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The Revenue Cycle: Sales to Cash CollectionsChapter 12

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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

•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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Sales Order Entry Processing

Threats Controls1. Incomplete/inaccurate orders2. Invalid orders3. Uncollectible accounts4. Stockouts and excess inventory5. Loss of customers

1 a. Data entry edit controls b. Restrict access to master data to maintain accuracy2 a. Signature to authorize sale3 a. Credit limits checked and if sale exceeds limit, specific authorization needed4 a. Perpetual inventory system b. RFID or bar code technology c. Physical inventory counts 12-5


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 Controls1. Picking wrong item or quantity to

ship2. Theft3. Fail to ship the goods4. Ship to wrong address

1 a. Bar code technology b. Reconcile picking list to sales order2 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 slips4 a. Data entry edit controls

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Billing Process

•Invoicing the customer▫Source document: sales invoice

•Updating accounts receivable▫Source document: credit memo and monthly statements

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Billing Process

Threats Controls1. Failure to bill customer2. Billing errors3. Posting errors in accounts

receivable4. Inaccurate or invalid credit memos

1 a. Reconcile invoices with sales orders and shipping documents b. Separate shipping and billing functions2 a. Data entry edit controls b. Configure system for automatically enter price data3 a. Reconcile subsidiary accounts receivable balance to the amount for accounts receivable in the general ledger4 a. Segregation of authorization and recording function for 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 Control1. Theft of cash2. 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 12-11


Key Terms• 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

• 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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