Revenue Cycle Report

8/12/2019 Revenue Cycle Report

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Revenue Cycle


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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 evaluatethe adequacy of various control procedures for dealing with

those threats.


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REVENUE CYCLE, DEFINED

The revenue cycle is a recurring set of business activities

and related information processing operations associated

with providing goods and services to customers andcollecting cash in payment for those sales.


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RELATIONSHIP OF REVENUE CYCLE WITH

OTHER BUSINESS CYCLES

*With Expenditure and Production Cycle: receives information aboutsales transactions aiding them to decide on when to start production

and purchase inventories

*With Human Resource Cycle: uses information about sales on

calculating commissions and bonuses

*With General Ledger and Reporting Function: uses informationgenerated by the Revenue Cycle in preparing financial statements

and performance reports


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REVENUE CYCLE: IN A NUTSHELL


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REVENUE CYCLES

BASIC BUSINESS

ACTIVITIES

1. Sales Order Entry: performed by the SalesOrder Department that typically reports to theVP of Marketing

Steps:

a. Taking customers order: can be done insidethe store, by phone or mail, through the Internetor through a salesperson in field

b. Checking and approving customers credit:can be General Authorization (for existingcustomers) or Specific Authorization (for newcustomers)

c. Checking inventory availability

d. Respond to customer inquiries throughcustomer service

*Customer Relationship Management:provides data about customer needs and

business practices and its goal is RETAINCUSTOMERS


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2. Shipping: includes custody

of inventory and relateddepartments report to VP of

Manufacturing

Steps:

a. Picking and packing theorder: done by the Warehouse

Department

b. Shipping the order: done by

the Shipping Department


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3. Billing and Accounts Receivable

Steps:

a. Billing customers (Invoicing):

summarizes information from the sales

order entry and shipping activities

*Invoice: notifies the customer of the amount to

be paid and where to pay

b. Updating accounts receivable: can be

done through:

- Open Invoice Method: customer pays according

to his invoice

- Balance Forward Method: customer paysaccording to his monthly statement

* Exception Procedures: ADJUSTMENTS

- Returns

- Allowances

- Write-offs

A credit memo is issued by the credit

manager to acknowledge the return of goods or to

reflect a price reduction if a customer wishes to

keep slightly damaged goods.


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4. Cash Collections

Steps:

a. Handling customer remittancesb. Deposit remittances in the bank

REVENUE CYCLES KEY

DECISIONSThe primary objective of the revenue cycle is to

provide the right product at the right place and at

the right time for the right price, and it is the

companys responsibility to accomplish this primary

objective.


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Key Decision Questions:

*To what extent can and should products be customized to individual customers

needs and desires?

* How can customer payments be processed to maximize cash flow?

* How much inventory should be carried, and where should that inventory be

located?

* How should merchandise be delivered to customers? Should the company perform

the shipping function itself or outsource it to a third party that specializes in logistics?

* Should credit be extended to customers?

* How much credit should be given to individual customers?

* What credit terms should be offered?


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MAJOR THREATS AND APPLICABLE CONTROL PROCEDURES

*A well-designed Accounting Information System must provide adequate controls.

Objectiv es Poss ible Threat

1 . Transact ions are proper lyauthor ized .

T ra ns ac t io ns w o u ld g o una uth o r i zeddue to f ra ud o r m i s ta k e .

2 . Recorded tran sact ions are va l id . Transact ions th at d id not actua l lyhapp en are recorded.

3 . Val id , author ized transact ionsare recorded.

Transact ions that actua l ly occurred

w e r e n o t r e c or d ed .

4 . Transact ions are recordedaccurate ly .

T ra ns ac t io ns w ere reco rded w i th a

w r o n g am o u n t , ac co u n t a n d in ad i f f eren t t im e per io d o r cha rg ed to

d i f f eren t ind iv idua l s

5 . As s e t s ( ca s h , inv ento ry , a nddata) are sa feguarded from loss

o r the f t .

T hreat s inc lude th e f t , de st ruc t io n a nd

m isuse o f data .

6 . Business act iv i t i es areper fo rm ed e f f i c i en t ly a ndeffect ive ly .

Ac t iv i t i e s m ig ht be per fo rm ed

ine f fect i v e ly a nd ine f f ic i en t ly thro u g hpo o r m a na g em ent .

7 . T he co m pa ny i s in co m pl ia ncew i th a ll ex i s t ing and a pp l i cab le

l aw s .

T he threa t i s no n-co m pl ia nce w i th

l aw s .

8 . All d i sc losures are fu l l and fa ir . Disc losures m is lead indiv idu a ls w hoa re in teres ted in the f ina nc ia l s ta tus

o f the co m pa ny .


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*Controls Applicable to Sales Order Entry

Threat Ap pl icable Cont rol Procedu res

1 . Incom ple te or inaccuratec u s t o m e r o r d e rs

D a t a en t r y e d it c h e c k s

2. Credi t sa les to cust om ers

w i t h p o o r cr ed it

Cred i t approv al by cred it manager , not by

sales funct ion; accurate records of

cus tom er account ba lances

3. Legi t im acy of o rders

S ignatures on paper docum ents ; d ig ita l

s ignatu res and digi ta l cert i f icates for e -

bus iness

4 . S tock out s , carry ing cos t s and

m a rk d o w n s In v e n t o r y c o n t r o l s y s t e m s


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* Controls Applicable to Shipping

*Controls Applicable to Billing and Accounts Receivable

Threat App l icable Cont ro l Procedures

1. Sh ippin g errors:

Wrong merchandise

Wrong quant i t ie s

Wrong address

Re co n c i l ia t io n o f sa l es o r d e r w i th p i c k in g

t ick et and pack ing s l ip ; bar code scanners;

d a ta e n tr y a p p l ic a t io n c o n tr o l s

2 . Thef t o f invent ory Restr ic t phy s ica l access to inven tory ;

Do c u m e n t a t io n o f a ll in t e r n a l t r a n s fe r s o f

inven tory ; per iod ic ph ys ica l count s o f

in v e n to r y a n d r e c o n c il i at io n o f c o u n t s o f

r e c o r de d a m o u n t s

Threat App l icable Cont rol Procedu res

1. Fai lure to bi l l custo mer s Separat ion of shipp ing and bi l l ing fun ct ions ;

Pre-num bering of a l l sh ipping docum ents and

periodic reconci l iat ion t o invo ices;reconci l iat ion of p ick ing t i ck et s and bi l l s of

lading w i th sa les orders

2. Bi ll ing errors Data entr y edit cont rol ; Price l i sts

3 . Post ing errors in updat ing

accounts rece ivable

Reconci l iat ion of subsidiary accounts

receivable ledger w ith general ledger;

m ont h l y s t at em ent s t o cus t om ers


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* Controls Applicable to Cash Collections

*General Control Issues

Threat Appl icab le Cont rol Procedures1 . Thef t o f Cash Segregat ion of dut ies ; min imizat ion of cash

handl ing; lock box arrangements; prom pt

endorsem ent and depos i t o f a l l rece ipts

Per iod ic reconc i l ia t ion of bank s tatem ent

w i t h r e c or d s by some on e n ot in vo lve d in c ash

rece ipts process ing

Thr e at A p pl i c abl e Cont r o l P r oc e dur e s

1 . Loss , a l terat ion and

di sc l o sur e o f da ta

Bac kup and d i sas t e r r e c ove r y pr oc e dur e s ;

ac c e s s c ontr o l s (ph ys i c a l and l og i c al )

2 . P o o r p e r f o r m a n c e P r e p ar a t io n a n d r e v i e w o f p e r f o rm a n c e

r e p o r t s


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THANK YOU FOR YOURCOOPERATION!!!

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Revenue Cycle Report