Abit, Ronalyn A.

BAC416-1M 20111101612

CASE STUDY-TLC COMPANY

I. Introduction
In Revenue Cycle, the business collects cash from selling goods and services to their
customers. It is the primary source of income of such business from the point they have
received a customer's order. And that the origin of the transaction is their customers.
Therefore, the Revenue Cycle focuses on the activities related to the sale of goods and services
and the collection of cash from those activities.
In this case, TLC Company's way of cash allocation is not in credit terms and only in cash
basis because of the fear of non-collection of accounts due.

II. Facts of the Problem

 The company does not extend credit sales to customers for fear of non-collection of
accounts due
 The company always sells on cash
 The company marks the goods to be sold at a profit of 25% based on cost
 7 day return policy for the discovered defects by their customer provided that the
merchandise is in good condition and with its or
 The saleslady alone is responsible for the receiving and inspection of the good that have
been returned.

III. Analysis
Weakness no.1
TLC Company is always on cash basis and does not use credit term because of fear of
non-collection
Analysis: If they would have allowed the credit payments from their customers, they
might have increased their sales. They can check the solvency of the customers who
wants to buy on credit by reviewing its history
Weakness no.2
They might not have inspected the goods that are to be delivered to their customers
Analysis: They still need to check whether the ordered goods correspond to the
customer’s order description and must have free from defects even their company is
being supplied by their chosen supplier.
Weakness no.3
They don’t let the customer check the goods before leaving the store.
Analysis: Before the customer leaves the store, they must require them to check on their
purchased goods for some defect to lessen the returned goods from their customer due
to defects.
Weakness no.4
The saleslady alone is responsible for the inspection of the goods returned and
preparation of return slip.
Analysis: The preparation of return slip must be done by the store manager or the
receiving department and not by the sales personnel alone.
IV. Internal Control Implication

FUNCTION RISK CONTROL ACTIVITIES

Sales Order Processing
The company might extend credit
sale to customers with bad debt
history.
TRANSACTION
Authorization
-Specific authorization to approve sales to
new customers or sales that exceed a
customer’s credit limit

EXISTENCE
Billing Management The company might failed to bill or -Periodic reconciliation of invoices with
erroneously billed the customer sales orders, picking tickets, and shipping
documents

Probable cash theft due to EFFECTIVENESS AND EFFICIENCY

Cash Management assignment to only one person the -Separation of cash handling function from
handling of cash and credit accounts receivable and credit functions
function

Presumptive shipping errors that COMPLETENESS

might due to delays, failure to -Documentation of all inventory transfers
Proper Documentation ship, wrong and reconciliation of shipping documents
quantities/items/addresses or with sales orders, picking lists, and packing
duplication slips

ACCESS/ PHYSICAL SECUTITIES

Probable inventory theft due to -Periodic physical counts of inventory and
Inventory Management weak delegation of duties or weak reconciliation to recorded quantities
supervision of the management