Accounting Information Systems Fifteenth Edition, Global Edition Chapter 14 The Revenue Cycle: Sales to Cash Collections • Copyright © 2021 Pearson Education Ltd. Learning Objectives (1 of 2) • Describe the basic business activities in the revenue cycle and discuss the general threats to that process and the controls that can be used to mitigate those threats. • Explain the sales order entry process, key decisions that need to be made and threats to that process, and describe the controls that can be used to mitigate those threats. • Explain the shipping process, key decisions that need to be made and threats to that process, and describe the controls that can be used to mitigate those threats. • Copyright © 2021 Pearson Education Ltd. Learning Objectives (2 of 2) • Explain the billing process, key decisions that need to be made and threats to that process, and describe the controls that can be used to mitigate those threats. • Explain the cash collections process, key decisions that need to be made and threats to that process, and describe the controls that can be used to mitigate those threats. • Copyright © 2021 Pearson Education Ltd. Basic Revenue Cycle Activities • Sales order entry • Shipping • Billing • Cash collections • Copyright © 2021 Pearson Education Ltd. General Threats and Controls to Revenue Cycle Threats Controls 1. Inaccurate or invalid master data 2. Unauthorized disclosure of sensitive information 3. Loss or destruction of data 4. Poor performance 1. a. Data processing integrity controls b. Restrict access to master data c. Review of all changes to master data 2. a. Access controls b. Encryption c. Tokenization of customer personal information 3. a. Backup and disaster recovery procedures 4. a. Managerial reports • Copyright © 2021 Pearson Education Ltd. Sales Order Entry Processing Steps • Take the customer order – Source document: sales order • Approve customer credit • Check inventory availability • Respond to customer inquiries • Copyright © 2021 Pearson Education Ltd. Sales Order Entry Processing Threats Controls 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 b. Aging of accounts receivable 4. a. Per`petual inventory system b. RFID or bar code technology c. Physical inventory counts d. Sales forecast and activity reports • Copyright © 2021 Pearson Education Ltd. Shipping Process (1 of 2) • Pick and pack the order – Source documents: picking ticket • Ship the order – Source documents: Packing slip, Bill of lading • Copyright © 2021 Pearson Education Ltd. Shipping Process (2 of 2) Threats Controls 1. Picking wrong item or quantity to ship 2. Theft of inventory 3. Shipping errors (fail to ship the goods, wrong quantities, wrong items, ship to wrong address, duplication) 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 b. Data entry edit controls • Copyright © 2021 Pearson Education Ltd. Billing Process (1 of 2) • Invoicing the customer – Source document: sales invoice • Updating accounts receivable – Source document: credit memo and monthly statements • Copyright © 2021 Pearson Education Ltd. Billing Process (2 of 2) Threats Controls 1. Failure to bill customer 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 to automatically enter price data c. Data entry edit controls d. Reconciliation of shipping documents to sales orders 3. a. Reconcile subsidiary accounts receivable balance to the amount for accounts receivable in the general ledger b. Mail monthly statements to customers 4. a. Segregation of authorization and recording function for credit memos 2. Billing errors 3. Posting errors in accounts receivable 4. Inaccurate or invalid credit memos • Copyright © 2021 Pearson Education Ltd. Cash Collection Process (1 of 2) • Process customer payment and update their account balance – Remittance • Deposit payments to the bank • Copyright © 2021 Pearson Education Ltd. Cash Collection Process (2 of 2) Threats Controls 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. Immediately open mail, prompt endorsement and deposit all cash receipts daily d. Use cash registers 2. a. Lockbox b. Discounts for early payment c. Cash flow budgeting • Copyright © 2021 Pearson Education Ltd. Key Terms • Revenue cycle • Remittance advice • Sales order • Balance-forward method • Electronic data interchange (EDI) • Monthly statement • Credit limit • Cycle billing • Accounts receivable aging report • Credit memo • Back order • Remittance list • Picking ticket • Lockbox • Customer relationship management systems (CRM) • Electronic lockbox • Packing slip • Financial electronic data interchange (FEDI) • Bill of lading • Sales invoice • Open-invoice method • Electronic funds transfer (EFT) • Universal payment identification code (UPIC) • Cash flow budget • Copyright © 2021 Pearson Education Ltd. • Copyright © 2021 Pearson Education Ltd. • Copyright © 2021 Pearson Education Ltd. • Copyright © 2021 Pearson Education Ltd. • Copyright © 2021 Pearson Education Ltd. • Copyright © 2021 Pearson Education Ltd. • Copyright © 2021 Pearson Education Ltd. • Copyright © 2021 Pearson Education Ltd. • Copyright © 2021 Pearson Education Ltd. • Copyright © 2021 Pearson Education Ltd. • Copyright © 2021 Pearson Education Ltd. • Copyright © 2021 Pearson Education Ltd. • Copyright © 2021 Pearson Education Ltd. • Copyright © 2021 Pearson Education Ltd. • Copyright © 2021 Pearson Education Ltd. • Copyright © 2021 Pearson Education Ltd. • Copyright © 2021 Pearson Education Ltd. • Copyright © 2021 Pearson Education Ltd.
