Key Activities under

01 Revenue Cycle

Risks/What Could Go
02 Wrong

03 Controls
Knowledge
Check Quiz 3

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Enter the pin: 803 074 9
T Y P I C A L B U S I N E S S P R O C E S S : O V E RV I E W
Activity 1: Puzzle

Objective: Determine the activities

involved under the Revenue Cycle
Time: 15 minutes are given to all groups to
build the puzzle
Directions:
• Go to the specific breakout rooms
• A file will be sent for template. Upload
and collaborate with your team using
google sheets.
• After 15 minutes, all teams should go
back to the main rooms
• Three randomly picked team will present
and explain their work to the class.
Input / Trigger

A document sent by the customer requesting the company to deliver items. This
Customer PO document typically contains information regarding material, quantities, prices, and
delivery request date.

• Specifies a customer’s commitment to ordering a predetermined amount of material

Contracts within a time period
• Contains specifics on materials, dates, and prices
• Can be set to limit or allow ordering over specified amounts

Scheduling Similar to contracts but have specific delivery dates associated with the contract. The
Agreements company and the customer have committed to the dates for shipment

Typical Business Processes: Order

to Cash
Shipping: High-Level

Shipping

• Taking items out of inventory that need to be shipped to a customer in fulfillment of

Picking a sales order and placing them in a staging area for delivery. Availability of items
needs to be confirmed prior to delivery.

Packing • Packaging goods into shipments that can be sent to the customer.

• Sending out goods and shipping documents to customers; transaction should be

Delivery / Goods
Issuance recorded to the general ledger.
 S a l e s O r d e r P ro c e d u re s

Create initial sales Create/update Perform standard

Shipping/Delivery

Billing
Sales Order Processing
quote distribution plan billing
Assess and approve Manage pick and pack Transmit billing data
pricing, discounts, and to customers
promotions Post receivables to the
Capture, Validate or GL
Update Order Perform customer
Manage and Track reporting
Order
Send quote to
customer
 S a l e s R e t u r n s P ro c e d u re s

Prepare Update Sales

Update Inventory/AR

Update SL/GL
Returns processing Adjust
return slip inventory Journal
Prepare and AR Update
Credit Memo records General
Approve Ledger
Credit Memo
 C a s h R e c e i p t s P ro c e d u re s

Perform Aging/Bad Debt Analysis

Collect A/R
Issue Update AR
Statements Update GL
Collect cash Reconcile
and prepare Receipts and
remittance Deposits
advice
Record and
deposit checks
Common Accounting Entries

• To record sales
Accounts Receivable xx
Sales xx
• To record cost of goods or services
Cost of Sales xx
Inventory xx
• To record cash receipts
Cash xx
Accounts Receivable xx
• To record cash discounts
Sales Discounts xx
Accounts Receivable xx
• To record sales returns and allowances
Sales Returns and Allowances xx
Accounts Receivable xx

Typical Business Processes: Order to Cash

Common Accounting Entries

• To record provision for doubtful accounts

Bad Debts Expense xx
Allowance for Doubtful Accounts xx
• To record write-off of receivable
Allowance for Doubtful Accounts xx
Accounts Receivable xx
• To record commission
Commission Expense xx
Allowance for Commissions xx
• To record sales taxes
Accounts Receivable xx
Output Tax Liability xx

Typical Business Processes: Order to Cash

 Risk

The threat that an event, Assessing Risk Elements of Risk

action, or non-action could
adversely affect an
organization’s ability to
achieve its business
objectives and execute its
strategies successfully.
• Inherent Basis
• Impact and Likelihood
determine the overall risk
rating
• Impact - extent to which the
risk, if realized, would
affect the company.
• Likelihood - probability of
a risk occurring over a
predefined time period

Includes:
• Adverse impact on the Overall risk assessment
business
►High ►M ►H ►H

Impact
• Lost opportunity ►Moderate ►L ►M ►H

►Low ►L ►L ►M

►Low ►Moderate ►High

Likelihood

Page 12
 Order to Cash Process
Key Risks
Master Data
Setup
 Inaccurate, duplicate or
fictitious item records are
entered/maintained in the
customer master file, goods
are shipped to fictitious or
inappropriate customers.
 Goods may be sold to
customers with a high
probability of bad debt.
Sales Order
 Sales documents could be
recorded with incomplete
data which might stop the
ordering process and cause
delayed deliveries to
customers.
 Fictitious or duplicate sales
may be recorded.
 Goods may be sold to
customers with a high
probability of bad debt.
Shipping Billing & Collection Returns
 Erroneous/fictitious  Cash collection, dunning of  Fictitious or duplicate
deliveries result in the customers and receivable credit memos may be
incorrect processing of aging might be incorrect. generated and recorded.
invoices.
 Invoices incorrectly state the
quantity of goods shipped or
incorrect pricing
 Invoices may be generated
or recorded in a different
period than the goods being
shipped. This could result in
understated /overstated
revenues and accounts
receivables.
 Control
Any action taken to mitigate
or manage risk and increase
the probability that the
business/process will achieve
its goals and objectives.
Types of Controls
• Preventive Controls
• Detective Controls
Nature of Controls
• Manual Controls
• Application Controls (IT
Controls)
• IT-Dependent Manual
Controls
Page 14
Frequency of Control Control Identification
• Determine if control is • Does the control mitigate
designed effectively the risk?
• Determine sample sizes for • Does the related risk
testing of the operation of require combination of
the control controls?
Control Owner
• Appropriateness
• Segregation of Duties
• POC to understand and test
the control
Control Evaluation
• Adequacy of design
• Adequacy of operation
 Order to Cash Process
Key Controls

Transactions Segregation of Accounting Access Independent

authorization duties (SOD) records verification

 Credit check  Transaction authorization  Pre-numbered documents Restricting physical access to :  Before the goods are sent
should be separate from to the customer, the stock
 Return policy transaction processing.  Special journals  Inventory release
 Remittance list (cash  Asset custody should be  Subsidiary ledgers  Accounting records above
prelist) separate from the task of  General Ledgers
asset record keeping.
 Files (Masterfile)
 The organization should be
structured so that the
perpetration of a fraud
requires collusion between
two or more individuals.