I S 5 3 0 : A c c o u nti ng I n f orm at ion S y s t em s
h t t p : / / w w w. c s u n . e d u / ~ d n 5 8 4 1 2 / I S 5 3 0 / I S 5 3 0 _ F 1 5 . h t m
Order Entry/Sales &
Billing/AR/Cash Receipts
Lecture 6
Order Entry / Sales (OE/S) Process
 Relationship between the OE/S process and its
business environment.
 Potential of the OE/S process to assist management
decision making.
 Logical and physical characteristics of the OE/S
process.
 Control matrix for some typical OE/S processes
 Improvement of OE/S process with new
technologies
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Process Definition and Functions

Order Entry/Sales (OE/S) Process accomplishes the
following:
•
•
Support repetitive work routines of the sales order
department, credit department, and shipping
department
Support decision makers in various sales and marketing
functions.
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Management Questions
 Where is sales volume (quantity and dollars)
concentrated?
 Who are the specific major customers (by sales and
by profitability), both present and potential?
 What opportunities exist to sell after-sales services;
to cross sell and to up-sell?
 What types of advertising and promotions have the
greatest influence on customers?
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Horizontal View of the OE/S Process
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Description of Horizontal Information Flows
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Vertical Perspective of the OE/S Process
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The OE/S Process :
Context Diagram
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The OE/S Process :
Level-0 DFD
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The OE/S Process :
Level-1 DFD for 1.0
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Process 1.1 : Verify Inventory Availability
 Inquiry of inventory master file to check inventory
availability.
• “Available to promise (ATP)” can be complicated.
• Facilitated by an enterprise system that can look worldwide
and up and down the supply chain to determine when
goods can be delivered.
 If inventory is on hand, order is forwarded for further
processing. If not, a back order routine.
 Record demographic and other info into the
marketing data store.
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Process 1.2 : Check Credit
 Establish the customer’s existence and then
evaluate credit.
 Comprehensive credit check using:
• Amount of order.
• Amount of open orders (sales order master data).
• Amount of open accounts receivable (AR master data).
• Available credit (customer master data).
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Process 1.3 : Complete Sales Order
 Update inventory master data to allocate the
quantity ordered to the sales order (or reduce
inventory balance).
 Update sales order master data to indicate that a
completed sales order has been created.
 Disseminate the sales order.
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Process 1.3 : External Data Flows
 Picking ticket: authorizes the warehouse to “pick”
the goods from the shelf and send them to
shipping. Identifies the goods to be picked and
usually indicates the warehouse location.
 Customer acknowledgement: notifies the customer
of the order’s acceptance and the expected
shipment date.
 Sales order notification: document or computer
message sent to the billing department to notify
them of a pending shipment.
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The OE/S Process :
Level-1 DFD for 2.0
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The OE/S Process :
Level-1 DFD for 3.0
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Process 3.2 : Produce Shipping Notice
 Update sales order master data: goods have been
picked, packed, and shipped.
 Update inventory master data with actual shipment
 Shipping’s billing notification: notifies billing.
• Bill of lading: contract between the shipper and the carrier
in which the carrier agrees to transport the goods to the
shipper’s customer.
• Packing slip: sent with the package to identify the
customer, destination, and contents.
 Update General Ledger inventory sales : inventory
has been sold and cost of goods sold has
increased.
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OE/S Data Stores
 Customer master data: record of every authorized,
regular customer.
 Inventory master data: record of each item that is
stocked in the warehouse or regularly ordered from
a vendor.
 Marketing data: repository of a variety of salesoriented data from presales or sales activities.
 Sales order master data: created on completion of
a sales order and updated when goods have been
shipped.
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ERD for OE/S Process
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Selected Relational Tables (Partial)
for the OE/S Process
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Electronic Data Capture
 Bar code readers: devices that use light reflection
to read differences in bar code patterns in order to
identify a labeled item.
 Optical character recognition (OCR): similar to bar
code readers, but recognize a pattern of
handwritten or printed characters.
 Scanners: input devices that capture printed
images or documents and convert them into
electronic digital signals that can be stored on
computer media.
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Digital Image Processing

Major steps :
• Scanners capture documents. Key additional data as
•
•
needed.
Documents are organized and filed.
Documents may be made available worldwide.
 Additional processing
• Additional data might be added, or someone might act on
data contained in the document.
• Documents might be routed using workflow.
• Retrieval and processing capabilities may be incorporated
into existing applications.
• Linking images in an enterprise system Information can
readily be distributed throughout the organization to where
it is needed.
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The OE/S Process
System Flowchart
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Validity for the OE/S Process
 Sales order input validity: order is from an existing,
authorized customer—one contained in the
customer master data (i.e., authorized customers
that have passed initial credit investigation)—whose
current order falls within authorized credit limits.
 Shipping notice input validity: shipping notice input
is one that is supported by both an approved sales
order and an actual shipment of goods.
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Key OE/S Controls
 Customer credit check: performed to ensure that
an organization does not extend more credit to a
customer than is prudent.
 Compare picking ticket to picked goods: an
example of one-for-one checking that ensures that
the correct goods are picked from the shelf and
that any errors are detected and corrected in a
timely manner.
 Independent shipping authorization: establishes, for
the shipping personnel, that someone other than
the warehouse personnel authorized the shipment.
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Key OE/S Controls . . .
 Compare shipment to sales order and picking
ticket: Any discrepancy among these items might
indicate an unauthorized or duplicate shipment (no
open sales order) or an inaccurate shipment
(quantities to be shipped do not agree with the
picking ticket or open sales order).
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Key OE/S Controls . . .
 Independent customer master data maintenance:
segregation of duties between the personnel who
create the customer record (to authorize sales to
the customer) and the personnel who create the
sales order (execute the sale).
 Review file of open sales orders (tickler file): to
detect any shipments that should have taken
place. This will ensure that all shipments are made in
a timely manner.
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Control Matrix For OE/S Business Process
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Control Matrix for OE/S Business Process . . .
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Global e-business
 Two categories of E-business systems:
• Buy Side
o Systems use the Internet to automate and manage purchases
and vendors.
o The predominant technology in this area EDI.
• Sell Side
o Systems allow a company to market, sell, deliver, and service
goods and services to customers throughout the world via the
Internet.
o Can handle both B2B and B2C business transactions.
o One facet is known as CRM applications.
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CRM Systems
 Designed to manage all customer-related data.
 Cultivate customer relationships by prospecting,
acquiring, servicing, and retaining customers.
 Features include:
• Contact management.
• Organizing and retrieving information on historical sales
•
•
activities and promotions. Uses “Segmentation,” the
grouping of customers into categories based on key
characteristics.
Sales-force automation to, for example, support call
centers.
Customer self-service systems.
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Digital Image Processing
 Digital image processing systems: computer-based

systems for capture, storage, retrieval, and
presentation of images of objects, such as pictures
and documents.
Major steps :
• Scanners capture documents. Key additional data as
•
•
needed.
Documents are organized and filed.
Documents may be made available worldwide.
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Digital Image Processing . . .
 After input, additional processing may take place.
• Additional data might be added, or someone might act on
data contained in the document.
• Documents might be routed using workflow.
• Retrieval and processing capabilities may be incorporated
into existing applications.
• Linking images in an enterprise system makes accessibility
easier. Information can readily be distributed throughout
the organization to where it is needed.
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Electronic Data Capture
 Bar code readers: devices that use light reflection
to read differences in bar code patterns in order to
identify a labeled item.
 Optical character recognition (OCR): similar to bar
code readers, but recognize a pattern of
handwritten or printed characters.
 Scanners: input devices that capture printed
images or documents and convert them into
electronic digital signals that can be stored on
computer media.
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Billing/Accounts Receivable/Cash receipts
(B/AR/CR) Process
 Relationship between the B/AR/CR process and its
business environment.
 Potential of the B/AR/CR process to assist
management decision making.
 Depict the logical and physical characteristics of
the B/AR/CR process.
 Control matrix for some typical billing and cash
receipts processes
 Improvement of OE/S process with new
technologies
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Process Definition and Functions
The billing/accounts receivable/cash receipts
(B/AR/CR) process accomplishes the following:
• Support the repetitive work routines of the cashier, and the
•
•
credit and accounts receivable departments.
Support the problem-solving processes of financial
managers.
Assist in the preparation of internal and external reports.
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Horizontal View of the B/AR/CR Process
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Description of Horizontal Information Flows
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Optimizing Cash Resources
 Treasurer’s goal: make funds available to acquire
assets, make investments, or reduce interest
charges.
 Billing’s goal: get invoices to customers quickly,
hopefully reducing the time it then takes to obtain
customer payments.
 Having the B/AR/CR process produce invoices
automatically helps ensure that invoices are sent to
customers shortly after the goods have been
shipped.
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Cash Receipts Management
 The treasurer’s goal is to reduce float and hasten
the availability of good funds.
• Float: when applied to cash receipts, is the time between
•
the payment by the customer and the availability of good
funds.
Good funds: funds on deposit and available for use.
 Procedures designed to reduce or eliminate the
float associated with cash receipts:
• Credit card: a method of payment whereby a third party
•
such as a bank removes from the collector the risk of not
collecting the amount due from a customer.
Debit card: form of payment authorizing the collector to
transfer funds electronically from the payer’s bank account
to the collector’s bank account.
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B/AR/CR Process
Context Diagram
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B/AR/CR Process
Level-0 DFD
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B/AR/CR Process
Level -1 DFD for 1.0
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Process 1.1 : Validate Sales Order
 Process 1.1 performs the following task:
• validates sale by comparing the details on the sales order
notification (what was supposed to be shipped) to those
shown on shipping’s billing notification (what was shipped).
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Process 1.2 : Prepare invoice
Process 1.2 performs the following actions:
• Obtains from the customer master data certain standing
•
•
•
•
data, such as the bill-to address, needed to produce the
invoice.
Creates the invoice and sends it to the customer.
Updates the accounts receivable master data.
Adds an invoice to the sales event data (i.e., the sales
journal).
Notifies the general ledger process that a sale has occurred
(GL invoice update). An immediate update of the GL for a
single sale.
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B/AR/CR Process
Level-1 DFD for 2.0
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B/AR/CR Process
Level-1 DFD for 3.0
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Process 3.1 : Compare Payment
and Remittance Advice
 Remittance advice (RA): business document used
by the payer to notify the payee of the items being
paid.
 Process 3.1 validates the remittance by comparing
the payment notice to the RA.
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Process 3.2 : Record Customer Payment
 Process 1.2 performs the following actions:
• Uses the RA to update the accounts receivable master
data to reflect the customer’s payment.
• Records the collection in the cash receipts events data and
notifies the general ledger process of the amount of cash
deposited. This is an immediate update of the GL for a
single cash receipt.
 Process 3.2 is a controller function, is typically
performed by the payment applications section of
the accounts receivable department.
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Balance-Forward System
 AR records show a customer’s balance – current,
past-due, and current account activity, including
current charges, finance charges for past-due
balances, and payments.
 Monthly statements display previous balance,
payments, and balance forward, to which is new
charges are added to get the current balance
due.
 Unpaid current balances are rolled into the pastdue balances.
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Open-Item System
 Appropriate where invoices are prepared and sent
for each sale.
 In the AR master data, each record consists of
individual open invoices, to which payments and
adjustments are applied.
 Periodic statements list invoices and payment
details.
 Monthly, or at specified times, customer accounts
are aged and an aging schedule is printed.
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B/AR/CR Data Stores
 Accounts receivable master data: Repository of all
unpaid invoices issued by an organization and
awaiting final disposition.
 Sales event data store: invoice (sales) records. Is a
sales journal in a manual process.
 Accounts receivable adjustments events data store:
records from sales returns, bad debit write-offs,
estimated doubtful accounts, etc.
 Cash receipts event data store: details of customer
payments.
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ERD (Partial) for B/AR/CR Process
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Selected Relational Tables (Partial)
for the B/AR/CR Process
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Selected Relational Tables (Partial)
for the B/AR/CR Process (cont’d)
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Types Of Billing Systems
 Pre-billing system
 Post-billing system
• Invoice prepared
upon acceptance of
customer order (after
inventory and credit
checks).
• There is little or no
delay between
receiving order and
shipping.
• Invoices are
prepared after goods
are shipped and
shipping notice
compared to sales
order notice.
• There may be a
delay between
receiving the order
and shipping.
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System Flowchart of the Billing Process
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Control Matrix for the Billing Business Process
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Validity for the Billing Process
 Valid shipping notice inputs are: properly authorized
and reflect actual credit sales; for example, a
shipping notice should be supported by a valid
sales order and a real shipment, and the invoice
should be prepared using authorized prices, terms,
freight, and discounts.
 If a billing process is completed without a real
shipment (a genuine sale), revenues will be
overstated.
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Key Billing Controls
 Review shipped not billed sales orders (tickler file):
monitor sales orders that have been shipped but
not yet billed.
 Compare input shipping notice to sales order
master data: ensures that the invoice, accounts
receivable, and revenue accurately reflect the
items and quantities ordered by, and shipped to,
the customer.
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Key Billing Controls . . .
 Independent billing authorization: establishes that
the shipment is supported by an actual sales order
(a copy of the sales order from customer service or
the open sales order records on the sales order
master data). Assumes a segregation of duties
among sales (customer service), shipping, and
billing.
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Key Billing Controls . . .
 Check for authorized prices, terms, freight, and
discounts to ensure that invoices, accounts
receivable, and revenue reflect prices, terms,
freight, and discounts authorized by management.
 Independent pricing data: assumes segregation of
duties between those who approve unit prices and
those involved in the selling function.
 Confirm customer accounts regularly: The customer
can be used as a means of controlling the billing
process; the customer can review the report of
open invoices to determine that the invoices are
valid and accurate.
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System Flowchart of the Cash Receipts Process
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Control Matrix for the Cash Receipts Process
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Validity for the Cash Receipts Process
 Valid RA inputs (i.e., cash receipts) are those that
represent funds actually received and for which
cash discounts have been authorized and
approved.
 If a cash receipts process is completed without
actual funds, assets will be misstated (AR too low
and cash too high).
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Key Cash Receipts Controls
 Immediately endorse incoming checks: to protect
payments from being fraudulently misappropriated,
checks should be restrictively endorsed as soon as
possible following their receipt in the organization.
 Immediately separate checks and remittance
advices: RAs should be immediately separated
from the checks to accelerate deposits and reduce
opportunities to divert cash and undertake lapping.
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Key Cash Receipts Controls . . .
 Lockbox: payments are sent directly to a third-party
lockbox service for more secure, timely, efficient,
and accurate processing.
 Turnaround documents: the remittance advice is
the stub from a statement or invoice and can
processed more efficiently and accurately.
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Key Cash Receipts Controls . . .
 Reconcile bank account regularly: reconcile bank
statement to the cash receipts event data to
ensure that all valid deposits were recorded
correctly. Should be performed by someone other
than those that handle cash receipts and
disbursements.
 Monitor open accounts receivable: regularly review
and follow-up on accounts receivable aging
reports to ensure that payments are received in a
timely manner.
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The Fraud Connection
 B/AR/CR process provides opportunity to
manipulate final results such as revenue and AR by
violating GAAP revenue recognition rules.
 Improper segregation of duties between handling
cash and recording cash transactions can result in
misappropriating cash:
• Lapping: fraud by which funds being paid by one customer
are stolen, and the theft is covered up by applying funds
from another customer to the first customer’s account.
Rotation of duties and forced vacations help prevent this
type of fraud.
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Electronic Bill Presentment and Payment (EBPP)
 Electronic Bill Presentment and Payment (EBPP)
systems: B2C systems that use a Web site to post
customers’ bills and to receive their electronic
payments. Types of EBPP systems:
• Biller direct method, whereby a company posts its
•
bills/invoices to its own Web site (or to a Web site hosted for
it by a third party).
Consolidation/aggregation method, in which bills are not
posted to the billing company’s Web site but are posted to
a Web site hosted by the billing company’s own bank or by
a company such as Fiserv.
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Accelerating Cash Receipts
 Electronic funds transfer (EFT): general term used to
describe a variety of procedures for transmitting
cash funds between entities via electronic
transmission instead of using paper checks. Includes
wire transfers, credit and debit card processing, as
well as payments made via the ACH Network.
 Automated Clearing House (ACH) Network: batch
processing system for the interbank clearing of
electronic payments.
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Accelerating Cash Receipts . . .
 Lockbox: postal address maintained by a third
party—typically a bank—which is used solely for the
purpose of collecting checks.
 Remote deposit capture uses scanners to capture
check images and to use those images, instead of
the paper check, to make a deposit to a checking,
savings, or money market account.
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