading

Bill of Lading &Packing Slip

SalesOrder 

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SHIPPING

The second basic activity in the revenue cycle isfilling customer orders and shipping the desiredmerchandise.

The process consists of two steps ± Picking and packing the order 

 ± Shipping the order 

The warehouse department typically picks the order 

The shipping departments packs and ships theorder 

Both functions include custody of inventory andultimately report to the VP of Manufacturing.

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SHIPPING

The shipping department compares thefollowing quantities: ± Physical count of inventory

 ± Quantities indicated on picking ticket ± Quantities on sales order 

Discrepancies can arise if:

 ± Items weren¶t stored in the location indicated ± Perpetual inventory records were inaccurate

If there are discrepancies, a back order isinitiated.

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SHIPPING

The clerk then records online:

 ± The sales order number 

 ± The item numbers ordered

 ± The quantities shipped

This process:

 ± Updates the quantity-on-hand field in the inventory

master file ± Produces a packing slip

The packing slip lists the quantity and description of each item in the shipment.

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SHIPPING

This produces

 ± Updates the quantity-on-hand field in the inventory master file

 ± Produces a packing slip

 ± Produces multiple copies of the bill of lading

The bill of lading is a legal contract that definesresponsibility for goods in transit

It identifies: ± The carrier 

 ± The source ± The destination

 ± Special shipping instructions

 ± Who pays for the shipping

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SHIPPING

The shipment is accompanied by: ± The packing slip

 ± A copy of the bill of lading

 ± The freight bill (Sometimes bill of lading doubles as freight bill)

What happens to other copies of the bill of lading?

 ± One is kept in shipping to track and confirm delivery ± One is sent to billing to trigger an invoice

 ± One is retained by the freight carrier 

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SHIPPING

A major shipping decision is the choice of delivery methods: ± Some companies maintain a fleet of trucks

 ± Companies increasingly outsource tocommercial carriers

Reduces costs

Allows company to focus on core business

 ± Selecting best carrier means collecting andmonitoring carrier performance data for:

On-time delivery

Condition of merchandise delivered

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SHIPPING

Another decision relates to the location of distribution centers

 ± Many customers want suppliers to deliver products only when needed

 ± Logistical software tools can help identifyoptimal locations to:

Minimize amount of inventory carried Meet customers¶ needs

Also helps optimize the use of delivery vehicles ona day-to-day basis

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SHIPPING

Globalization makes outbound logistics morecomplex: ± Distribution methods differ around the world in terms

of efficiency and effectiveness.

 ± Country-specific taxes and regulations affectdistribution choices.

 ± Logistical software can also help with these issues.

Advanced communications systems can provide

real-time info on shipping status and thus addvalue: ± If you know a shipment will be late and notify the

customer, it helps the customer adapt.

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REVENUE CYCLE BUSINESSACTIVITIES

Four basic business activities areperformed in the revenue cycle:

 ± Sales order entry

 ± Shipping

 ± Billing

 ± Cash collection

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BILLING

The third revenue cycle activity is billingcustomers.

This activity involves two tasks:

 ± Invoicing

 ± Updating accounts receivable

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3.1

Billing

Customer 

3.2MaintainAccts.Rec.

SalesOrder 

Entry

Billing and

Accounts

Receivable

Customer Sales

GeneralLedger &Rept. Sys.

Shipping

Mailroom

Sales Order 

Sales

Invoice

RemittanceList

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BILLING

The third revenue cycle activity is billingcustomers.

This activity involves two tasks:

 ± Invoicing

 ± Updating accounts receivable

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BILLING

Accurate and timely billing is crucial.

Billing is an information processing activitythat repackages and summarizes information

from the sales order entry and shippingactivities

Requires information from:

 ± Shipping Department on items and quantitiesshipped

 ± Sales on prices and other sales terms

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BILLING

The basic document created is the salesinvoice. The invoice notifies the customer of:

 ± The amount to be paid

 ± Where to send payment

Invoices may be sent/received:

 ± In paper form

 ± By EDI Common for larger companies

Faster and cheaper than snail mail

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BILLING

When buyer and seller have accurate onlinesystems:

 ± Invoicing process may be skipped

Seller sends an email when goods are shipped Buyer sends acknowledgment when goods are

received

Buyer automatically remits payments within a specified

number of days after receiving the goods ± Can produce substantial cost savings

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BILLING

An integrated AIS may also merge the billingprocess with sales and marketing by usingdata about a customer¶s past purchases to

send information about related products andservices with his monthly statement.

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3.1Billing

Customer 

3.2MaintainAccts.Rec.

SalesOrder 

Entry

Customer Sales

GeneralLedger &Rept. Sys.

Shipping

Mailroom

Sales Order 

Sales

Invoice

RemittanceList

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BILLING

The third revenue cycle activity is billingcustomers.

This activity involves two tasks:

 ± Invoicing

 ± Updating accounts receivable

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BILLING

The accounts receivable function reports tothe controller 

This function performs two basic tasks

 ± Debits customer accounts for the amount thecustomer is invoiced

 ± Credits customer accounts for the amount of customer payments

Two basic ways to maintain accountsreceivable: ± Open-invoice method

 ± Balance forward method

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BILLING

OPEN-INVOICE METHOD: ± Customers pay according to each invoice

 ± Two copies of the invoice are typically sent to the

customer  Customer is asked to return one copy with payment

This copy is a turnaround document called aremittance advice

 ± Advantages of open-invoice method

Conducive to offering early-payment discounts Results in more uniform flow of cash collections

 ± Disadvantages of open-invoice method More complex to maintain

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BILLING

BALANCE FORWARD METHOD:

 ± Customers pay according to amount on their monthly statement, rather than by invoice

 ± Monthly statement lists transactions since the laststatement and lists the current balance

The tear-off portion includes pre-printed informationwith customer name, account number, and balance

Customers are asked to return the stub, which servesas the remittance advice

Remittances are applied against the total balancerather than against a specific invoice

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BILLING

 ± Advantages of balance-forward method: It¶s more efficient and reduces costs because you don¶t

bill for each individual sale

It¶s more convenient for the customer to make onemonthly remittance

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BILLING

Cycle billing is commonly used with thebalance-forward method

 ± Monthly statements are prepared for subsets of 

customers at different times. EXAMPLE: Bill customers according to the following

schedule:

 ± 1st week of month²Last names beginning with A-F

 ± 2nd week of month²Last names beginning with G-M

 ± 3rd week of month²Last names beginning with N-S

 ± 4th week of month²Last names beginning with T-Z

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BILLING

Advantages of cycle billing:

 ± Produces more even cash flow

 ± Produces more even workload

 ± Doesn¶t tie up computer for several days toprint statements

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BILLING

Image processing can improve the efficiency andeffectiveness of managing customer accounts.

 ± Digital images of customer remittances and accountsare stored electronically

Advantages: ± Fast, easy retrieval

 ± Copy of document can be instantly transmitted to

customer or others ± Multiple people can view document at once

 ± Drastically reduces document storage space

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BILLING

EXCEPTION PROCEDURES: ACCOUNT ADJUSTMENTS AND WRITE-OFFS:

 ± Adjustments to customer accounts may need

to be made for: Returns

Allowances for damaged goods

Write-offs as uncollectible

 ± These adjustments are handled by the creditmanager 

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BILLING

If there¶s a return, the credit manager: ± Receives confirmation from the receiving dock

that the goods were actually returned to

inventory ± Then issues a credit memo which authorizes

the crediting of the customer¶s account

If goods are slightly damaged, the

customer may agree to keep them for aprice reduction ± Credit manager issues a credit memo to

reflect that reduction

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BILLING

Distribution of credit memos:

 ± One copy to accounts receivable to adjust thecustomer account

 ± One copy to the customer 

If repeated attempts to collect paymentfail, the credit manager may issue a credit

memo to write off an account: ± A copy will not be sent to the customer 

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BILLING

NOTE: Since accounts receivable handles thecustomer accounts, why does someone elsehave to issue the credit memos?

 ± EXAMPLE; An accounts receivable employee couldallow a relative or friend (or even himself) to run up anaccount with the company and then simply write theaccount off or credit it for returns and allowances.

Having the credit memos issued by the creditmanager is good segregation of duties between: ± Authorizing a transaction (write-off)

 ± Recording the transaction

REVENUE CYCLE BUSINESS

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REVENUE CYCLE BUSINESSACTIVITIES

Four basic business activities areperformed in the revenue cycle:

 ± Sales order entry

 ± Shipping

 ± Billing

 ± Cash collection

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CASH COLLECTIONS

The final activity in the revenue cycle iscollecting cash from customers

The cashier, who reports to the treasurer,

handles customer remittances and depositsthem in the bank

Because cash and checks are highlyvulnerable, controls should be in place to

discourage theft ± Accounts receivable personnel should not have

access to cash (including checks)

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CASH COLLECTIONS

Possible approaches to collecting cash:

 ± Turnaround documents forwarded toaccounts receivable

The mailroom opens customer envelopes andforwards to accounts receivable either: ± Remittance advices

 ± Photocopies of remittance advices

 ± A remittance list prepared in the mailroom

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CASH COLLECTIONS

 ± Lockbox arrangements

Customers remit payments to a bank P.O. box

The bank sends the company: ± Remittance advices

 ± An electronic list of the remittances

 ± Copies of the checks

Advantages: ± Prevents theft by company employees

 ± Improves cash flow management Lockboxes may be regional, which reduces time in the mail

Checks are deposited immediately on receipt

Foreign banks can be utilized for international customers

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CASH COLLECTIONS

Possible approaches to collecting cash:

 ± Turnaround documents forwarded to accountsreceivable

 ± Lockbox arrangements ± Electronic lockboxes

Upon receiving and scanning the checks, the bankimmediately sends electronic notification to thecompany, including: ± Customer account number 

 ± Amount remitted

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CASH COLLECTIONS

Possible approaches to collecting cash:

 ± Electronic funds transfer 

Customers remit payment electronically to the

company¶s bank Eliminates mailing delays

Typically done through banking system¶s AutomatedClearing House (ACH) network

PROBLEM: Some banks do not have both EDI and EFTcapabilities, which complicates the task of crediting thecustomer¶s account on a timely basis.

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CASH COLLECTIONS

Possible approaches to collecting cash:

 ± Turnaround documents forwarded to accounts receivable

 ± Lockbox arrangements

 ± Electronic lockboxes

 ± Electronic funds transfer 

 ± Financial electronic data interchange (FEDI)

Integrates EFT with EDI

Remittance data and funds transfer instructions are sentsimultaneously by the customer 

Requires that both buyer and seller use EDI-capable banks

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CASH COLLECTIONS

Possible approaches to collecting cash: ± Turnaround documents forwarded to accounts receivable

 ± Lockbox arrangements

 ± Electronic lockboxes

 ± Electronic funds transfer 

 ± Financial electronic data interchange (FEDI) ± Accept credit cards or procurement cards from

customers Speeds collection because credit card issuer usuallytransfers funds within two days

Typically costs 2-4% of gross sales price

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CASH COLLECTIONS

Possible approaches to collecting cash:

 ± Turnaround documents forwarded to accountsreceivable

 ± Lockbox arrangements ± Electronic lockboxes

 ± Electronic funds transfer 

 ± Financial electronic data interchange (FEDI)

 ± Accept credit cards or procurement cards fromcustomers

 ± Electronic bill payment

REVIEW OF REVENUE CYCLE

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REVIEW OF REVENUE CYCLEACTIVITIES

Before we move on to discuss internalcontrols in the revenue cycle, let¶s do abrief review of the organization chart,including:

 ± Who does what in the revenue cycle

 ± To whom they typically report

PARTIAL ORGANIZATION CHART FOR

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Sales

Order 

Customer 

Service

VP of Marketing

Warehouse Shipping

VP of Manufacturing

Billing

Dept.

Accounts

Receivable

Controller 

Credit

Manager 

Cashier 

Treasurer 

CFO

CEO

PARTIAL ORGANIZATION CHART FORUNITS INVOLVED IN REVENUE CYCLE

Takes customer orders

Authorizes credit for existingcustomers in good standing

Checks inventory availability

PARTIAL ORGANIZATION CHART FOR

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Sales

Order 

Customer 

Service

VP of Marketing

Warehouse Shipping

VP of Manufacturing

Billing

Dept.

Accounts

Receivable

Controller 

Credit

Manager 

Cashier 

Treasurer 

CFO

CEO

PARTIAL ORGANIZATION CHART FORUNITS INVOLVED IN REVENUE CYCLE

Responds tocustomer inquiries

PARTIAL ORGANIZATION CHART FOR

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Sales

Order 

Customer 

Service

VP of Marketing

Warehouse Shipping

VP of Manufacturing

Billing

Dept.

Accounts

Receivable

Controller 

Credit

Manager 

Cashier 

Treasurer 

CFO

CEO

PARTIAL ORGANIZATION CHART FORUNITS INVOLVED IN REVENUE CYCLE

Picks theorder 

PARTIAL ORGANIZATION CHART FOR

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Sales

Order 

Customer 

Service

VP of Marketing

Warehouse Shipping

VP of Manufacturing

Billing

Dept.

Accounts

Receivable

Controller 

Credit

Manager 

Cashier 

Treasurer 

CFO

CEO

PARTIAL ORGANIZATION CHART FORUNITS INVOLVED IN REVENUE CYCLE

Packs theorder 

Ships theorder 

PARTIAL ORGANIZATION CHART FOR

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Sales

Order 

Customer 

Service

VP of Marketing

Warehouse Shipping

VP of Manufacturing

Billing

Dept.

Accounts

Receivable

Controller 

Credit

Manager 

Cashier 

Treasurer 

CFO

CEO

PARTIAL ORGANIZATION CHART FORUNITS INVOLVED IN REVENUE CYCLE

Invoices thecustomer 

PARTIAL ORGANIZATION CHART FOR

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Sales

Order 

Customer 

Service

VP of Marketing

Warehouse Shipping

VP of Manufacturing

Billing

Dept.

Accounts

Receivable

Controller 

Credit

Manager 

Cashier 

Treasurer 

CFO

CEO

PARTIAL ORGANIZATION CHART FORUNITS INVOLVED IN REVENUE CYCLE

Maintains the customer¶saccount: ± Increases customer account

when sales are made

 ± Decreases account when cashis collected

PARTIAL ORGANIZATION CHART FOR

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Sales

Order 

Customer 

Service

VP of Marketing

Warehouse Shipping

VP of Manufacturing

Billing

Dept.

Accounts

Receivable

Controller 

Credit

Manager 

Cashier 

Treasurer 

CFO

CEO

PARTIAL ORGANIZATION CHART FORUNITS INVOLVED IN REVENUE CYCLE

Approves credit for newcustomers or existingcustomers with issues

Authorizes credits to customer accounts for returns,allowances, and write-offs

PARTIAL ORGANIZATION CHART FOR

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Sales

Order 

Customer 

Service

VP of Marketing

Warehouse Shipping

VP of Manufacturing

Billing

Dept.

Accounts

Receivable

Controller 

Credit

Manager 

Cashier 

Treasurer 

CFO

CEO

PARTIAL ORGANIZATION CHART FORUNITS INVOLVED IN REVENUE CYCLE

Deposits cashreceived fromcustomers

CONTROL: OBJECTIVES

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CONTROL: OBJECTIVES,THREATS, AND PROCEDURES

In the revenue cycle (or any cycle), a well-designed AISshould provide adequate controls to ensure that thefollowing objectives are met:

 ± All transactions are properly authorized

 ± All recorded transactions are valid ± All valid and authorized transactions are recorded

 ± All transactions are recorded accurately

 ± Assets are safeguarded from loss or theft

 ± Business activities are performed efficiently and effectively ± The company is in compliance with all applicable laws and

regulations

 ± All disclosures are full and fair 

CONTROL: OBJECTIVES

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CONTROL: OBJECTIVES,THREATS, AND PROCEDURES

We¶ll soon be discussing the threats that mayoccur in the revenue cycle.

If you understand the preceding objectives, you

probably won¶t have to worry about³memorizing´ threats.

Almost every threat represents a violation of oneof those control objectives.

Let¶s look more closely.

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SUMMARY

You¶ve learned about the basic businessactivities and data processing operations inthe revenue cycle, including:

 ± Sales order entry ± Shipping

 ± Billing

 ± Cash Collection

You¶ve learned how IT can improve theefficiency and effectiveness of thoseprocesses.

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SUMMARY

You¶ve learned about decisions that need tobe made in the revenue cycle and whatinformation is required to make these

decisions. You¶ve also learned about the major threats

that present themselves in the revenue cycleand the controls that can be instigated tomitigate those threats.