12 the Revenue Cycle - Sales to Cash Collection
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Chapter 12
The Revenue Cycle: Sales to Cash Collections
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Learning Objectives
Describe the basic business activities and relatedinformation processing operations performed in therevenue cycle.
Discuss the key decisions that need to be made in the
revenue cycle, and identify the information needed tomake those decisions.
Identify major threats in the revenue cycle, and evaluatethe adequacy of various control procedures for dealingwith those threats.
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The Revenue Cycle
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The Revenue Cycle
Provides goods and services to customers
Collects cash in payment for those sales
Primary Objective:
Provide the right product In the right place
At the right time for the right price
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Revenue Cycle Activities
1. Sales order entry
2. Shipping
3. Billing
4. Cash collections
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General Revenue Cycle Threats
Inaccurate or invalid master data
Unauthorized disclosure of sensitive information
Loss or destruction of master data
Poor performance
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General Revenue Cycle Controls
Data processing integrity controls
Restriction of access to master data
Review of all changes to master data
Access controls
Encryption
Backup and disaster recovery procedures
Managerial reports
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Sales Order Entry
1. Take order
2. Check and approve credit
3. Check inventory availability
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Sales Order Threats
Incomplete/inaccurate orders
Invalid orders
Uncollectible accounts
Stockouts or excess inventory
Loss of customers
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Sales Order Entry Controls
Data entry edit controls (seeChapter 10)
Restriction of access tomaster data
Digital signatures or writtensignatures
Credit limits
Specific authorization toapprove sales to newcustomers or sales thatexceed a customer’s creditlimit
Aging of accountsreceivable
Perpetual inventory controlsystem
Use of bar-codes or RFID
Training
Periodic physical counts ofinventory
Sales forecasts and activityreports
CRM systems, self-help Websites, and proper evaluationof customer service ratings
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Shipping
1. Picking and packing the order
2. Shipping the order
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Shipping Threats
Picking the wrong items or the wrong quantity
Theft of inventory
Shipping errors (delay or failure to ship, wrong quantities,
wrong items, wrong addresses, duplication)
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Shipping Controls
Bar-code and RFIDtechnology
Reconciliation of picking liststo sales order details
Restriction of physicalaccess to inventory
Documentation of allinventory transfers
RFID and bar-code
technology
Periodic physical counts ofinventory and reconciliationto recorded quantities
Reconciliation of shippingdocuments with sales orders,picking lists, and packingslips
Use RFID systems to identify
delays
Data entry via bar-codescanners and RFID
Data entry edit controls (ifshipping data entered on
terminals)
Configuration of ERP systemto prevent duplicateshipments
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Billing
1. Invoicing
2. Updating accounts receivable
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Billing Threats
Failure to bill
Billing errors
Posting errors in accounts receivable
Inaccurate or invalid credit memos
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Billing Controls
Separation of billing and
shipping functions
Periodic reconciliation ofinvoices with sales orders,picking tickets, and shippingdocuments
Configuration of system toautomatically enter pricing data
Restriction of access to pricingmaster data
Data entry edit controls
Reconciliation of shippingdocuments (picking tickets, billsof lading, and packing list) tosales orders
Data entry controls
Reconciliation of batch totals
Mailing of monthly statements tocustomers
Reconciliation of subsidiary
accounts to general ledger
Segregation of duties of creditmemo authorization from bothsales order entry and customeraccount maintenance
Configuration of system to blockcredit memos unless there iseither correspondingdocumentation of return ofdamaged goods or specificauthorization by management
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Cash Collections Threats
1. Theft of cash
2. Cash flow problems
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Cash Collection Controls
Separation of cash handling function from accounts receivable and credit functions
Regular reconciliation of bank account with recorded amounts by someoneindependent of cash collections procedures
Use of EFT, FEDI, and lockboxes to minimize handling of customer payments byemployees
Prompt, restrictive endorsement of all customer checks
Having two people open all mail likely to contain customer payments
Use of cash registers
Daily deposit of all cash receipts
Lockbox arrangements, EFT, or credit cards
Discounts for prompt payment by customers
Cash flow budgets
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