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8/3/2019 AIS 10 Revenue Cycle
http://slidepdf.com/reader/full/ais-10-revenue-cycle 1/98
© 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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© 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart 2 of 161
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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© 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart 11 of 161
REVENUE CYCLE BUSINESSACTIVITIES
Four basic business activities areperformed in the revenue cycle:
± Sales order entry ± Shipping
± Billing
± Cash collection
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© 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart 12 of 161
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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© 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart 14 of 161
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.