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Chapter 10
5.1
Learning Objectives
1. Describe the basic business activities and related data processing operations performed in the revenue cycle. 2. Discuss the key decisions that need to be made in the revenue cycle and identify the information needed to make those decisions. 3. Document your understanding of the revenue cycle. 4. Identify major threats in the revenue cycle and evaluate the adequacy of various control procedures for dealing with those threats.
5.2
2009 by Prentice Hall
5.3
5.4
5.5
5.6
5.7
5.8
5.10
5.11
5.12
5.13
Orders
Customer
Customer
Response
Inquiries
1.4
Resp. to Cust. Inq.
Sales Order
Inventory
Sales Order
Shipping
5.14
Billing
Warehouse
Purchasing
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5.15
Reasonableness tests
comparing quantity ordered to past history.
Credit approval
General authorization
Credit limit (for existing customers)
Specific authorization
Limit checks (new, have past-due balances, Exceeding)
5.16
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5.17
5.18
5.19
Shipping
Sales Order Entry
Picking List
Sales Order
Sales Order
Inventory
Shipments
Carrier
5.20
Shipping (Activity 2)
Documents, records, and procedures: The picking ticket printed by the sales order entry triggers the shipping process and is used to identify which products to remove from inventory and the quantities. The packing slip lists the quantity and description of each item in the shipment. A physical count is compared with the quantities on the picking ticket (Warehouse) and packing slip (Shipping). If there are discrepancies, a back order is initiated. Some spot checks are made and a bill of lading is prepared.
5.21
2009 by Prentice Hall
Shipping (Activity 2)
The bill of lading is a legal contract that defines responsibility for goods in transit 3 copies: (shipping, billing, and carrier) It identifies: The carrier The source The destination Special shipping instructions Who pays for the shipping?
5.22
Sales Order
3.1 Billing
Invoice
Shipping
Sales
Customer
Sales
Customer
Mailroom
Remittance List
The inventory, accounts receivable, and general ledger files are updated at this time.
5.26
To obtain a more uniform flow of cash receipts, many companies use a process called cycle billing.
5.27
5.29
5.31
Respond time to customer inquiries Time required to fill and deliver orders Percentage of sales that required back orders Customer satisfaction rates and trends Profitability analyses by product, customer, and sales region Sales volume in both dollars and number of customers Effectiveness of advertising and promotions Sales staff performance Bad debt expenses and credit policies
2009 by Prentice Hall
5.32
5.33
5.34
5.35
Valid, authorized transactions are recorded. Dont show Discounts higher net sales Transactions are recorded accurately. Assets (cash, inventory, and data) are safeguarded from loss or theft. Business activities are performed efficiently and effectively.
5.36
2. Credit sales to customers Credit approval by credit manager, not with poor credit by sales function; accurate records of customer account balances 3. Legitimacy of orders Signatures on paper documents; digital signatures and digital certificates for ebusiness
5.37
5.38
2. Billing errors
Reconciliation of subsidiary accounts receivable ledger with general ledger; monthly statements to customers
5.39
Threat
1. Theft of Cash
Segregation of duties; minimization of cash handling; lockbox arrangements; prompt endorsement and deposit of all receipts Periodic reconciliation of bank statement with records by someone not involved in cash receipts processing
5.40
2. Poor performance
5.41
5.42
5.43
5.44