Copyright © 2015 Pearson Education, Inc.The Revenue Cycle: Sales to Cash Collections Chapter 12 12-1... Copyright © 2015 Pearson Education, Inc.Learning Objectives • Describe the basic
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The Revenue Cycle: Sales to Cash
Collections
Chapter 12
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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 evaluate
the adequacy of various control procedures for dealing
with those threats.
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Basic Revenue Cycle Activities
• Sales order entry
• Shipping
• Billing
• Cash Collections
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Sales Order Entry Processing Steps
• Take the customer order
▫Source document: sales order
• Approve customer credit
• Check inventory availability
• Respond to customer inquiries
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Sales Order Entry Processing
1 Incomplete/inaccurate orders
2 Invalid orders
3 Uncollectible accounts
4 Stockouts and excess inventory
5 Loss of customers
1 a Data entry edit controls
b Restrict access to master data to maintain accuracy
2 a Signature to authorize sale
3 a Credit limits checked and if sale exceeds
limit, specific authorization needed
4 a Perpetual inventory system
b RFID or bar code technology
c Physical inventory counts
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Shipping Process
• Pick and pack the order
▫Source documents: picking ticket
• Ship the order
▫Source documents: Packing slip, Bill of lading
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Shipping Process
1 Picking wrong item or quantity to
ship
2 Theft
3 Fail to ship the goods
4 Ship to wrong address
1 a Bar code technology
b Reconcile picking list to sales order
2 a Restrict physical access to inventory
b Document inventory transfers
c Physical counts of inventory and reconcile to quantities recorded
3 a Reconcile shipping documents to sales
orders, picking lists, and packing slips
4 a Data entry edit controls
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Billing Process
• Invoicing the customer
▫Source document: sales invoice
• Updating accounts receivable
▫Source document: credit memo and monthly statements
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Billing Process
1 Failure to bill customer
2 Billing errors
3 Posting errors in accounts
receivable
4 Inaccurate or invalid credit memos
1 a Reconcile invoices with sales orders and
shipping documents
b Separate shipping and billing functions
2 a Data entry edit controls
b Configure system for automatically
enter price data
3 a Reconcile subsidiary accounts receivable
balance to the amount for accounts
receivable in the general ledger
4 a Segregation of authorization and recording function for credit
memos
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Cash Collection Process
• Process customer payment and update their account
balance
▫Remittance
• Deposit payments to the bank
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Cash Collection Process
1 Theft of cash
2 Cashflow problems
1 a Proper segregation of cash handling and
posting to customer accounts, authorize
credit memos, or reconcile bank account
b Use lockbox
c Deposit all cash receipts daily
2 a Lockbox
b Discounts for early payment
c Cash flow budgeting 12-11
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Key Terms
• Revenue cycle
• Sales order
• Electronic data interchange (EDI)
• Credit limit
• Accounts receivable aging report
• Back order
• Picking ticket
• Customer relationship management
systems (CRM)
• Packing slip
• Bill of lading
• Sales invoice
• Open-invoice method
• Remittance advice
• Balance-forward method
• Monthly statement
• Cycle billing
• Credit memo
• Remittance list
• Lockbox
• Electronic lockbox
• Electronic funds transfer (EFT)
• Financial electronic data
interchange (FEDI)
• Universal payment identification
code (UPIC)
• Cash flow budget
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