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© 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart 1 of 161
INTRODUCTION
© 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart 3 of 161
INTRODUCTION
© 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart 4 of 161
INTRODUCTION
© 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart 5 of 161
INTRODUCTION
© 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart 6 of 161
INTRODUCTION
© 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart 7 of 161
INTRODUCTION
© 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart 8 of 161
INTRODUCTION
© 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart 9 of 161
INTRODUCTION
© 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart 10 of 161
REVENUE CYCLE BUSINESS
ACTIVITIES
• Four basic business activities are
performed in the revenue cycle:
– Sales order entry
– Shipping
– Billing
– Cash collection
© 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart 11 of 161
REVENUE CYCLE BUSINESS
ACTIVITIES
• Four basic business activities are
performed in the revenue cycle:
– Sales order entry
– Shipping
– Billing
– Cash collection
© 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart 12 of 161
SALES ORDER ENTRY
© 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart 13 of 161
Orders 1.1
Customer Take Customer
Order
Re
je ct e
dO Orders
r de
rs
Response
Inquiries
Ac
k 1.2
no DFD for
wl
ed Approve
gm Credit Sales Order Entry
en
t
Customer Approved
Orders
1.3
1.4 Check
Sales Order Inv. Inventory
Resp. to
Avail.
Cust. Inq. Bac
k Or d
er s
Sales Sales Picking
Order Order List
Ware- Purchas-
Shipping Billing
house ing
© 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart 14 of 161
Orders 1.1
Customer Take Customer
Order
Re
je ct e
dO Orders
r de
rs
Response
Inquiries
Ac
k 1.2
no DFD for
wl
ed Approve
gm Credit Sales Order Entry
en
t
Customer Approved
Orders
1.3
1.4 Check
Sales Order Inv. Inventory
Resp. to
Avail.
Cust. Inq. Bac
k Or d
er s
Sales Sales Picking
Order Order List
Ware- Purchas-
Shipping Billing
house ing
© 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart 15 of 161
Orders 1.1
Customer Take Customer
Order
Re
je ct e
dO Orders
r de
rs
Response
Inquiries
Ac
k 1.2
no DFD for
wl
ed Approve
gm Credit Sales Order Entry
en
t
Customer Approved
Orders
1.3
1.4 Check
Sales Order Inv. Inventory
Resp. to
Avail.
Cust. Inq. Bac
k Or d
er s
Sales Sales Picking
Order Order List
Ware- Purchas-
Shipping Billing
house ing
© 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart 16 of 161
Orders 1.1
Customer Take Customer
Order
Re
je ct e
dO Orders
r de
rs
Response
Inquiries
Ac
k 1.2
no DFD for
wl
ed Approve
gm Credit Sales Order Entry
en
t
Customer Approved
Orders
1.3
1.4 Check
Sales Order Inv. Inventory
Resp. to
Avail.
Cust. Inq. Bac
k Or d
er s
Sales Sales Picking
Order Order List
Ware- Purchas-
Shipping Billing
house ing
© 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart 17 of 161
SALES ORDER ENTRY
© 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart 18 of 161
SALES ORDER ENTRY
© 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart 19 of 161
SALES ORDER ENTRY
© 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart 20 of 161
SALES ORDER ENTRY
© 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart 21 of 161
SALES ORDER ENTRY
© 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart 22 of 161
SALES ORDER ENTRY
© 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart 24 of 161
Orders 1.1
Customer Take Customer
Order
Re
je ct e
dO Orders
r de
rs
Response
Inquiries
Ac
k no
1.2
wl
ed Approve
gm Credit
en
t
Customer Approved
Orders
1.3
1.4 Check
Sales Order Inv. Inventory
Resp. to
Avail.
Cust. Inq. Bac
k Or d
er s
Sales Sales Picking
Order Order List
Ware- Purchas-
Shipping Billing
house ing
© 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart 25 of 161
Orders 1.1
Customer Take Customer
Order
Re
je ct e
dO Orders
r de
rs
Response
Inquiries
Ac
k no
1.2
wl
ed Approve
gm Credit
en
t
Customer Approved
Orders
1.3
1.4 Check
Sales Order Inv. Inventory
Resp. to
Avail.
Cust. Inq. Bac
k Or d
er s
Sales Sales Picking
Order Order List
Ware- Purchas-
Shipping Billing
house ing
© 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart 26 of 161
SALES ORDER ENTRY
© 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart 27 of 161
SALES ORDER ENTRY
© 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart 28 of 161
SALES ORDER ENTRY
© 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart 29 of 161
SALES ORDER ENTRY
© 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart 30 of 161
Orders 1.1
Customer Take Customer
Order
Re
je ct e
dO Orders
r de
rs
Response
Inquiries
Ac
k no
1.2
wl
ed Approve
gm Credit
en
t
Customer Approved
Orders
1.3
1.4 Check
Sales Order Inv. Inventory
Resp. to
Avail.
Cust. Inq. Bac
k Or d
er s
Sales Sales Picking
Order Order List
Ware- Purchas-
Shipping Billing
house ing
© 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart 31 of 161
Orders 1.1
Customer Take Customer
Order
Re
je ct e
dO Orders
r de
rs
Response
Inquiries
Ac
k no
1.2
wl
ed Approve
gm Credit
en
t
Customer Approved
Orders
1.3
1.4 Check
Sales Order Inv. Inventory
Resp. to
Avail.
Cust. Inq. Bac
k Or d
er s
Sales Sales Picking
Order Order List
Ware- Purchas-
Shipping Billing
house ing
© 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart 32 of 161
SALES ORDER ENTRY
© 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart 33 of 161
SALES ORDER ENTRY
© 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart 35 of 161
SALES ORDER ENTRY
© 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart 36 of 161
SALES ORDER ENTRY
© 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart 37 of 161
Orders 1.1
Customer Take Customer
Order
Re
je ct e
dO Orders
r de
rs
Response
Inquiries
Ac
k no
1.2
wl
ed Approve
gm Credit
en
t
Customer Approved
Orders
1.3
1.4 Check
Sales Order Inv. Inventory
Resp. to
Avail.
Cust. Inq. Bac
k Or d
er s
Sales Sales Picking
Order Order List
Ware- Purchas-
Shipping Billing
house ing
© 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart 38 of 161
Orders 1.1
Customer Take Customer
Order
Re
je ct e
dO Orders
r de
rs
Response
Inquiries
Ac
k no
1.2
wl
ed Approve
gm Credit
en
t
Customer Approved
Orders
1.3
1.4 Check
Sales Order Inv. Inventory
Resp. to
Avail.
Cust. Inq. Bac
k Or d
er s
Sales Sales Picking
Order Order List
Ware- Purchas-
Shipping Billing
house ing
© 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart 39 of 161
SALES ORDER ENTRY
© 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart 40 of 161
SALES ORDER ENTRY
© 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart 41 of 161
SALES ORDER ENTRY
© 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart 42 of 161
SALES ORDER ENTRY
© 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart 43 of 161
SALES ORDER ENTRY
© 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart 44 of 161
SALES ORDER ENTRY
• IT should be used to automate responses to
routine customer requests.
• Examples:
– Providing telephone menus or websites that lead
customers to answers
• EXAMPLE: about
Timex includes their watch manuals
• Account balances
online, so a customer who’s missing his manual can
• Order status
find out how to reset his watch when Daylight
• Frequently
Savings
askedTime rolls around.
questions (FAQs) No human intervention
required.
– Online chat or instant messaging
• These methods free up customer service reps to
deal with less routine issues.
© 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart 45 of 161
SALES ORDER ENTRY
© 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart 46 of 161
SALES ORDER ENTRY
© 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart 47 of 161
REVENUE CYCLE BUSINESS
ACTIVITIES
• Four basic business activities are
performed in the revenue cycle:
– Sales order entry
– Shipping
– Billing
– Cash collection
© 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart 48 of 161
SHIPPING
• The second basic activity in the revenue cycle is
filling customer orders and shipping the desired
merchandise.
• The process consists of two steps
– Picking and packing the order
– Shipping the order
• The warehouse department typically picks the order
• The shipping departments packs and ships the
order
• Both functions include custody of inventory and
ultimately report to the VP of Manufacturing.
© 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart 49 of 161
Shipping
Sales Picking List 2.1
Order Pick &
Entry Pack
Goods &
Sales Packing
Order List
Sales Order
2.2
Bill of Ship Inventory
Lading & Goods
Packing Slip
Carrier
© 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart 50 of 161
Shipping
Sales Picking List 2.1
Order Pick &
Entry Pack
Goods &
Sales Packing
Order List
Sales Order
2.2
Bill of Ship Inventory
Lading & Goods
Packing Slip
Carrier
© 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart 51 of 161
SHIPPING
• The second basic activity in the revenue cycle is
filling customer orders and shipping the desired
merchandise.
• The process consists of two steps
– Picking and packing the order
– Shipping the order
• The warehouse department typically picks the order
• The shipping departments packs and ships the
order
• Both functions include custody of inventory and
ultimately report to the VP of Manufacturing.
© 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart 52 of 161
SHIPPING
© 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart 54 of 161
Sales Picking List 2.1
Order Pick &
Entry Pack
Goods &
Sales Packing
Order List
Sales Order
2.2
Bill of Ship Inventory
Lading & Goods
Packing Slip
Carrier
© 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart 55 of 161
Sales Picking List 2.1
Order Pick &
Entry Pack
Goods &
Sales Packing
Order List
Sales Order
2.2
Bill of Ship Inventory
Lading & Goods
Packing Slip
Carrier
© 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart 56 of 161
SHIPPING
• The second basic activity in the revenue cycle is
filling customer orders and shipping the desired
merchandise.
• The process consists of two steps
– Picking and packing the order
– Shipping the order
• The warehouse department typically picks the order
• The shipping departments packs and ships the
order
• Both functions include custody of inventory and
ultimately report to the VP of Manufacturing.
© 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart 57 of 161
SHIPPING
© 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart 61 of 161
SHIPPING
© 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart 63 of 161
SHIPPING
• Globalization makes outbound logistics more
complex:
– Distribution methods differ around the world in terms
of efficiency and effectiveness.
– Country-specific taxes and regulations affect
distribution choices.
– Logistical software can also help with these issues.
• Advanced communications systems can provide
real-time info on shipping status and thus add
value:
– If you know a shipment will be late and notify the
customer, it helps the customer adapt.
© 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart 64 of 161
REVENUE CYCLE BUSINESS
ACTIVITIES
• Four basic business activities are
performed in the revenue cycle:
– Sales order entry
– Shipping
– Billing
– Cash collection
© 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart 65 of 161
BILLING
© 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart 66 of 161
p&
Packing Sli
Sales g
Sales Order 3.1 Bill of Ladin
Order Shipping
Entry Billing
Invoice
Sales
General
Ledger &
Rept. Sys. Customer Sales Customer
s
m ent
te
ly Sta
onth
M
3.2
Billing and Maintain Mailroom
Accounts Accts. Remittance
Rec. List
Receivable
© 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart 67 of 161
p&
Packing Sli
Sales g
Sales Order 3.1 Bill of Ladin
Order Shipping
Entry Billing
Invoice
Sales
General
Ledger &
Rept. Sys. Customer Sales Customer
s
m ent
te
ly Sta
onth
M
3.2
Billing and Maintain Mailroom
Accounts Accts. Remittance
Rec. List
Receivable
© 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart 68 of 161
BILLING
© 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart 69 of 161
BILLING
© 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart 70 of 161
BILLING
© 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart 71 of 161
BILLING
© 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart 72 of 161
BILLING
© 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart 73 of 161
p&
Packing Sli
Sales g
Sales Order 3.1 Bill of Ladin
Order Shipping
Entry Billing
Invoice
Sales
General
Ledger &
Rept. Sys. Customer Sales Customer
s
m ent
te
ly Sta
onth
M
3.2
Maintain Mailroom
Accts. Remittance
Rec. List
© 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart 74 of 161
p&
Packing Sli
Sales g
Sales Order 3.1 Bill of Ladin
Order Shipping
Entry Billing
Invoice
Sales
General
Ledger &
Rept. Sys. Customer Sales Customer
s
m ent
te
ly Sta
onth
M
3.2
Maintain Mailroom
Accts. Remittance
Rec. List
© 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart 75 of 161
BILLING
© 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart 76 of 161
BILLING
• OPEN-INVOICE METHOD:
– Customers pay according to each invoice
– Two copies of the invoice are typically sent to the
customer
• Customer is asked to return one copy with payment
• This copy is a turnaround document called a
remittance advice
– Advantages of open-invoice method
• Conducive to offering early-payment discounts
• Results in more uniform flow of cash collections
– Disadvantages of open-invoice method
• More complex to maintain
© 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart 78 of 161
BILLING
© 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart 79 of 161
BILLING
© 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart 80 of 161
BILLING
© 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart 81 of 161
BILLING
© 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart 82 of 161
BILLING
© 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart 83 of 161
BILLING
© 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart 84 of 161
BILLING
© 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart 86 of 161
BILLING
© 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart 88 of 161
CASH COLLECTIONS
© 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart 89 of 161
CASH COLLECTIONS
© 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart 90 of 161
• Customers remit payments to
a bank P.O. box
CASH COLLECTIONS • The bank sends the company:
– Remittance advices
– An electronic list of the
• Possible approaches to collecting cash: remittances
– Turnaround documents forwarded toofaccounts
– Copies the checks
receivable • Advantages:
– Prevents theft by company
– Lockbox arrangements employees
– Improves cash flow
management
• Lockboxes may be regional,
which reduces time in the
mail
• Checks are deposited
immediately on receipt
• Foreign banks can be utilized
for international customers
© 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart 91 of 161
CASH COLLECTIONS
© 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart 92 of 161
CASH COLLECTIONS
• Customers remit payment electronically to the
company’s bank
• Possible approaches
• Eliminates mailingto collecting cash:
delays
– Turnaround documents
• Typically forwarded
done through to accounts
banking system’s Automated
Clearing House (ACH) network
receivable
• PROBLEM: Some banks do not have both EDI and EFT
– Lockbox arrangements
capabilities, which complicates the task of crediting
the customer’s
– Electronic lockboxesaccount on a timely basis.
– Electronic funds transfer
© 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart 93 of 161
CASH COLLECTIONS
© 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart 94 of 161
CASH COLLECTIONS
© 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart 95 of 161
CASH COLLECTIONS
© 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart 97 of 161
PARTIAL ORGANIZATION CHART FOR
UNITS INVOLVED IN REVENUE CYCLE
CEO
© 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart 99 of 161
PARTIAL ORGANIZATION CHART FOR
UNITS INVOLVED IN REVENUE CYCLE
CEO
© 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart 100 of 161
PARTIAL ORGANIZATION CHART FOR
UNITS INVOLVED IN REVENUE CYCLE
CEO
© 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart 101 of 161
PARTIAL ORGANIZATION CHART FOR
UNITS INVOLVED IN REVENUE CYCLE
CEO
© 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart 102 of 161
PARTIAL ORGANIZATION CHART FOR
UNITS INVOLVED IN REVENUE CYCLE
CEO
© 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart 103 of 161
PARTIAL ORGANIZATION CHART FOR
UNITS INVOLVED IN REVENUE CYCLE
CEO
© 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart 104 of 161
PARTIAL ORGANIZATION CHART FOR
UNITS INVOLVED IN REVENUE CYCLE
CEO
© 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart 105 of 161
CONTROL: OBJECTIVES,
THREATS, AND PROCEDURES
• In the revenue cycle (or any cycle), a well-designed AIS
should provide adequate controls to ensure that the
following objectives are met:
– All transactions are properly authorized
– All recorded transactions are valid
– All valid and authorized transactions are recorded
– All transactions are recorded accurately
– Assets are safeguarded from loss or theft
– Business activities are performed efficiently and effectively
– The company is in compliance with all applicable laws and
regulations
– All disclosures are full and fair
© 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart 106 of 161
CONTROL: OBJECTIVES,
THREATS, AND PROCEDURES
• We’ll soon be discussing the threats that may
occur in the revenue cycle.
• If you understand the preceding objectives, you
probably won’t have to worry about “memorizing”
threats.
• Almost every threat represents a violation of one
of those control objectives.
• Let’s look more closely.
© 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart 107 of 161
CONTROL: OBJECTIVES,
THREATS, AND PROCEDURES
• In the revenue cycle (or any cycle), a well-designed AIS
should provide adequate controls to ensure that the
following objectives are met:
– All transactions are properly authorized
– All recorded
• Atransactions arewould
related threat valid be that a transaction
– All valid andwould go through
authorized without
transactions areproper authorization.
recorded
– • Such
All transactions area transaction might result from either a
recorded accurately
mistake or a fraud.
– Assets are safeguarded from loss or theft
• EXAMPLE: An employee might process an
– Business activities are performed efficiently and effectively
unauthorized write-off of his own account, so
– The company is in
that hecompliance withtoallpay.
wouldn’t have applicable laws and
regulations
– All disclosures are full and fair
© 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart 108 of 161
CONTROL: OBJECTIVES,
THREATS, AND PROCEDURES
• In the revenue cycle (or any cycle), a well-designed AIS
should provide adequate controls to ensure that the
following objectives are met:
– All transactions are properly authorized
– All recorded transactions are valid
– All
• The valid and
related authorized
threat is that a transactions are recorded
transaction would be recorded that
isn’t
– Allvalid, i.e., it didn’t
transactions actually occur.
are recorded accurately
• EXAMPLE
– Assets are 1: An employee from
safeguarded records
lossaor
return
theft of merchandise on
his own account when the goods were never really returned.
– Business activities are performed efficiently and effectively
• EXAMPLE 2: Many financial statement frauds involve companies
– The company is in compliance with all applicable laws and
recording totally fictitious revenues in order to make the
regulations
company’s financial position appear more favorable than it
– All disclosures
actually is. are full and fair
© 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart 109 of 161
CONTROL: OBJECTIVES,
• The related threat would be that a transaction that actually did
THREATS, AND PROCEDURES
occur didn’t get recorded.
• EXAMPLE 1: An employee fails to record a sale that the
• Incompany made cycle
the revenue to him(or
so any
he won’t have
cycle), a to pay the receivable.
well-designed AIS
• should
EXAMPLE 2: In adequate
provide financial statement
controlsfraud cases,that
to ensure the company
the
often failsobjectives
following to record transactions
are met: that reduce income or net
assets, e.g., don’t record returns from customers or discounts
–granted
All transactions
to them. are
Thisproperly
omission authorized
causes net sales to appear
–higher
All recorded transactions
than they really are. are valid
– All valid and authorized transactions are recorded
– All transactions are recorded accurately
– Assets are safeguarded from loss or theft
– Business activities are performed efficiently and effectively
– The company is in compliance with all applicable laws and
regulations
– All disclosures are full and fair
© 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart 110 of 161
CONTROL: OBJECTIVES,
• The threat would be that a transaction is
THREATS, AND
recorded PROCEDURES
inaccurately. Inaccurate recording
typically means that a transaction is recorded
• In the revenue cycle (or any cycle), a well-designed AIS
either:
should provide adequate controls
– In the wrong to ensure that the
amount
following objectives
– Inare
the met:
wrong account
– – Inproperly
All transactions are the wrong time period
authorized
– • It could also mean that the transaction was
All recorded transactions are valid
credited to the wrong agents or participants.
– All valid and authorized transactions are recorded
– All transactions are recorded accurately
– Assets are safeguarded from loss or theft
– Business activities are performed efficiently and effectively
– The company is in compliance with all applicable laws and
regulations
– All disclosures are full and fair
© 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart 111 of 161
CONTROL: OBJECTIVES,
THREATS, AND PROCEDURES
• EXAMPLES: A fraud might involve a company:
– Over-recording the amount of a sale (wrong
• In the revenue cycle amount)
(or any cycle), a well-designed AIS
– Recording
should provide adequate an unearned
controls revenue
to ensure thatasthe
an earned
revenue (wrong account)
following objectives– are met:
Recording a sale earlier than it occurs (wrong
– All transactions are properly authorized
time period)
– All recorded transactions are the
– Crediting valid
wrong salesperson for the sale
(wrong agent)
– All valid and authorized transactions are recorded
– All transactions are recorded accurately
– Assets are safeguarded from loss or theft
– Business activities are performed efficiently and effectively
– The company is in compliance with all applicable laws and
regulations
– All disclosures are full and fair
© 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart 112 of 161
CONTROL: OBJECTIVES,
THREATS, AND PROCEDURES
• In the revenue •cycle
The(or
reverse side of these
any cycle), activities might
a well-designed AIS
include: controls to ensure that the
should provide adequate
following objectives– are
Under-recording a sales return (wrong amount).
met:
– Debiting an asset account instead of sales
– All transactions are properly authorized
returns (wrong account)
– All recorded transactions are valid
– Recording the return later than it actually
occurred
– All valid and authorized (wrong time
transactions are period)
recorded
– All transactions are recorded accurately
– Assets are safeguarded from loss or theft
– Business activities are performed efficiently and effectively
– The company is in compliance with all applicable laws and
regulations
– All disclosures are full and fair
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CONTROL: OBJECTIVES,
THREATS, AND PROCEDURES
• In the revenue cycle (or any cycle), a well-designed AIS
should provide adequate controls to ensure that the
following objectives are met:
– All transactions are properly authorized
– All recorded transactions are valid
– All valid and• authorized
Threats intransactions
this area usually involve theft,
are recorded
– All transactionsdestruction, or accurately
are recorded misuse of assets, including data.
– Assets are safeguarded from loss or theft
– Business activities are performed efficiently and effectively
– The company is in compliance with all applicable laws and
regulations
– All disclosures are full and fair
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CONTROL: OBJECTIVES,
THREATS, AND PROCEDURES
• In the revenue cycle (or any cycle), a well-designed AIS
should provide adequate controls to ensure that the
following objectives are met:
– All transactions are properly authorized
– All recorded transactions are valid
– All valid and authorized transactions are recorded
• The threat is that the activities would be
– All transactions are recorded
performed accurately
inefficiently or ineffectively.
– Assets are safeguarded from loss or theft
– Business activities are performed efficiently and
effectively
– The company is in compliance with all applicable laws and
regulations
– All disclosures are full and fair
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CONTROL: OBJECTIVES,
THREATS, AND PROCEDURES
• In the revenue• cycle
The obvious
(or any threat is a
cycle), non-compliance
well-designedwith
AISlaws
and regulations.
should provide adequate controls to ensure that the
• An example in the revenue cycle could be a car
following objectives arewho:
dealer met:
– All transactions are properly
– Sells authorized
a vehicle to which he doesn’t have clear title;
– or
All recorded transactions are valid
– – Refuses to allow a customer to return a car in
All valid and authorized transactions are recorded
violation of state lemon laws.
– All transactions are recorded accurately
• Another example might be requesting a credit
– Assets are safeguarded
check onfrom loss or theft
a customer in violation of the Fair
– Credit
Business activities areReporting
performedAct (FCRA).
efficiently and effectively
– The company is in compliance with all applicable laws
and regulations
– All disclosures are full and fair
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CONTROL: OBJECTIVES,
THREATS, AND PROCEDURES
• In the revenue cycle (or any cycle), a well-designed AIS
should provide adequate controls to ensure that the
following objectives are met:
– All transactions are properly authorized
• The threat is incomplete and/or misleading
– All recorded transactions
disclosures. are valid
– All valid and• authorized
This threattransactions are recorded
is more important in other areas,
– All transactions are recorded
particularly accurately
those areas that involve liabilities
– and contingencies.
Assets are safeguarded from loss or theft
– • However,
Business activities one threatefficiently
are performed in the revenue cycle could
and effectively
be misleading disclosures about customers’
– The company is in compliance with all applicable laws and
rights to return product.
regulations
– All disclosures are full and fair
© 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart 117 of 161
CONTROL: OBJECTIVES,
THREATS, AND PROCEDURES
• While we’re going to step through a number of
common threats in the revenue cycle, it’s a good
idea to memorize the internal control objectives
so you can think of the relevant threats on your
own.
• If you don’t like the text version, click on the
button below to see a rhyming version of the
same objectives.
Poet’s
Poet’s
Corner
Corner
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CONTROL: OBJECTIVES,
THREATS, AND PROCEDURES
• There are several actions a company can take
with respect to any cycle to reduce threats of
errors or irregularities. These include:
– Using simple, easy-to-complete documents with
clear instructions (enhances accuracy and
reliability).
– Using appropriate application controls, such as
validity checks and field checks (enhances
accuracy and reliability).
– Providing space on forms to record who completed
and who reviewed the form (encourages proper
authorizations and accountability).
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CONTROL: OBJECTIVES,
THREATS, AND PROCEDURES
– Pre-numbering documents (encourages recording
of valid and only valid transactions).
– Restricting access to blank documents (reduces
risk of unauthorized transaction).
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THREATS IN SALES ORDER ENTRY
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THREATS IN SALES ORDER ENTRY
• You can click on any of the threats below to get
more information on:
• Threats in the sales
– The types oforder
problemsentry
posed by process
each threat
include: – The controls that can mitigate the threats.
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THREATS IN SHIPPING
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• You can click on any of the threats below to get
more information on:
THREATS
– The typesIN BILLING
of problems posed by each threat
– The controls that can mitigate the threats.
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THREATS IN CASH COLLECTION
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GENERAL CONTROL ISSUES
• You can click on any of the threats below to get
more information on:
• Two general objectives
– The types ofpertain
problems to activities
posed in
by each threat
every cycle: – The controls that can mitigate the threats.
– Accurate data should be available when needed
– Activities should be performed efficiently and
effectively
• The related general threats are:
– THREAT 11: Loss, Alteration, or Unauthorized Disc
losure of Data
– THREAT 12: Poor performance
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REVENUE CYCLE INFORMATION
NEEDS
• We’ve examined the various threats in the
revenue cycle and the controls that can
mitigate those threats.
• Let’s move on to summarize the
information needs in the revenue cycle.
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REVENUE CYCLE INFORMATION
NEEDS
• Information is needed for the following
operational tasks in the revenue cycle:
– Responding to customer inquiries
– Deciding on extending credit to a customer
– Determining inventory availability
– Selecting merchandise delivery methods
© 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart 154 of 161
REVENUE CYCLE INFORMATION
NEEDS
• Information is needed for the following
strategic decisions:
– Setting prices for products/services
– Establishing policies on returns and warranties
– Deciding on credit terms
– Determining short-term borrowing needs
– Planning new marketing campaigns
© 2006 Prentice Hall Business Publishing Accounting Information Systems, 10/e Romney/Steinbart 155 of 161
REVENUE CYCLE INFORMATION
NEEDS
• The AIS needs to provide information to evaluate
performance of the following:
– Response time to customer inquiries
– Time to fill and deliver orders
– Percentage of sales orders back ordered
– Customer satisfaction rates and trends
– Analyses of market share and sales trends
– Profitability by product, customer, and region
– Sales volume in dollars and market share
– Effectiveness of advertising and promotions
– Sales staff performance
– Bad debt expense and credit policies
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REVENUE CYCLE INFORMATION
NEEDS
• Both financial and non-financial
information are needed to manage and
evaluate revenue cycle activities.
• Likewise, both external and internal
information is needed.
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REVENUE CYCLE INFORMATION
NEEDS
• When the AIS integrates information from the
various cycles, sources, and types, the reports that
can be generated are unlimited. They include
reports on:
– Sales order entry efficiency
– Sales breakdowns by salesperson, region, product, etc.
– Profitability by territory, customer, etc.
– Frequency and size of backorders
– Slow-moving products
– Projected cash inflows and outflows (called a cash
budget)
– Accounts receivable aging
– Revenue margin (gross margin minus selling costs)
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REVENUE CYCLE INFORMATION
NEEDS
• Accountants should continually refine and
improve an organization’s performance
reports.
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SUMMARY
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SUMMARY
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