revenue cycle report
TRANSCRIPT
-
8/12/2019 Revenue Cycle Report
1/15
Revenue Cycle
-
8/12/2019 Revenue Cycle Report
2/15
Learning Objectives
*Describe the basic business activities and related information
processing operations performed in the revenue cycle.
*Discuss the key decisions that need to be made in the
revenue cycle, and identify the information needed to make
those decisions.
*Identify major threats in the revenue cycle, and evaluatethe adequacy of various control procedures for dealing with
those threats.
-
8/12/2019 Revenue Cycle Report
3/15
REVENUE CYCLE, DEFINED
The revenue cycle is a recurring set of business activities
and related information processing operations associated
with providing goods and services to customers andcollecting cash in payment for those sales.
-
8/12/2019 Revenue Cycle Report
4/15
RELATIONSHIP OF REVENUE CYCLE WITH
OTHER BUSINESS CYCLES
*With Expenditure and Production Cycle: receives information aboutsales transactions aiding them to decide on when to start production
and purchase inventories
*With Human Resource Cycle: uses information about sales on
calculating commissions and bonuses
*With General Ledger and Reporting Function: uses informationgenerated by the Revenue Cycle in preparing financial statements
and performance reports
-
8/12/2019 Revenue Cycle Report
5/15
REVENUE CYCLE: IN A NUTSHELL
-
8/12/2019 Revenue Cycle Report
6/15
REVENUE CYCLES
BASIC BUSINESS
ACTIVITIES
1. Sales Order Entry: performed by the SalesOrder Department that typically reports to theVP of Marketing
Steps:
a. Taking customers order: can be done insidethe store, by phone or mail, through the Internetor through a salesperson in field
b. Checking and approving customers credit:can be General Authorization (for existingcustomers) or Specific Authorization (for newcustomers)
c. Checking inventory availability
d. Respond to customer inquiries throughcustomer service
*Customer Relationship Management:provides data about customer needs and
business practices and its goal is RETAINCUSTOMERS
-
8/12/2019 Revenue Cycle Report
7/15
2. Shipping: includes custody
of inventory and relateddepartments report to VP of
Manufacturing
Steps:
a. Picking and packing theorder: done by the Warehouse
Department
b. Shipping the order: done by
the Shipping Department
-
8/12/2019 Revenue Cycle Report
8/15
3. Billing and Accounts Receivable
Steps:
a. Billing customers (Invoicing):
summarizes information from the sales
order entry and shipping activities
*Invoice: notifies the customer of the amount to
be paid and where to pay
b. Updating accounts receivable: can be
done through:
- Open Invoice Method: customer pays according
to his invoice
- Balance Forward Method: customer paysaccording to his monthly statement
* Exception Procedures: ADJUSTMENTS
- Returns
- Allowances
- Write-offs
A credit memo is issued by the credit
manager to acknowledge the return of goods or to
reflect a price reduction if a customer wishes to
keep slightly damaged goods.
-
8/12/2019 Revenue Cycle Report
9/15
4. Cash Collections
Steps:
a. Handling customer remittancesb. Deposit remittances in the bank
REVENUE CYCLES KEY
DECISIONSThe primary objective of the revenue cycle is to
provide the right product at the right place and at
the right time for the right price, and it is the
companys responsibility to accomplish this primary
objective.
-
8/12/2019 Revenue Cycle Report
10/15
Key Decision Questions:
*To what extent can and should products be customized to individual customers
needs and desires?
* How can customer payments be processed to maximize cash flow?
* How much inventory should be carried, and where should that inventory be
located?
* How should merchandise be delivered to customers? Should the company perform
the shipping function itself or outsource it to a third party that specializes in logistics?
* Should credit be extended to customers?
* How much credit should be given to individual customers?
* What credit terms should be offered?
-
8/12/2019 Revenue Cycle Report
11/15
MAJOR THREATS AND APPLICABLE CONTROL PROCEDURES
*A well-designed Accounting Information System must provide adequate controls.
Objectiv es Poss ible Threat
1 . Transact ions are proper lyauthor ized .
T ra ns ac t io ns w o u ld g o una uth o r i zeddue to f ra ud o r m i s ta k e .
2 . Recorded tran sact ions are va l id . Transact ions th at d id not actua l lyhapp en are recorded.
3 . Val id , author ized transact ionsare recorded.
Transact ions that actua l ly occurred
w e r e n o t r e c or d ed .
4 . Transact ions are recordedaccurate ly .
T ra ns ac t io ns w ere reco rded w i th a
w r o n g am o u n t , ac co u n t a n d in ad i f f eren t t im e per io d o r cha rg ed to
d i f f eren t ind iv idua l s
5 . As s e t s ( ca s h , inv ento ry , a nddata) are sa feguarded from loss
o r the f t .
T hreat s inc lude th e f t , de st ruc t io n a nd
m isuse o f data .
6 . Business act iv i t i es areper fo rm ed e f f i c i en t ly a ndeffect ive ly .
Ac t iv i t i e s m ig ht be per fo rm ed
ine f fect i v e ly a nd ine f f ic i en t ly thro u g hpo o r m a na g em ent .
7 . T he co m pa ny i s in co m pl ia ncew i th a ll ex i s t ing and a pp l i cab le
l aw s .
T he threa t i s no n-co m pl ia nce w i th
l aw s .
8 . All d i sc losures are fu l l and fa ir . Disc losures m is lead indiv idu a ls w hoa re in teres ted in the f ina nc ia l s ta tus
o f the co m pa ny .
-
8/12/2019 Revenue Cycle Report
12/15
*Controls Applicable to Sales Order Entry
Threat Ap pl icable Cont rol Procedu res
1 . Incom ple te or inaccuratec u s t o m e r o r d e rs
D a t a en t r y e d it c h e c k s
2. Credi t sa les to cust om ers
w i t h p o o r cr ed it
Cred i t approv al by cred it manager , not by
sales funct ion; accurate records of
cus tom er account ba lances
3. Legi t im acy of o rders
S ignatures on paper docum ents ; d ig ita l
s ignatu res and digi ta l cert i f icates for e -
bus iness
4 . S tock out s , carry ing cos t s and
m a rk d o w n s In v e n t o r y c o n t r o l s y s t e m s
-
8/12/2019 Revenue Cycle Report
13/15
* Controls Applicable to Shipping
*Controls Applicable to Billing and Accounts Receivable
Threat App l icable Cont ro l Procedures
1. Sh ippin g errors:
Wrong merchandise
Wrong quant i t ie s
Wrong address
Re co n c i l ia t io n o f sa l es o r d e r w i th p i c k in g
t ick et and pack ing s l ip ; bar code scanners;
d a ta e n tr y a p p l ic a t io n c o n tr o l s
2 . Thef t o f invent ory Restr ic t phy s ica l access to inven tory ;
Do c u m e n t a t io n o f a ll in t e r n a l t r a n s fe r s o f
inven tory ; per iod ic ph ys ica l count s o f
in v e n to r y a n d r e c o n c il i at io n o f c o u n t s o f
r e c o r de d a m o u n t s
Threat App l icable Cont rol Procedu res
1. Fai lure to bi l l custo mer s Separat ion of shipp ing and bi l l ing fun ct ions ;
Pre-num bering of a l l sh ipping docum ents and
periodic reconci l iat ion t o invo ices;reconci l iat ion of p ick ing t i ck et s and bi l l s of
lading w i th sa les orders
2. Bi ll ing errors Data entr y edit cont rol ; Price l i sts
3 . Post ing errors in updat ing
accounts rece ivable
Reconci l iat ion of subsidiary accounts
receivable ledger w ith general ledger;
m ont h l y s t at em ent s t o cus t om ers
-
8/12/2019 Revenue Cycle Report
14/15
* Controls Applicable to Cash Collections
*General Control Issues
Threat Appl icab le Cont rol Procedures1 . Thef t o f Cash Segregat ion of dut ies ; min imizat ion of cash
handl ing; lock box arrangements; prom pt
endorsem ent and depos i t o f a l l rece ipts
Per iod ic reconc i l ia t ion of bank s tatem ent
w i t h r e c or d s by some on e n ot in vo lve d in c ash
rece ipts process ing
Thr e at A p pl i c abl e Cont r o l P r oc e dur e s
1 . Loss , a l terat ion and
di sc l o sur e o f da ta
Bac kup and d i sas t e r r e c ove r y pr oc e dur e s ;
ac c e s s c ontr o l s (ph ys i c a l and l og i c al )
2 . P o o r p e r f o r m a n c e P r e p ar a t io n a n d r e v i e w o f p e r f o rm a n c e
r e p o r t s
-
8/12/2019 Revenue Cycle Report
15/15
THANK YOU FOR YOURCOOPERATION!!!
END