SALES/COL

LECTION
TER PROCESS
A P
CH
12
0 The fundamental purpose of the sales/collection is to
provide goods and services to clients and to collect
payment from them.

0 Without an effective sales/collection process, an

organization will soon cease to exists.

0 Ineffective processes may arise from lack of demand for

a company’s product or services, inadequate exposure
in the marketplace, and poor credit policies.
 Steps in Sales/Collection Process
1. Take customer’s order.
2. Approve the customer’s credit.
3. Fill the order based on approved credit.
4. Ship the product (if necessary).
5. Bill the customer.
6. Collect payment.
7. Process uncollectible receivables as necessary.
 Customer Order Taking
Credit Department
Department

Customer
Start No
Order Grant Cancel Order
Credit?

Yes
Place Order Inform
Approved Customer
Customer order
Order
Database
End

Figure 12.2 Partial System To

Flowchart of the warehouse
Sales/Collection
Process
 Generic Accounting Information System 5
Elements
o Inputs
o Processes
o Outputs
o Storage
o Internal Control
Sales/Collection Process 3 Major Types of Storage
o Master Files
o Sales
o Junction
 Documents Associated with the Sales/
Collection Process
Document Name Basic Purpose Originator Recipient

Customer Order To summarize items Sales department Warehouse

ordered and prices
Picking List To guide selection of Warehouse Shipping department
items from warehouse
Packing List To specify contents of Shipping department Customer
shipment
Bill Lading To specify freight terms Shipping department Common carrier

Customer invoice To bill clients Billing department Customer

Customer check To remit payment Customer Cash receipts

department
Remittance advice To provide a source Customer Accounting department
document for AIS
Deposit slip To transmit cash Cash Receipts Bank
receipts to bank department
Internal Co
n trol
Organizations commonly encounter various kinds of risk in
the sales/collection process. Accountants, therefore, must
design internal controls to ameliorate those risk as
efficiently and affectively as possible.
Risks and Internal Controls in the Sales/Collection Process
Risk
Granting credit inappropriately
Selling unavailable products
Filing the order incorrectly
Delivering damaged goods
Billing incorrectly
Mishandling cash receipts
Recommended Controls
Third party vendors
Formal Credit
Cash only business
Inventory verification
Maintaining adequate inventory
Independent order checking
Information technology
Adequate packing
Insurance
Document matching
Information Technology
Separation of duties
Restrictive check endorsements
Bank reconciliations
 Chapter’s Main Points
 Sales/Collection process helps accounting professionals track
inventory sales and related cash collection.
 Sales are the lifeblood of most business organization, fair, accurate, and
complete is critical.
 Internal controls for the sales/collection process helps fulfil the four
purposes of internal control: safeguarding assets, ensuring financial
statement reliability, promoting operating efficiency, and encouraging
compliance with management directives.
Common transactions are associated with the sales/collection process
such as sales of goods and services for cash and on account, cash
collections for sales on account, inventory returns, freight payments,
and bad debt write-offs.
THANK YOU!!! 
 CHAPTER 12 QUIZ
WRITE T IF THE STATEMENT IS TRUE AND F IF THE STATEMENT
IS FALSE.
1. Most sales/collection processes have at least six major risk
exposures.
2. A deposit slip is used when the goods are shipped to the
customer.
3. Internal controls for the sales/collection process fulfill the four
purposes of internal control.
4. To motivate customers to pay quickly as possible, a company
may offer a cash discount.
5. Even without effective sales/collection process, an organization
will continue to exist.
6. Insurance can mitigate financial risk by providing the customer
reimbursement for the insured value if the goods are damaged
in transit.
7. Customers are the lifeblood of the most business organization.
8. There are three major types of storage file: master, transaction
and junction.
9. The sales/collection process has ties to “profit and loss”.
10. Delivering damaged goods is to document matching and
inventory verification.
Enumeration
11-17 Steps involved in an effective sales/collection process.
(SUNOD SUNOD, STEP NGA EH)

18-20 Give atleast 3 common risk in the sales/collection process.