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The Revenue

Cycle:
Sales to Cash Collections
CHAPTER 12

Objectives
Provides goods and
services to customers
Collects cash in payment
for those sales
Primary Objective:
Provide the right product
In the right place
At the right time for the

Context Diagram of the


revenue cycle

Level 0 data flow diagram of


the revenue cycle

Business
Activities:
What are the four basic
revenue cycle business
activities?
1.Sales Order entry
2.Shipping
3.Billing and Accounts Receivable
4.Cash Collections

General Threats
Inaccurate or invalid master
data
Unauthorized disclosure of
sensitive information
Loss or destruction of master
data
Poor performance

General Controls
Data processing integrity controls
Restriction of access to master
data
Review of all changes to master
data
Access controls
Encryption
Backup and disaster recovery

1.0
Sales Order
Entry

Main Activities:
Taking customer orders
Credit approval
Check inventory availability
**Respond to customer
inquiries

Level 1. DFD: Sales Order


Entry

Sales Order
Threats
Incomplete/ Inaccurate orders
Uncollectible Accounts (poor
credit)
Invalid Orders (illegitimate orders)
Stockouts or excess inventory
Loss of customers

Sales Order Entry


Controls
Direct the actions

Reliable
financial
reporting
Operational
effectiveness
and efficiency

Why
?

Assuring achievement
organization's
objectives

Compliance with
laws, regulations
and policies

Data Entry Edit


Controls
user inputs which initiate or interrupt transactions
- such as command entries, or control entries
selected from a displayed menu or by function
keys.

Restriction of access to master data

it is a security to ensure that users have access to


the specific master data necessary to do their
jobs, and to prevent them from accessing data
that should not be available to them.

Digital signatures or
written signatures
Written signatures are used to
authenticate the document issued.
Digital signatures are now trending due
to the rise of technological
advancement which provides easiness
and gets rid of several papers.
mathematical scheme for
demonstrating the authenticity of a
digital message or documents.

Credit limits
credit limit defines the maximum
amount of credit that you are
willing to grant a customer.

Specific authorization to
approve sales to new
customers or sales that
exceed a customers credit
limit
Identify Customer Requirements.
Assess Risk
Compare References
Financial Analysis

Aging of Accounts Receivable


Anaccounts receivable agingis a
report that lists unpaid customer
invoices and unused credit memos
by date ranges. Theagingreport is
the primary tool used by collections
personnel to determine which
invoices are overdue for payment.
*Allowance for Bad Debts/ Doubtful
Accounts

Perpetual inventory control


system
providing up-to-date
inventorybalance information.
Reduced level of physical
inventory counts.
Inventory account vs. Purchase
account.

Use of bar-codes
or RFID
permit faster and more accurate
recording of information.
Save Time
Reduce Errors
Cut Costs

Other sales order


entry controls
Training .
Periodic physical counts of inventory.
Sales forecasts and activity reports.
CRM systems, self-help Web sites, and
proper evaluation of customer service
ratings .

2.0
SHIPPING

Main Activities:
Picking and Packing the Order
Shipping the Order

Carrier

Picking ticket

Sales
Order

Bill of Lading
Packing Slip
Billing and
Accounts
Receivable

Pick
and
Pack

Sales Order

Goods and
Picking Ticket

Inventory

Ship
Goods

Shipments
Goods
Packing Slip
Bill of Lading
Sales
Order
Entry

Shipping Threats
Picking the wrong items or the
wrong quantity
Theft of Inventory
Shipping errors (delay or
failure to ship, wrong
quantities, wrong items,
wrong address, duplication)

Shipping Controls
Bar-code and RFID technology
Reconciliation of picking lists
to sales order details
Restriction of physical access
to inventory
Documentation of all
inventory

Reconciliation of shipping
documents with sales orders,
picking lists, and packing slips
Use RFID systems to identify
delays
Data entry via bar-code
scanners and RFID

RFID and bar-code


technology

Data entry edit controls (if


shipping data entered on
terminals)

Periodic physical counts of


inventory and reconciliation to
recorded quantities

Configuration of ERP system


to prevent duplicate shipments

3.0
BILLING

Main Activities:
Invoicing
Sales Invoice

Updating Accounts Receivable


Credit Memo
Monthly Statements

Level 1. DFD: Billing Process

Billing Threats
Failure to Bill
Billing Errors
Customer Account Errors
Posting errors in accounts
receivable

Inaccurate or Invalid Credit


Memos

Billing Controls
Separation of BILLING and
SHIPPING functions
Periodic reconciliation of invoices
with sales orders, picking tickets,
and shipping documents
Configuration of system to
automatically enter pricing data
Restriction of access to pricing
master data

Billing Controls
Data entry edit controls
Reconciliation of shipping
documents (picking tickets, bills
of lading, and packing list) to
sales orders
Data entry controls

Billing Controls
Reconciliation of batch totals
Mailing of monthly statements to customers
-- Statement of Accounts

Reconciliation of subsidiary accounts to


general ledger
Segregation of duties of credit memo
authorization from both sales order entry and
customer account maintenance
Configuration of system to block credit
memos unless there is either corresponding
documentation of return of damaged goods
or specific authorization by management

4.0
CASH
COLLECTI
ONS

Cash Collections
Threats:
Theft of Cash
- The primary objective of cash
collections is to safeguard
customer remittances

The following
segregation of duties
should be used to reduce
this risk:

Handling cash or checks and


posting remittances to customer
accounts
Handling cash or checks and
authorizing credit memos
Issuing credit memos and
maintaining customer accounts

Cash Collection
Threats:
Cash Flow Problems
Law Profits or losses
Over investment capacity
Unexpected changes
Allowing customers too much
credit
- Slow paying
- Too much bad debt

Cash Collection
Control
Separation of cash handling
function from account receivable
and credit functions
Regular reconciliation of back
account with recorded amounts by
someone independent
Use EFT, FEDI, and lock boxes to
minimized handling of customer
payments by employees

Prompt, restrictive endorsement


of all costumers checks
Having two people open all mail
likely to contain customer
payments
Use of cash register
Daily deposit of all cash receipts
Lock box arrangements, EFT, or
credit cards
Discount for prompt payment by
customer

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