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Revenue/Receipt Cycle Control Objectives

Function: ORDER ENTRY

Control Objectives
Customers, credit limits and
terms and sales prices should be
approved and stock availability
should be checked before orders
are processed and
goods/services are delivered.
All customers’ orders should be
accurately recorded as to
customer, price, quantity, terms,
for use in subsequent
processing.
All customers’ orders should be
reported on a timely basis.
Potential Financial Specific Control Procedures
Errors/Irregularities Statements
Affected
Shipments could be made to Misstatement of Approval of customers, credit limits and terms, and
customers who would eventuallyaccounts receivable prices. Persons should make such approval not
not pay their accounts. and income. involved in order entry function. Updated list of
Unauthorized adjustment customers, credit limits and terms, and prices should be
could be made. made available to sales department personnel.
Shipments not based on Use of pre-numbered sales or work orders and
approved customers’ accounting for its completeness.
orders could be made. Follow-up of missing documents. Results of follow-up
Goods to be shipped may procedures done should be reviewed and approved by a
not meet customers’ designated official.
SPECS and may result to Adequate written procedures for order entry function.
dissatisfaction and
significant returns or
uncollectible accounts.

Function: SHIPPING

Control Objectives Potential Financial

All shipments should be based
on approved customers’ orders.
Shipments should be adequately
recorded as to customer,
quantity, and description of
goods shipped.
All shipments should be reported
on a timely basis
Errors/Irregularities
Unauthorized shipments
could be made.
Customers could be billed
for goods that were not
received.
Unbilled shipments.
Statements Specific Control Procedures
Affected
Misstatement of Shipments should not be made without approved
accounts customer orders.
receivable, sales, Physical count and inspection of goods at the time of
inventories, and shipment
cost of sales. Use of prenumbered shipping documents and
accounting for its completeness.
Follow-up procedures on missing shipping documents
and unmatched orders.
Maintaining records of unmatched (undelivered) orders.
Review of follow-up procedures done.
Adequate written procedures for shipping function.

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Control Objectives
Errors/Irregularities
All shipments should be billed
and taken up in accounting
records (GL & SL).
Billings should be made on
actual shipments made.
Sales invoice amounts and other
sales-related expenses such as
cost of goods sold should be
accurately computed.
Control Objectives
Errors/Irregularities
All cash receipts should be
immediately recorded upon
receipt and deposited intact in
bank.
All cash receipts should be
accurately entered in the
accounting records
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Function: BILLING
Potential Financial Statements
Specific Control Procedures
Affected
Unbilled shipments Misstatement of Use of prenumbered sales invoices and accounting for its
Customers could be sales, accounts completeness
over/under invoiced. receivable, and Follow-up missing documents. Review and approval of
inventories. follow-up procedures done.
Calculation of control total for posting to control accounts
before invoices are routed to accounts receivable
accounting for posting to subsidiary ledgers.
Comparison of invoiced prices and quantities to shipping
documents approved sales orders and standard price
lists.
Checking the accuracy of invoice extensions and footings
by person other than those who prepare sales invoices.
Adequate written procedures for billing function.
Function: CASH RECEIPTS
Potential Financial Statements
Specific Control Procedures
Affected
Cash receipts could be Misstatement of Use of prenumbered OR and accounting for its
misappropriated cash, accounts completeness.
Delays in recording receivable, and Preparation of a list of cash receipts at the time of
cash receipts. receivables from receipt.
employees Restrictive endorsement of checks received.
Establishment of control totals for posting to control
accounts before cash receipt documents are routed to
the accounts receivable subsidiary ledger clerks.
Comparison of actual amount received with the initial
cash receipts record.
Comparison of cash receipt record with bank – validated
deposit slips, cash receipts books, bank statements.
Adequate written procedures for cash receipts functions.
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Function: SALES RETURNS AND ALLOWANCES

Control Objectives Financial Statements

Potential Errors/Irregularities
Affected
Specific Control Procedures
Goods being Customers may be given credit for goods Misstatement of The description, condition and quantity of goods returned
returned are returned but were not received. accounts receivable, should be checked at the time of receipt.
properly inspected Damage merchandise may be included in sales returns and Use of prenumbered receiving reports and debit/credit memos.
before inventories at its original cost allowances, and Accounting for the numerical sequence of receiving reports and
acceptance. Unrecorded returns inventories. debit/credit memos and follow-up of missing documents. A
Goods returned Goods returned in the current period may designated official should review and approve the results of
are recorded at not be included in the inventory count. follow-up procedures done.
the time of Receiving reports should be matched with debit/credit memos.
receipt.
Function: ACCOUNTING
Financial
Control Potential
Statements Specific Control Procedures
Objectives Errors/Irregularities
Affected
There should Invalid transactions Misstatem Sales and AR balances should be periodically compared to balances of prior periods,
be periodic could be taken up ent of budgeted amounts, or averages published by the industry in which the company
verification of to conceal errors or accounts operates.
the irregularities receivable Persons other than those who maintain the control account, prepare, check or
completeness, General and and sales approve accounts receivable documents should maintain the subsidiary ledgers, or
accuracy and subsidiary ledgers those involved in the cash receipts function.
validity of sales could be forced The subsidiary ledgers should be periodically reconciled with the control account
and accounts balances. balance in the general ledger. Differences disclosed should be promptly given
receivable Cash receipts could appropriate action. It should be done by person other than those who maintain the
balances per be misappropriated accounts receivable records, account for billing documents and debit/credit memo or
records. and covered-up by those involved in the cash receipt function
Receivables taking invalid Monthly statements of accounts should be sent to customers. Exceptions noted by
should be adjustments to customers should be promptly given action.
stated at their accounts receivable Periodic review of customer’s accounts with credit balances.
NRV. balance such as Preparation of accounts receivable aging schedule.
unauthorized write- Identification of worthless accounts for write-offs.
offs. Periodic review of the adequacy of valuation allowances such as bad debts, sales
returns and discounts.
Adequate written procedures for accounting function.

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