The Revenue Cycle

Chapter 4
 Learning Objectives
1. Understand the fundamental tasks performed in the revenue cycle,
regardless of the technology in place.
2. Be able to identify the functional departments involved in revenue
cycle activities and trace the flow of revenue transactions through
the organization.
3. Be able to specify the documents, Journals, and accounts that
provide audit trails, promote the maintenance of historical records,
support internal decision making, and sustain financial reporting.
4. Understand the risk associated with revenue cycle and recognize
the controls that reduce those risks.
5. Be aware of the operational and control implications of technology
used to automate and reengineer the revenue cycle.
 Overview of Revenue Cycle Activities
Sales Order Procedures.
1. Receive Order.
2. Check Credit.
3. Pick Goods.
4. Ship Goods.
5. Bill Customer.
6. Update Inventory Records.
7. Update A/R Records.
8. Post to General Ledger.
 Overview of Revenue Cycle Activities

Sales Return Procedures.

1. Prepare Return Slip.
2. Prepare Credit Memo.
3. Approve Credit Memo.
4. Update Sales Journal.
5. Update Inventory and AR Records.
6. Update General Ledger.
 Overview of Revenue Cycle Activities

Cash Receipts Procedures.

1. Open Mail, and Prepare Remittance List.
2. Record and Deposit Checks.
3. Update AR Records.
4. Update General Ledger.
5. Reconcile Cash Receipts and Deposits.
 Basic Technology Revenue Cycle
Basic Technology Sales Order Processing
System
1. Sales Department.
2. Credit Department Approval.
3. Warehouse Procedures
4. The Shipping Department.
5. The Billing Department.
6. AR, Inventory Control, and General Ledger
Department.
 Basic Technology Revenue Cycle
Basic Technology Cash Receipts System
1. Mail Room.
2. Cash Receipts.
3. Account Receivable.
4. General Ledger Department.
5. Controller’s Office.
 Advanced Technology Revenue Cycle

Integrated Sales Order Processing System

Sales Procedures.
Integrated Cash Receipts System
1. Mail Room
2. Cash Receipts Department.
3. Automatic Data Processing Procedures.
4. Controller’s Office
Revenue Cycle Risks and Internal Controls

An objective of IC is to mitigate the risk from

errors and fraud.
1. Selling to un-creditworthy customers.
2. Shipping customers the wrong items or incorrect
quantities.
3. Inaccurately recording sales and cash receipts
transactions in journals and accounts.
4. Misappropriation of cash receipts and inventory.
5. Unauthorized access to accounting records and
confidential reports.
Risk of Selling to un-creditworthy customers

Physical Controls
1. Transaction Authorization.
2. Segregation of Duties
IT Controls
Automated Credit Checking
Risk of Shipping customers the wrong items
or incorrect quantities
Physical Controls
Independent Verification.
IT Controls
1. Scanner Technology.
2. Automated Inventory Ordering.
 Risk of Inaccurately recording sales and cash
receipts transactions in journals and accounts
Physical Controls
1. Transaction Authorization.
2. Accounting Records.
3. Pre-numbered Documents
4. Special Journals.
5. Subsidiary ledgers.
6. General Ledgers
7. Files.
8. Independent Verification.

IT Controls
9. Data input Edits.
10.Automated Posting to Subsidiary and GL Accounts.
11.File Backup.
Risk of Misappropriation of cash receipts and
inventory
Physical Controls
1. Transaction Authorization.
2. Supervision.
3. Access Controls.
4. Segregation of Duties.
IT Controls
Multilevel Security.
Risk of Unauthorized access to accounting
records and confidential reports
Physical Controls
1. Access Controls.
2. Segregation of Duties.
IT Controls
3. Passwords.
4. Multilevel Security.
 Reengineering Using EDI
EDI technology was devised to expedite routine
transactions between manufacturer and
wholesalers and retailers.
 Reengineering Using the Internet
• Organizations worldwide have home pages on
the internet to promote their products and
solicit sales.