1. Pls submit a comprehensive flowchart for revenue and collection cycle.

2. Explain the processes, documents, internal controls, and approvals for the
process.

Preparation:

Sales Order/Revenue Cycle

- The cycle begins in the sales order department, where orders from customers are
entered into an Alpha file, prepared to make sales orders, and then delivered to the
credit department along with a copy. These sales orders are subsequently approved
by the credit department, and copies are then transmitted to the warehouse and
accounts receivable departments. In order to formalize the release of the products
for shipping, the Warehouse Department first uses the authorized Sales Orders to
release the items for shipping. The goods are then sent to the Shipping Department,
where a Bill of Lading is prepared to be forwarded to the customer. While a copy is
sent to the accounts receivable department to be posted in the customer accounts
and reconciled to the alpha file, a copy is also sent to the billing department, which
will use it to construct a sales invoice to be delivered to the customer.

Cash Receipts/Collection Cycle

- Customer payments are made via check, which the mailroom department splits
into restricted endorsed checks and remittance advice (to show that a check is being
paid). Remittance advice are prepared in a pre-listed form for future use and stored
in a file; a copy is sent to the Controller Department. Restricted endorsed checks are
sent to the Cashier Department, while those that are going to be updated or posted in
customer accounts are sent to the Accounts Receivable Department. A copy of the
cash receipt summary records is provided to the general ledger department for
storage and updating together with the checks once they have been received and
prepared for bank deposit by the cashier department. The pre-listed remittance
advice and deposit slip from the bank in which the check was deposited are then sent
to the Controller Department to be reconciled by date and kept in a file.
Summary:

The revenue and collection cycle involves the process of receiving a customer’s
order, approving credit for a sale, determining whether the goods are available for
shipment, shipping the good, billing the customer, collecting cash, and recognizing the
effect of this process on the other related accounts such as accounts receivable,
inventory, and sales commission expense. The revenue and collection cycle of an entity
consists of the activity relating to the exchange of goods and services with customers
and the collection of the revenue in cash. The classes of transactions in the revenue and
collection cycle involve Sales/ cash and credit, Sales adjustments / discounts, returns
and allowances and uncollectible accounts provisions and write-offs, Cash
receipts/collections on account and cash sales, Estimate of bad debt expense, and
Charge-off of uncollectible accounts.

Documents used in the revenue and collection cycle are, Customer’s Purchase
Orders which are requests for merchandise by a customer that may be received by
telephone, letter, a printed form sent to prospective and existing customers through
salespeople; Sales Order- a prenumbered document for recording the description,
quantity, and related information for goods ordered by a customer that is frequently
used to show credit approval and authorization for shipment; Shipping Document
or Bill of Lading, a prenumbered document prepared to initiate shipment of the
goods indicating the description of the merchandise, quantity shipped, and other
relevant data; Sales Invoice, also a prenumbered document indicating the description
and quantity of goods sold, price including freight, insurance, terms, and other relevant
data; Credit Memo, pre numbered document indicating a reduction in the amount
due from a customer due to returned goods or allowance granted that supports
reductions in accounts receivable rather than increases; Remittance advice ,
document that customers attaches to a check in payment of an invoice that may be a
turnaround document, a part of a check, or a statement identifying the invoices being
paid that facilitates recording cash receipts (if a customer does not return a remittance
advice, the employee opening the mail generally prepares one); there are also
uncollectable account authorization forms, monthly statements, and etc.
In addition, Accounting records in the Revenue and collection cycle includes Sales
journal, Sales Returns and allowance journal, cash receipts journal, general journal,
accounts receivable master file/subsidiary ledger, and accounts receivable trial balance

When it comes to internal controls and approvals, there are segregation of

duties wherein work duties are divided or segregated among different people to reduce
the risk of error or fraud, Physical controls where equipments, inventories,
securities, cash and other assets are secured physically through locks, safes or any other
environmental controls, with restricted access to those with authority, Policies and
Procedures may include documentations that provide guidance and training to
ensure consistent performance at a required level of quality. Other controls may include
Reconciliations, Transaction and Activity Reviews, Information Processing Controls, etc.