Chapter 12: The Revenue Cycle
Syaiful Ali, SE., MIS., Ak.
Introduction
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Revenue Cycles tend to be similar for all
types of firms.
Two subsystems perform the processing
steps within the revenue cycle:
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The Sales Processing System
The Cash Receipts Processing System
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Objectives of the Revenue
Cycle
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To record sales orders promptly and
accurately
To verify that the customers are worthy of
credit
To ship the products or perform the services
by agreed dates
To bill for products or services in a timely and
an accurate manner
Objectives of the Revenue
Cycle (cont..)
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To record and classify cash receipts promptly
and accurately
To post sales and cash receipts to proper
customers’ accounts in the accounts
receivable ledger
To safeguard products until shipped
To safeguard cash until deposited
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Sales Order
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Credit / Customer
Service
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REVENUE CYCLE
(SUBSYSTEM)
Cash Receipts/
Collections
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Shipping
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Billing/ Accounts
Receivable
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Input Documents Pertaining to the
Revenue Cycle
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Customer Order
Sales Order
Order
Acknowledgement
Picking List
Packing Slip
Bill of Lading
Shipping Notice
Sales Invoice
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Remittance Advice
Deposit Slip
Back Order
Credit Memo
Credit Application
Salesperson Call
Report
Delinquent Notice
Write-off Notice
Cash Register Receipts
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DFD- Sistem Pemrosesan Order Penjualan
Revenue Cycle Databases
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Master files
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customer master file
accounts receivable master
file
merchandise inventory
master file
Transaction and Open
Document Files
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sales order transaction file
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open sales order transaction
file
• Other Files
– shipping and price data
reference file
– credit reference file (may not
be needed)
– salesperson file (may be a
master file)
– Sales history file
– cash receipts history file
– accounts receivable reports
file
sales invoice transaction file
cash receipts transaction file
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Sales Order Process Flowchart
Sales Order Process Flowchart
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Manual Sales Order Processing
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Begins with a customer placing an order
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The sales department captures the essential details
on a sales order form.
The transaction is authorized by obtaining credit
approval by the credit department.
Sales information is released to:
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Billing
Warehouse (stock release or picking ticket)
Shipping (packing slip and shipping notice)
Manual Sales Order Processing
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The merchandise is picked from the Warehouse and sent to
Shipping.
z Stock records are adjusted.
The merchandise, packing slip, and bill of lading are prepared
by Shipping and sent to the customer.
z Shipping reconciles the merchandise received from the
Warehouse with the sales information on the packing slip.
Shipping information is sent to Billing. Billing compiles and
reconciles the relevant facts and issues an invoice to the
customer and updates the sales journal. Information is
transferred to:
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z Inventory Control
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Manual Sales Order Processing
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A/R records the information in the customer’s
account in the accounts receivable subsidiary
ledger.
Inventory Control adjusts the inventory subsidiary
ledger.
Billing, A/R, and Inventory Control submits
summary information to the General Ledger
dept., which then reconciles this data and posts
to the control accounts in the G/L.
DFD of Sales Returns
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Sales Returns Flowchart
Pengembalian Cek Batal
Sistem Penerimaan Kas
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Cash Receipts Flowchart
Manual Cash Receipts Processes
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Customer checks and remittance advices are
received in the Mail Room.
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A mail room clerk prepares a cash prelist and sends
the prelist and the checks to Cash Receipts.
The cash prelist is also sent to A/R and the Controller.
Cash Receipts:
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verifies the accuracy and completeness of the checks
updates the cash receipts journal
prepares a deposit slip
prepares a journal voucher to send to G/L
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Manual Cash Receipts Processes
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A/R posts from the remittance advices to the
accounts receivable subsidiary ledger.
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G/L department:
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Periodically, a summary of the postings is sent to G/L.
reconciles the journal voucher from Cash Receipts with
the summaries from A/R
updates the general ledger control accounts
The Controller reconciles the bank accounts.
Information Output
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Operational Listings & Reports:
Inquiry Display Screens: specific data (e.g., a
request for the status of a customer’s account
receivable.
Scheduled Managerial Reports
Demand Managerial Reports: ad hoc non
scheduled reports
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Operational Listings and
Reports
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Monthly statement
Open orders report
Sales Invoice register
Shipping register
Cash receipts journal
Credit memo register
Scheduled Managerial Reports
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Accounts receivable aging schedule
Reports on critical factors
z Average dollar value per order
z Percentage of orders shipped on time
z Average number of days between the order
date and shipping date
Sales analyses
z Salesperson
z Sales region
z Product lines
z Customers
z Markets
Cash flow statements
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Types of Managerial Decisions
Pertaining to the Revenue Cycle
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Marketing decisions
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Which types of markets and customers are to be served?
Which specific products are to be provided to customers,
including new products to be introduced?
What prices are to be charged, and what discounts are to
be allowed?
What after-sales services are to be offered?
Types of Managerial Decisions
Pertaining to the Revenue Cycle (cont..)
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What channels of distribution are to be
employed?
What advertising media are to be employed, and
in what mix?
What organizational units are to be incorporated
within
the marketing function?
What marketing plans and budgets are to be
established for the coming year?
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Types of Managerial Decisions
Pertaining to the Revenue Cycle
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Financial Decisions
z What criteria are to be employed in granting credit to potential
customers?
z What collection methods are to be employed in minimizing bad
debts?
z What accounts receivable records are to be maintained
concerning amounts owed by customers?
z What sources, other than receipts from sales, are to be
employed in obtaining needed funds for operations?
z What financial plans and cash budgets are to be established for
the coming year?
Risk Exposures in the
Revenue Cycle - I
Risk
Exposure
1) Credit sales made to customers
who represent poor credit risks
1) Losses from bad debts
2) Unrecorded or unbilled shipments
2) Losses of revenue; overstatement
of inventory and understatement of
accounts receivable in the balance
sheet
3) Alienation of customers and
possible loss of future sales; losses of
revenue
3) Errors in preparing sales invoices
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Risk Exposures in the
Revenue Cycle - II
Risk
Exposure
4) Misplacement of orders from
customers or unfilled backorders
4) Losses of revenue and alienation of
customers
5) Incorrect posting of sales to
accounts receivable records
5) Incorrect balances in accounts
receivable and general ledger account
records
6) Posting of revenues to wrong
6) Overstatement of revenue in one
accounting periods, such as premature year (year of premature booking) and
booking of revenues
understatement of revenue in the next
Risk Exposures in the
Revenue Cycle - III
Risk
Exposure
7) Fictitious credit sales to nonexistent Overstatement of revenues and
customers
accounts receivable
8) Excessive sales returns and
allowances with certain of the credit
memos being for fictitious returns
9) Theft or misplacement of finished
goods in the warehouse or on the
shipping dock
8) Losses in net revenue, with the
proceeds from subsequent payments
by affected customers being
fraudulently pocketed
9) Losses in revenue; overstatement
of inventory on the balance sheet
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Risk Exposures in the
Revenue Cycle - IV
Risk
Exposure
10) Fraudulent write-offs of
customers’ accounts by unauthorized
persons
10) Understatement of accounts
receivable; losses of cash receipts
when subsequent collections on
written-off accounts are
misappropriated by perpetrators of the
fraud
11) Theft (skimming) of cash receipts, 11) Losses of cash receipts;
especially currency, by persons
overstatement of accounts receivable
involved in the processing; often
in the subsidiary ledger and the
accompanied by omitted postings to
balance sheet
affected customers’ accounts
12) Lapping of payments from
12) Losses of cash receipts; incorrect
customers when amounts are posted account balances for those customers
to accounts receivable records
whose records are involved in the
lapping
Risk Exposures in the
Revenue Cycle - V
Risk
Exposure
13) Accessing of accounts receivable,
merchandise inventory, and other
records by unauthorized persons
14) Involvement of cash, merchandise
inventory, and accounts receivable
records in natural or human-made
disasters
15) Planting of virus by disgruntled
employee to destroy data on magnetic
media
13) Loss of security over such records,
with possibly detrimental use made of
the data accessed
14) Losses of or damages to assets
15) Loss of customer accounts
receivable data needed to monitor
collection of amounts from previous
sales
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Risk Exposures in the
Revenue Cycle - VI
Risk
Exposure
16) Interception of data transmittal
between customers and the web site
16) Loss of data which may be used to
the detriment of customers
17) Unauthorized viewing and
alteration of other customer account
data via the Web
18) Denial by a customer that an
online order was placed after the
transaction is processed
17) Loss of security over customer
records resulting in misstatement of
accounts receivable balances
18) Loss of sales revenues
Risk Exposures in the
Revenue Cycle - VII
Risk
Exposure
19) Use of stolen credit cards to place
orders via the Web
19) Loss of shipped goods for which
payments will not be received
20) Breakdown of the web server due
to unexpectedly high volume of
transactions
20) Loss of sales revenues and
alienation of customers
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Typical Control Objectives for
the Revenue Cycle
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All customers accepted for credit sales are creditworthy
All ordered goods are shipped, and all services are
performed by dates that are agreeable to all parties
All shipped goods are authorized and accurately
billed within the proper accounting period
All sales returns and allowances are authorized and
accurately recorded and based on actual return of
goods
Typical Control Objectives for the
Revenue Cycle (cont..)
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All cash receipts are recorded completely and
accurately
All credit sales and cash receipts transactions are
posted to proper customers’ accounts in the
accounts receivable ledger
All accounting records, merchandise inventory,
and cash are safeguarded
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General Controls of the
Revenue Cycle - I
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Organizational Controls
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Units with custodial functions should be kept
separate from each other
Custodial functions should furthermore be
segregated from record-keeping functions
For computerized systems, systems development
should be kept separate from systems operations
General Controls of the
Revenue Cycle - II
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Documentation Controls
Asset Accountability Controls
Management Practice Controls
Data Center Operations Controls
Authorization Controls
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General Controls of the
Revenue Cycle - III
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Access Controls
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Assigned passwords that authorized clerks must enter to
access accounts receivable and other customer-related
files, in order to perform their strictly defined tasks
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Terminals that are restricted in the functions they allow to
be performed with respect to sales and cash receipts
transactions
General Controls of the
Revenue Cycle – III (cont..)
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Logging of all sales and cash receipt transactions
upon their entry into the system
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Frequent dumping of accounts receivable and
merchandise inventory master files onto magnetic
tape backups
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Physically protected warehouses and safes
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A lockbox collection system in situations where
feasible
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Application Controls of the
Revenue Cycle: Input - I
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1) Prepare pre-numbered and well-designed
documents relating to sales, shipping, and
cash receipts, with each prepared document
being approved by an authorized person.
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2) Validate data on sales orders and
remittance advices as the data are prepared
and entered for processing.
(CBISÎprogrammed edit checks).
Application Controls of the
Revenue Cycle: Input - II
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3) Correct errors that are detected during data entry
and before the data are posted to the customer and
inventory records.
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4) Precompute batch control totals relating to key
data on sales invoices (or shipping notices) and
remittance advices. (compared with totals
computed during postings to the accounts
receivable ledger and during each processing run).
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Application Controls of the
Revenue Cycle: Processing - I
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1) Move ordered goods from the finished
goods warehouse and ship the goods only on
the basis of written authorizations such as
stock request copies
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2) Invoice customers only on notification by
the shipping department of the quantities that
have been shipped
Application Controls of the Revenue
Cycle: Processing – I (cont..)
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3) Issue credit memos for sales returns only
when evidence (i.e. receiving report) has
been received that the goods were actually
returned
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4) Verify all computations on sales invoices
before mailing and postings to proper
customers’ accounts.
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Application Controls of the
Revenue Cycle: Processing - II
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5) Verify that total amounts posted to the accounts
receivable accounts from batches of transactions
agree with precomputed batch totals, and post the
total amounts to the appropriate general ledger
accounts
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6) Deposit all cash received intact and with a
minimum of delay, thus eliminating the possibility of
cash receipts being used to pay employees or to
reimburse petty cash funds
Application Controls of the Revenue
Cycle: Processing – II(cont..)
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7) Correct errors that are made during
processing steps, usually by reversing
erroneous postings to accounts and entry of
correct data. The audit trail concerning
accounts being corrected should show the
original errors, the reversals, and the
corrections
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Application Controls of the
Revenue Cycle: Output
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1) Prepare monthly statements, which should be
mailed to all credit customers, especially if the
balance forward approach is employed
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2) File copies of all documents pertaining to sales
and cash receipts transactions by number, with the
sequence of numbers in each file being periodically
checked to see if gaps exist.
Application Controls of the
Revenue Cycle: Output (cont..)
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3) Prepare printed transaction listings and
account summaries on a periodic basis in
order to provide audit trail and a basis for
review
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Thank You!
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