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Topic 3 (Part 2) - Transaction Processing System-Revenue Cycle
Topic 3 (Part 2) - Transaction Processing System-Revenue Cycle
(Chapter 4)
The Revenue
Cycle
James A. Hall, Accounting Information Systems, 10th Edition. © 2019 Cengage. All Rights Reserved.
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REVENUE CYCLE
• The revenue cycle is a recurring set of business activities and
related information processing operations associated with
providing goods and services to customers and collecting
cash in payment for those sales.
James A. Hall, Accounting Information Systems, 10th Edition. © 2019 Cengage. All Rights Reserved.
May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Objectives of Revenue Cycle
✓ To record sales order promptly and accurately.
✓ To verify that customers are worthy of credit.
✓ To ship products or perform services by agreed dates.
✓ To bill for products or services timely and accurately.
✓ To record and classify cash receipts promptly and accurately.
✓To post sales and cash receipts to proper customers’
accounts in the Accounts Receivable Ledger.
✓ To safeguard products until shipped.
✓ To safeguard cash until deposited.
James A. Hall, Accounting Information Systems, 10th Edition. © 2019 Cengage. All Rights Reserved.
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Revenue Cycle Business Activities
Sales Order
1. Taking customer’s order
2. Checking and approving
customer’s creditworthiness
3. Checking inventory Cash Receipts
availability 1. Handling customer
remittances
Shipping 2. Depositing
1.Picking and packing the remittances in the
order bank
2.Shipping the order
James A. Hall, Accounting Information Systems, 10th Edition. © 2019 Cengage. All Rights Reserved.
May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 7
A. SALES ORDER PROCEDURES
1) RECEIVE ORDER:
James A. Hall, Accounting Information Systems, 10th Edition. © 2019 Cengage. All Rights Reserved.
May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Sales Order
James A. Hall, Accounting Information Systems, 10th Edition. © 2019 Cengage. All Rights Reserved.
May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 9
A. SALES ORDER PROCEDURES
2) CHECK CREDIT:
James A. Hall, Accounting Information Systems, 10th Edition. © 2019 Cengage. All Rights Reserved.
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A. SALES ORDER PROCEDURES (continued)
3) PICK GOODS:
• Warehouse employees pick goods from warehouse shelves
based on items in stock release as an authorization to release
the goods and sent the goods to Shipping department
together with verified Stock Release document. The stock
records are adjusted.
• Stock release- a document that identifies which items of
inventory must be located and picked from the warehouse
shelves.
• Back order- records that stay on file until the inventories arrive
from the supplier. Back-ordered items are shipped before new
sales are processed.
• Stock records- formal accounting records for controlling
inventory assets.
James A. Hall, Accounting Information Systems, 10th Edition. © 2019 Cengage. All Rights Reserved.
May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 11
A. SALES ORDER PROCEDURES (continued)
4) SHIP GOODS:
• The Shipping Department reconciles the goods received from
the Warehouse with the sales information received from Sales
Department (in Packing Slip and Shipping Notice).
• The shipping information (in Shipping Notice and verified
Stock Release) is sent to Billing deparment. The goods, along
with the Packing Slip and a bill of lading, prepared by
Shipping, are sent to the customer.
• Packing slip- a document that travels with the goods to the
customer to describe the contents of the order.
• Shipping notice- a document that informs the billing
department that the customer’s order has been filled and
shipped.
• Bill of lading- a formal contract between the seller and the
shipping company that transports the goods to the customer.
• Shipping
James A. Hall, Accounting Information Systems, 10th Edition. © 2019 Cengage. All Rights Reserved.
May not be scanned, copiedlog- specifies
or duplicated, orders
or posted to shipped
a publicly accessible during
website, the
in whole or period. 12
in part.
Bill of Lading
James A. Hall, Accounting Information Systems, 10th Edition. © 2019 Cengage. All Rights Reserved.
May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 13
A. SALES ORDER PROCEDURES (continued)
5) BILL CUSTOMER:
• Billing department compiles and reconciles the order info with
Shipping Notice and verified Stock Release, issues a complete
invoice to the customer and updates the sales journal.
• Sales order (invoice copy)- copy of a sales order to be
reconciled with the shipping notice. It describes the products that
were actually shipped to the customer.
• S.O. pending file- to store the sales order (invoice copy) from
the receive-order task until receipt of the shipping notice.
• Sales journal- special journal used for recording completed sales
transactions.
• Journal voucher- composed of accounting journal entries into an
accounting system for the purposes of making corrections or
adjustments to the accounting data. For control purposes, all JVs
should be approved by the appropriate designated authority.
• The information is transferred to:
• accounts receivable (in Ledger copy of Sales Order)
James A. Hall, Accounting Information Systems, 10th Edition. © 2019 Cengage. All Rights Reserved.
• May
inventory
not be scanned,control (in Stock
copied or duplicated, or posted toRelease)
a publicly accessible website, in whole or in part. 14
Journal Voucher
James A. Hall, Accounting Information Systems, 10th Edition. © 2019 Cengage. All Rights Reserved.
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A. SALES ORDER PROCEDURES (continued)
6) UPDATE INVENTORY RECORDS:
• Inventory Control adjusts the inventory subsidiary ledger.
• Inventory subsidiary ledger- a ledger with inventory records
updated from the stock release copy by the inventory control
system.
7) UPDATE ACCOUNTS RECEIVABLE RECORDS:
• Accounts Receivable records the information in the customer’s
account in the accounts receivable subsidiary ledger
• Accounts receivable (AR) subsidiary ledger- an account
record that shows activity by detail for each account type, and
contains, at minimum: customer name; customer address;
current balance; available credit; transaction dates; invoice
numbers; and credits for payments, returns, and allowances.
• Ledger copy- a copy of the sales order received along with the
customer sales invoice by the billing department clerk from the
sales department.
James A. Hall, Accounting Information Systems, 10th Edition. © 2019 Cengage. All Rights Reserved.
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Inventory Subsidiary Ledger
James A. Hall, Accounting Information Systems, 10th Edition. © 2019 Cengage. All Rights Reserved.
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Accounts Receivable Subsidiary Ledger
James A. Hall, Accounting Information Systems, 10th Edition. © 2019 Cengage. All Rights Reserved.
May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 18
A. SALES ORDER PROCEDURES (continued)
James A. Hall, Accounting Information Systems, 10th Edition. © 2019 Cengage. All Rights Reserved.
May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 19
DFD of Sales Order Processing System
James A. Hall, Accounting Information Systems, 10th Edition. © 2019 Cengage. All Rights Reserved.
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B. SALES RETURN PROCEDURES
1) PREPARE RETURN SLIP:
• Return slip is a document recording the counting and inspect
of items returned, prepared by the receiving department
employee.
James A. Hall, Accounting Information Systems, 10th Edition. © 2019 Cengage. All Rights Reserved.
May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 22
DFD Sales Return Procedures
James A. Hall, Accounting Information Systems, 10th Edition. © 2019 Cengage. All Rights Reserved.
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C. CASH RECEIPT SYSTEM
James A. Hall, Accounting Information Systems, 10th Edition. © 2019 Cengage. All Rights Reserved.
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C. CASH RECEIPTS PROCEDURES
James A. Hall, Accounting Information Systems, 10th Edition. © 2019 Cengage. All Rights Reserved.
May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 25
C. CASH RECEIPTS PROCEDURES
James A. Hall, Accounting Information Systems, 10th Edition. © 2019 Cengage. All Rights Reserved.
May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 26
C. CASH RECEIPTS PROCEDURES (continued)
3) UPDATE ACCOUNTS RECEIVABLE RECORDS
• Accounts Receivable department posts from the remittance advices
to the accounts receivable subsidiary ledger. Periodically, AR
summary of the postings is sent to General Ledger.
James A. Hall, Accounting Information Systems, 10th Edition. © 2019 Cengage. All Rights Reserved.
May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 28
Remittance Advice
James A. Hall, Accounting Information Systems, 10th Edition. © 2019 Cengage. All Rights Reserved.
May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 29
Cash Receipts Journal
James A. Hall, Accounting Information Systems, 10th Edition. © 2019 Cengage. All Rights Reserved.
May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 30
PHYSICAL REVENUE SYSTEMS
• Physical accounting information systems are a combination of
computer technology and human activity.
• As a general rule, smaller businesses tend to rely less on
technology and more on manual procedures, whereas larger
companies tend to employ advanced technologies.
• 2 examples of computerized revenue systems processing:
• Basic technology system that employs independent
(nonnetworked) personal computers to function as record-
keeping devices
• E.g. Point-of-Sales (POS) systems
• Advanced technology system that integrates all business
function through a centralized computer application
• Reengineering greatly reduces the cost of business by
identifying and streamlining tasks. Must rethink business
processes and firm organization
James A. Hall, Accounting Information Systems, 10th Edition. © 2019 Cengage. All Rights Reserved.
• E.g.
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BASIC TECHNOLOGY-
COMPUTERIZED REVENUE CYCLE
• The computers used in these systems are independent
(nonnetworked) personal computers (PCs).
• In addition, in such systems, maintaining physical files of
source documents is critical to the audit trail.
• Authorizations and data access can be performed through
computer screens.
• There is a decrease in the amount of paper.
• The manual journals and ledgers are changed to disk
transaction and master files.
• Input is still typically from a hard copy document and goes
through one or more computerized processes.
• Processes store data in electronic files (the tape or disk) or
prepare
James A. Hall, data inInformation
Accounting the form Systems,of
10tha hardcopy
Edition. report.
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May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Automating the Revenue Cycle
• Revenue cycle programs can include:
– formatted screens for collecting data – touch screen
– edit checks on the data entered
– instructions for processing and storing the data
– security procedures (passwords or user IDs)
– steps for generating and displaying output
James A. Hall, Accounting Information Systems, 10th Edition. © 2019 Cengage. All Rights Reserved.
May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Automated Data Entry
James A. Hall, Accounting Information Systems, 10th Edition. © 2019 Cengage. All Rights Reserved.
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Basic Technology System-
Computerized Revenue Cycle:
(A) Sales Order Processing System
Departments/ person in charge:
• Sales Department
• Credit Department Approval
• Warehouse Procedures
• The Shipping Department
• The Billing Department
• Accounts Receivable, Inventory Control, and General
Ledger Departments
James A. Hall, Accounting Information Systems, 10th Edition. © 2019 Cengage. All Rights Reserved.
May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 38
Basic Technology Sales Order Processing System
James A. Hall, Accounting Information Systems, 10th Edition. © 2019 Cengage. All Rights Reserved.
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Basic Technology Sales Order Processing System
(continued)
James A. Hall, Accounting Information Systems, 10th Edition. © 2019 Cengage. All Rights Reserved.
May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 40
Basic Technology Revenue Cycle:
(B) Cash Receipts System
Department/ Person in charge:
• Mail Room
• Cash Receipts
• Accounts Receivable
• General Ledger Department
• Controller’s Office
James A. Hall, Accounting Information Systems, 10th Edition. © 2019 Cengage. All Rights Reserved.
May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 43
Basic Technology Cash Receipts System
James A. Hall, Accounting Information Systems, 10th Edition. © 2019 Cengage. All Rights Reserved.
May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 44
ADVANCED TECHNOLOGY-
REVENUE CYCLE
• Advanced technologies allow systems designers to
integrate accounting and other business functions through
a common information system.
• The objective of integration is to improve operational
performance and reduce costs by identifying and
eliminating nonvalue-added tasks.
James A. Hall, Accounting Information Systems, 10th Edition. © 2019 Cengage. All Rights Reserved.
May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 45
(A) Integrated Sales Order System
• Sales Procedures
• The process begins with sales clerks receiving customer
orders, which may be hard-copy documents or may be
received via e-mail, fax, or phone.
• Using a computer terminal connected to a central sales order
system, the clerk enters the sales order.
James A. Hall, Accounting Information Systems, 10th Edition. © 2019 Cengage. All Rights Reserved.
May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 46
Integrated Sales Order System
James A. Hall, Accounting Information Systems, 10th Edition. © 2019 Cengage. All Rights Reserved.
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(B) Integrated Cash Receipts System
Department/ person in charge:
• Mail Room
• Cash Receipts Department
• Automatic Data Processing Procedures
• Controller’s Office
James A. Hall, Accounting Information Systems, 10th Edition. © 2019 Cengage. All Rights Reserved.
May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 48
Integrated Cash Receipts System
James A. Hall, Accounting Information Systems, 10th Edition. © 2019 Cengage. All Rights Reserved.
May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 49
POINT-OF-SALE (POS) SYSTEMS
• Point-of-sale (POS) systems are revenue systems in
which no customer accounts receivable are maintained
and inventory is kept on the store’s shelves, not in a
separate warehouse.
• POS systems are used extensively in grocery stores,
department stores, and other types of retail organizations.
• Inventory is kept on the store’s shelves, not in a separate
warehouse.
James A. Hall, Accounting Information Systems, 10th Edition. © 2019 Cengage. All Rights Reserved.
May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 50
James A. Hall, Accounting Information Systems, 10th Edition. © 2019 Cengage. All Rights Reserved.
May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 51
Daily Procedures of POS System
• Universal Product Code (UPC) is a label containing price
information (and other data) that is attached to items
purchased in a point-of-sale system.
• When all the UPCs are scanned, the system automatically
calculates taxes, discounts, and the total for the transaction.
• The clerk enters the transaction into the POS system via the
register’s keypad, and a record of the sale is added to the
sales journal in real time.
• At the end of the clerk’s shift, a supervisor unlocks the register
and retrieves the internal tape.
• At the end of the day, the cash receipts clerk prepares a three-
part deposit slip for the total amount of the cash received.
• One copy is filed and the other two accompany the cash to the
bank.
• Because cash is involved, armed guards are often used to
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escort
May not bethe funds
scanned, copied orto the bank
duplicated, or posted torepository.
a publicly accessible website, in whole or in part. 52
REENGINEERING USING EDI
• Doing Business via EDI
• Electronic data interchange (EDI) is the intercompany
exchange of computer-processable business information in
standard format.
• EDI is more than just a technology.
• EDI poses unique control problems for organizations.
James A. Hall, Accounting Information Systems, 10th Edition. © 2019 Cengage. All Rights Reserved.
May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 53
REENGINEERING USING THE INTERNET
• Doing Business on the Internet
• Thousands of organizations worldwide have home
pages on the Internet to promote their products and
solicit sales.
• Typically, Internet sales are credit card transactions that
are sent to the seller’s e-mail file.
• Unlike EDI, which is exclusively a B2B arrangement
between trading partners, Internet sales are both B2B
and business-to-consumer (B2C) transactions.
• Connecting to the Internet exposes the organization to
threats from computer hackers, viruses, and transaction
fraud.
• Most organizations take these threats seriously and
implement controls, including password techniques,
message encryption, and firewalls, to minimize their
risk.
James A. Hall, Accounting Information Systems, 10th Edition. © 2019 Cengage. All Rights Reserved.
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REVENUE CYCLE RISKS AND
INTERNAL CONTROLS
• Objective of Internal controls:
To provide adequate controls to ensure that the
following objectives are met:
–Transactions are properly authorized.
–Recorded transactions are valid.
–Valid, authorized transactions are recorded.
–Transactions are recorded accurately.
–Assets (cash, inventory, and data) are
safeguarded from loss or theft.
–Business activities are performed
James A. Hall, Accounting Information Systems, 10th Edition. © 2019 Cengage. All Rights Reserved.
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Control activities (Revisit Topic 2)
• 2 categories:
1. IT CONTROLS: relate specifically to the computer
environment.
A- General controls- that pertain to entity-wide concerns
such as controls over the data center, organization
databases, systems development, and program
maintenance.
B- Application controls- ensure the integrity of specific
systems.
• IT controls
• Data input edits
• Automated posting to subsidiary and gl accounts
James A. Hall, Accounting Information Systems, 10th Edition. © 2019 Cengage. All Rights Reserved.
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May not backup
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4) Risk of misappropriation of cash receipts and inventory
• Physical controls
• Transaction authorization
• Supervision
• Access controls
• Segregation of duties
• IT controls
• Multilevel security
James A. Hall, Accounting Information Systems, 10th Edition. © 2019 Cengage. All Rights Reserved.
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5) Risk of unauthorized access to accounting records and reports
• Physical controls
• Access controls
• Segregation of duties
• IT controls
• Passwords
• Multilevel security:
– Employs programmed techniques that permit simultaneous access to
a central system by many users with different access privileges but
prevent them from obtaining information for which they lack
authorization.
– Access control list (ACL) is a list containing information that defines
the access privileges for all valid users of the resource. an access
control list assigned to each resource controls access to system
resources such as directories, files, programs, and printers.
– Role-based access control (RBAC) is a formal technique for
grouping users according to the system resources they require to
perform their assigned tasks. Role is a formal technique for grouping
users according to the system resources they require to perform their
James A. Hall, Accounting Information Systems, 10th Edition. © 2019 Cengage. All Rights Reserved.
May not assigned tasks.
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James A. Hall, Accounting Information Systems, 10th Edition. © 2019 Cengage. All Rights Reserved.
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Point-of-sale (POS) System Control Issues
• Authorization
• Supervision
• Access Control
• Accounting Records
• Independent Verification
James A. Hall, Accounting Information Systems, 10th Edition. © 2019 Cengage. All Rights Reserved.
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Internal Control- Authorization
Manual Transaction
• Proper authorization of transactions (documentation)
→ only valid transactions get processed.
• Authorization should take place when:
• a sale is made on credit (authorization)
• a cash refund is requested (authorization)
• posting a cash payment received to a customer’s
account (cash pre-list)
Computer-based Transaction
• real-time systems, authorizations are automated:
programmed decision rules must be closely monitored.
James A. Hall, Accounting Information Systems, 10th Edition. © 2019 Cengage. All Rights Reserved.
May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Internal Control- Segregation of Duties
Manual Transaction
3 rules:
• Transaction authorization should be separate from transaction
processing.
• Asset custody should be separate from asset recordkeeping.
• The organization should be so structured that the perpetration
of a fraud requires collusion between two or more individuals.
– Sales Order Processing:
• credit authorization separate from sales order processing
• inventory control separate from warehouse
• accounts receivable sub-ledger separate from general ledger control
account
– Cash Receipts Processing:
• cash receipts separate from accounting records
• accounts receivable sub-ledger separate from general ledger
Computer-Based Transaction
• Some consolidation of tasks by the computer; protect the
computer programs → coding, processing and maintenance
James A. Hall, Accounting Information Systems, 10th Edition. © 2019 Cengage. All Rights Reserved.
should
May be separated.
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Internal Control- Supervision
Manual Transaction
• Supervision of employees serves as a deterrent to
dishonest acts and is particularly important in the
mailroom.
Computer-based Transaction
• In POS systems, the cash register’s internal tape or
database is an added form of supervision.
James A. Hall, Accounting Information Systems, 10th Edition. © 2019 Cengage. All Rights Reserved.
May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Internal Control- Accounting Records
Manual Transaction
• With a properly maintained audit trail, it is possible to track
transactions through the systems and to find where and when
errors were made:
– pre-numbered source documents
– special journals
– subsidiary ledgers
– general ledger
– Files
Computer-based Transaction
• Rest on reliability and security of magnetically stored data.
Accountant should be skeptical about accepting the accuracy of
hard-copy printouts of journals and ledgers.
• Backup is a concern for direct access files, and the system needs
James A. Hall, Accounting Information Systems, 10th Edition. © 2019 Cengage. All Rights Reserved.
toMay
ensure thatcopied
not be scanned, backup of all
or duplicated, files
or posted to ais continuously
publicly accessible website,kept.
in whole or in part.
Internal Control- Access Controls
Manual Transaction
• Prevent and detect unauthorized and illegal access to the assets.
• Access to assets and information (accounting records) should be
limited.
• The assets to protect are cash and inventories and access to
records such as the accounts receivable subsidiary ledger and cash
journal should be restricted.
• Limiting access includes:
(a) warehouse security (ex: fences, alarms, & guards).
(b) depositing cash daily in the bank.
(c) using a safe or night deposit box for cash.
(d) locking cash drawers and safes in the cash receipts department.
Computer-based Transaction
• Records are vulnerable to both authorized and unauthorized
exposure and should be protected.
• Must have limited file accessibility
James A. Hall, Accounting Information Systems, 10th Edition. © 2019 Cengage. All Rights Reserved.
• Computer programs must be safeguarded and monitored
May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Internal Control- Independent Verification
Manual Transaction
• Physical procedures as well as recordkeeping should be
independently reviewed at various points in the system to
check for accuracy and completeness:
• shipping verifies the goods sent from the warehouse are correct
in type and quantity
• warehouse reconciles the stock release document (picking slip)
and packing slip
• billing reconciles the shipping notice with the sales invoice
• general ledger reconciles journal vouchers from billing, inventory
control, cash receipts, and accounts receivable
Computer-based Transaction
• Perform batch control balancing after each run and by
producing management reports and summaries for end users
to review.
James A. Hall, Accounting Information Systems, 10th Edition. © 2019 Cengage. All Rights Reserved.
May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.