Revenue Cycle Overview

Prof – Video – Revenue Cycle

Revenue Cycle: Sales to Cash Collection
What is a Revenue Cycle?
- It is a recurring set of business activities and
related information processing operations.
- It is associated with providing goods or
services to a customer.
- It is a collection of cash in payment for the
sales.
- It is what it takes to provide a customer the
goods and services they want and collect
payments from those customers.
Primary Objective:
- It is to provide the right product in the right
place at the right time for the right price.
Four Basic Revenue Cycle Activities:
1. Sales Order Entry
2. Shipping
3. Billing
4. Cash Collection
 *Sale a Ship with Billy Cash
Threats:
- Theft of Cash
- Cyber Attacks
- Inaccurate Journal Entries
- Running Out of Inventories
General Threats:
- Gather Inaccurate or Invalid Master Data
- Unauthorized Disclosure of Sensitive
Information
- Losing or Destroying Valuable Data
- Poor Performance Throughout the Entire
Cycle
Real-Life Threats:
- Ordering online without an address would
make it difficult to deliver the order.
- Using a third party to deliver the goods and
only half of the order makes it to the
destination (one to the order address and one
to the delivery guy’s house).
- The billing clerk forgets to send the bill to the
customer.
Sales Order Entry
Prof – Video – Revenue Cycle
Four Steps of Sales Order Entry:
1. Take Order
2. Approve Credit
3. Check Inventory Availability
4. Respond to the Customer
Threats of Sales Order Entry:

Threats Prevention
Customer could fill out Data Entry Controls
an incomplete or (only allow real items to be
inaccurate order. filled).

Invalid Order (Agent – Digital/Written

Commission – Signature
Cancellation).

Uncollectible Accounts Credit Limits (existing

(customers cannot pay the customers);
order that they made) New Customer
Approval (new
customers)

Stockouts or Excess Use BAR codes or

Inventory (not tracking RFID tags;
the inventory on hand) Periodically count
inventories;
Use Sales Forecast and
Activity Reports (to
project how much inventory
to make);
Loss of Customers: CRM System (to
improve customer
Poor Customer service and meet
Service: customer’s needs.
- Taking too
long to get
back to a
customer
- Not catering to
the customer’s
needs
Shipping
Prof – Video – Revenue Cycle
Process of Shipping:
1. Pick and Packing the Orders
2. Shipping the Goods
Inputs and Outputs of Shipping Process:

When you make a sale, the

Sales Order Entry
Sales Order Entry Process
produces a Sales Order and a
Picking Ticket.
Picking Ticket identifies
whic products, and quantity
of each product, to remove
from inventory and ship:
"what you need to pick from
the inventory"

Warehouse (Pick The Picking Ticket is sent to the

warehouse and the goods are
and Pack) picked and packed.

The Packed goods are sent to

shipping along with the Picking
Ticket and Sales Order.
These documents are reconciled
and the shipping departments
creates two copies of the Packing
Slip and Bill of Lading.
Shipping Packing Slip - a document that
itemises the contents of a package,
shows the delivery adress.
Bill of Lading - it is legal contract
that defines responsibility of the
goods in transit. Lading means the
action or process of Loading a
shipor other vessel with a cargo.

Carrier The goods are then given to the

Carrier along with the Packing
Slip and Bill of Lading.

Billing and The second copy of Packing

Slip and Bill of Lading are
Accounts then sent to the Billing and
Receivable Accounts Receivable.

Threats:

Threats Control
Picking the wrong item
or quantity.
- Misunderst > Reconcile the Picking
ood the Ticket to the Sales Order
ordered (to make sure the order is
correct)
item.
> Use of Bar Codes or
RFID tags (to track
- Mistook inventory)
the amount
of the item. 

Theft of Inventory. > Restriction of physical

Shipping
Prof – Video – Revenue Cycle
- Stealing of access to the inventories
inventory. > Use of RFID tags or
Bar Codes (to track where
inventory moves through the
warehouse)
> Document inventory
transfers
> Periodically count the
inventory and reconcile
what’s in the system
Shipping Errors. > Compare the Shipping
- Failure to Documents to the Sales
ship Order, Packing Slip, and
- Sending Picking Ticket (to ensure
duplicate that the correct items are being
shipped)
orders
> Setup an RFID System
- Sending to (which will identify delays)
the wrong > Configure ERO System
address. (to prevent duplicate orders)
Billing and Cash Collection
Prof – Video – Revenue Cycle
Process: Threats of Billing:

Threats Controls
Receiving Counter Failure to bill > Separate billing and shipping
Receives the Sales Orderfrom the Sales Order Entry process along with (customers never get
the Packing Slip and Bill of Lading from the Shipping Department functions
their invoice) > Periodically reconcile
(compare) Sales Invoice to
Sales Order, Picking Ticket,
Invoicing and Shipping Documents
Those documents are then used to Which are then sent to the Billing Errors > Data Entry Controls
create invoices. customers.
(customers are billed > Automatically enter the
to the wrong amount Pricing Data (auto-increment the
based on the quantity
amount due based on the pricing data
ordered)
saved on the system)
Record of Sales
Then record it to the Sales Journal and update the Accounts Receivable Posting Errors in > Data Entry Controls
for the customer. Accounts > Sending Monthly Statement
Receivable (errors to the customer
are posted in the > Reconcile Batch Totals and
Accounts Receivable) Subsidiary Accounts (compare
Monthly Statement Accounts Receivable against Batch
At the end of the month, the Receicing Counter drafts a Monthly Totals and General Ledger)
Statement and that is also sent to the customer.
Inaccurate or > Segregation of Duties (separate
Invalid Credit Customer Account Maintenance,
Memos (wrong Credit Memo Authorization, and Sales
Order Entry)
amount of credit for
Cash Collections returned goods) > ERP Configuration (configure
The cash is then collected when the customer pays for the invoice. the system to block any credit memos
that don’t have the corresponding
documentation)
Threats of Cash Collections:
Remittance List Threats Controls
After the payment comes in, it is then recorded in the Remittance List. Theft of Cash > separate cash handling
(payments are functions from Accounts
pocketed by Receivable, Cash Handling,
employees)
and Authorization of Credit
Bank Memos
The payment is then deposited to the bank. > reconcile what’s in the bank
with what we have recorded
> Lockbox, Electronic Funds
Transfer, and Financial
Accounts Receivable Electronic Data Interchange
The Remittance List is then sent to the Accounts Receivable to update Cash Flow > Have 2 People open all mail
the Accounts Recevable of the customer.
Problems > Deposit Cash Daily
(payments are not
coming in for the
Remittance Slips File regular basis)

Then files away the Remittance List.

Two Ways Companies Can Build Customers:

Open Invoice Method Balance – Forward

Method
1 payment: 1 invoice 1 payment: Many
invoices (invoice and
monthly statement)