Summay

Chapter 12 The Revenue Cycle: Sales to Cash Collections

Basic Revenue Cycle Activities
1. Sales order entry
a) Mengambil pesanan pelanggan
b) Menyetuhui kredit pelanggan
c) Pemeriksaan persediaan
d) Menanggapi pertanyaan pelanggan
2. Shipping
a) Pilih dan kemas pesanan
b) Pengiriman pesanan
3. Billing
a) Faktur pelanggan
b) Sumber dokumen: faktur penjualan
c) Memperbarui piutang
d) Sumber dokumen: nota kredit dan laporan bulanan
4. Cash Collections
a) Memproses pembayaran pelanggan dan memperbarui saldo akun mereka
b) Pengiriman uang
c) Setor pembayaran ke bank

Chapter 13 The Expenditure Cycle: Purchasing to Cash Disbursements

1. Basic Expenditure Cycle Activities
2. Ordering materials, supplies, and services
3. Receiving materials, supplies, and services
4. Approving supplier invoices
5. Cash disbursements

Chapter 14 The Process Cycle: Sales to Cash Collections

Basic Process Cycle Activities
1. Product design
a) Memenuhi permintaan dalam hal kualitas, ketahanan, dan fungsi, dan
meminimalkan biaya produksi
b) Menghasilkan : Daftar Bahan Baku dan daftar operasi
2. Planning and scheduling
a) Mengembangkan rencana produksi yang cukup efisien untuk memenuhi
pesanan.
b) Mengantisipasi permintaan jangka pendek tanpa menimbulkan kelebihan
persediaan jadi.
3. Production operations
a) Invoicing the customer
Source document: sales invoice
b) Updating accounts receivable
Source document: credit memo and monthly statements
4. Cost accounting
a) Memberikan informasi untuk perencanaan, pengendalian, dan evaluasi
kinerja operasi produksi
b) Mengumpulkan dan memproses informasi digunakan untuk menghitung
persediaan dan COGS
Discussion Question
12.1 A basic threat around sales order entry is that important data about the order will
be either missing or inaccurate. Explain how this risk can be mitigated.
Answer :
ERP systems use a variety of data entry edit controls to mitigate this threat. The ERP
system is necessarily performing a validity check of the customer name and inventory
item number entered by the salesperson. ERP systems should also be configured to
perform reasonableness tests to compare the quantity ordered with item numbers and
past sales history.

12.2 Some products, such as music and software, can be digitized. How does this
affect each of the four main activities in the revenue cycle?
Answer :
Digitized products do not change the four basic business activities of the revenue
cycle. For all products, whether digitized or not, an order must be taken, the product
shipped, the customer billed, and cash collected.
The only thing that digitized products change is inventory management as products do
not need to be removed from a warehouse to be delivered. However, a copy of a
product must be shipped (usually electronically, but in some cases it may need to be
burned on a DVD and then shipped).

12.3 Failure to collect cash on credit sales is a threat in the revenue cycle. What
controls can be used to neutralize this threat?
12.4 What kind of threats are eliminated by replacing bar codes with radio-frequency
identification tags?
12.5 Invoiceless pricing has been adopted by some large businesses for business-to-
business transactions. What are the barriers, if any, to its use in sales to consumers?
Answer :
Many companies are trying to incent their customers to sign up for automatic bill pay.
The primary barrier is consumer resistance to or fear of online bill payment in
general. However, there are also problems on the seller side - particularly in regards to
billing disputes. A related issue is the threat of asset misappropriation - how easily
can the seller attempt to recover items soul to the consumer.

Problems
12.10 Figure 12-20 depicts the activities performed in the revenue cycle by the
Newton Hardware Company.
REQUIRED
a. Identify at least three weaknesses in Newton Hardware’s revenue cycle. Explain the
resulting threat, and suggest methods to correct the weakness.
b. Identify ways to use IT to streamline Newton’s revenue cycle activities. Describe
the control procedures required in the new system. (CPA Examination, adapted)

CASE 12-1 Research Project: How CPA Firms Are Leveraging New Developments
in IT
Find articles from the past year in the Journal of Accountancy, the New Accountant,
and any other magazine suggested by your instructor that explain how CPA firms are
using IT developments (e.g., the cloud, BYOD, mobile, etc.). Write a report that
explains the benefits of the new technology (cost reduction, revenue increases,
customer attraction and retention, etc.) and how the firm mitigates any new threats
associated with that technology.

Discussion Questions
13.1 A Stockholm-based medicine company wishes to reduce kickbacks. For
kickbacks tomake economic sense, the supplier must find a way to recover the money
spent on it. This usually is accomplished by inflating the price of subsequent
purchases or by substituting goods of inferior quality. Name three processes to
prevent kickbacks.
13.2 Describe the EOQ approach to inventory management. Discuss the differences
between EOQ, MRP, and JIT.
Answer :
Economic Order Quantity (EOQ) is the traditional approach to managing inventory.
EOQ is used to find the optimal order size. Ordering costs, carrying costs, and
stockout costs are considered in finding the EOQ. The MRP (Materials Requirements
Planning) inventory method seeks to reduce inventory levels by scheduling
production, based on estimated sales, rather than by estimating needs (which EOQ
does). A just-in-time inventory system (or JIT) attempts to minimize, if not totally
eliminate, both carrying and stockout costs through the frequent delivery of small
amounts of materials, parts, and supplies when they are needed. JIT does not attempt
to estimate needs or schedule production based on estimated sales, as it is based on
customer demand at a given time. A JIT system almost eliminates finished goods
inventory.
13.3 What types of decision-making and strategic information should an AIS provide
in the expenditure cycle?
Answer :
The AIS should provide decision making information to : Determine when and how
much additional inventory to order. Select the appropriate vendors from whom to
order. Verify the accurancy of vendor invoices. Decide wheter purchase discounts
should be taken. Monitor cash flow needs to pay outstanding obligations. AIS should
also provide the following strategic and performance evaluation information on
efficiency and effectiveness of the purchasing department. Analysis of vendor
performance such as ontime delivery, quality. Time taken to move goods from the
receiving dock into production percentage of purchase discounts taken.
13.4 A petty cash fund should be set up as an imprest fund. Name the two
characteristics of such a fund.
13.5 Cash disbursement, the final step of the expenditure cycle, faces a number of
threats including cash flow problems. Why is it important to monitor this problem?
What is the best way to mitigate this threat?

Problems
Excel Project: Using Benford’s Law to Detect Potential Disbursements Fraud.*
REQUIRED
a. Read the article “Using Spreadsheets and Benford’s Law to Test Accounting Data,”
by Mark G. Simkin in the ISACA Journal, 2010, Vol. 1, available at www.isaca.org.
b. Follow the steps in the article to analyze the following set of supplier invoices:

CASE 13-1 Research Project: Impact of Information Technology on Expenditure

Cycle Activities, Threats and Controls
Search popular business and technology magazines (Business Week, Forbes, Fortune,
CIO, etc.) to find an article about an innovative use of IT that can be used to improve
one or more activities in the expenditure cycle.
Write a report that:
Explains how IT can be used to change expenditure cycle aktivities.
Discusses the control implications. Refer to Table 13-2, and explain how the new
procedure changes the threats and appropriate control procedures for mitigating thiose
threats.

Discussion Question
14.1 Why are access control and appropriate user rights in integrated ERP potential
threats, and how can they be mitigated?
14.2 Discuss the two outputs created by product design. What do these documents
describe, and what are they used for?
14.3 List the similarities between MRP-II manufacturing and lean manufacturing.
When is the use of MRP-II most suitable for a company?
14.4 What is activity-based costing (ABC)? How does it compare with traditional
costing methods? What are the benefits of activity-based costing?
14.5 Some companies have switched from a “management by exception” philosophy
to a “continuous improvement” viewpoint. The change is subtle, but significant.
Continuous improvement focuses on comparing actual performance to the ideal (i.e.,
perfection). Consequently, all variances are negative (how can you do better than
perfect?). The largest variances indicate the areas with the greatest amount of “waste,”
and, correspondingly, the greatest opportunity for improving the bottom line. What
are the advantages and disadvantages of this practice?
Answer :
An advantage of continuous improvement reports is that they combat the tendency for
complacency.
A disadvantage is that they can create too much pressure if expectations for
improvement are unrealistic. Accountants can help avoid this by becoming involved
in collecting and analyzing performance data to ensure that targets are realistic.

Problems
14.6 The XYZ Company’s current production processes have a scrap rate of 15% and
a return rate of 3%. Scrap costs (wasted materials) are $12 per unit; warranty/repair
costs average $60 per unit returned. The company is considering the following
alternatives to improve its production processes :
• Option A: Invest $400,000 in new equipment. The new process will also require an
additional $1.50 of raw materials per unit produced. This option is predicted to reduce
both scrap and return rates by 40% from current levels.
• Option B: Invest $50,000 in new equipment, but spend an additional $3.20 on
higher-quality raw materials per unit produced. This option is predicted to reduce both
scrap and return rates by 90% from current levels.
• Option ption C: Invest $2 million in new equipment. The new process will require
no change in raw materials. This option is predicted to reduce both scrap and return
rates by 50% from current levels.
a. Assume that current production levels of 1,000,000 units will continue. Which
option do you recommend? Why?
Answer :
At current production levels of 1,000,000 units, none of the options reduce total costs,
but option B results in the smallest increase in total costs.
Option A:
Investment = $400,000 + $1.5 x 1,000,000 units = $1,900,000.
Savings = $1,440,000:
Reduced scrap costs = 40% x 15% x $12 x 1,000,000 units = $720,000
Reduced warranty/repair costs = 40% x 3% x $60 x 1,000,000 units =
$720,000
Option B:
Investment = $50,000 + $3.2 x 1,000,000 units = $3,250,000
Savings = $3,240,000:
Reduced scrap costs = 90% x 15% x $12 x 1,000,000 units = $1,620,000
Reduced warranty/repair costs = 90% x 3% x $60 x 1,000,000 units =
$1,620,000
Option C:
Investment = $2,000,000
Savings = $1,800,000:
Reduced scrap costs = 50% x 15% x $12 x 1,000,000 units = $900,000
Reduced warranty/repair costs = 50% x 3% x $60 x 1,000,000 units =
$900,000

b. Assume that because all of the proposed changes will increase product quality, that
production will jump to 1,500,000 units. Which option do you recommend? Why?
Answer :
At production levels of 1,500,000 units, options B and C both reduce total costs.
Option C, however, reduces them the most.
Option A:
Investment = $400,000 + $1.5 x 1,500,000 units = $2,650,000.
Savings = $2,160,000:
Reduced scrap costs = 40% x 15% x $12 x 1,500,000 units = $1,080,000
Reduced warranty/repair costs = 40% x 3% x $60 x 1,500,000 units =
$1,0800,000
Option B:
Investment = $50,000 + $3.2 x 1,500,000 units = $4,850,000
Savings = $4,860,000:
Reduced scrap costs = 90% x 15% x $12 x 1,500,000 units = $2,430,000
Reduced warranty/repair costs = 90% x 3% x $60 x 1,500,000 units =
$2,430,000
Option C:
Investment = $2,000,000
Savings = $2,700,000:
Reduced scrap costs = 50% x 15% x $12 x 1,500,000 units = $1,350,000
Reduced warranty/repair costs = 50% x 3% x $60 x 1,500,000 units =
$1,350,000

CASE 14-1 The Accountant and CIM

Examine issues of the Journal of Accountancy, Strategic Finance, and other business
magazines for the past three years to find stories about current developments in
factory automation. Write a brief report that discusses the accounting implications of
one development: how it affects the efficiency and accuracy of data collection and
any new opportunities for improving the quality of performance reports. Also discuss
how the development affects the risks of various production cycle threats and the
control procedures used to mitigate those risks.