Revenue Cycle

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Chapter 4
The Revenue Cycle

Objectives for Chapter 4
• Tasks performed in the revenue cycle, regardless of the technology used • The functional departments involved in revenue cycle activities and the flow of revenue transactions through the organization • The documents, journals, and accounts that provide audit trails, promote the maintenance of records, support decision making, and sustain financial reporting • Risks associated with the revenue cycle and the controls that reduce these risks • The operational and control implications of technology used to automate and reengineer the revenue cycle

Sales Order 1 Credit / Customer Service 2

REVENUE CYCLE (SUBSYSTEM) Cash Receipts/ Collections 6

Shipping 3

Billing/ Accounts Receivable 4/5

Journal Vouchers/Entries How do we get them?
• Billing Department prepares a journal voucher:
Accounts Receivable Sales DR
CR

• Inventory Control Dept. prepares a journal voucher:
Cost of Goods Sold Inventory DR CR

• Cash Receipts prepares a journal voucher:
Cash
Accounts Receivable

DR
CR

Revenue Cycle (Subsystem) Databases
• Master files
– customer master file – accounts receivable master file – merchandise inventory master 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

• Transaction and Open Document Files
– sales order transaction file
• open sales order transaction file

– sales invoice transaction file – cash receipts transaction file

DFD of Sales Order Process

Overview of the Manual Sales Order Processing System
• The sales process begins with a customer placing an order via the sales department. – The sales department captures the essential details on a sales order form. • The transaction is authorized by obtaining credit approval by the credit department. • The sales information is released to: – billing – warehouse (stock release or picking ticket) – shipping (packing slip and shipping notice)

Overview of the Manual Sales Order Processing System
• The merchandise is picked from the Warehouse and sent to Shipping. The stock records are adjusted. • The merchandise is shipped. The Shipping Department reconciles the products received from the warehouse with the sales information received. The shipping information is sent to Billing. The goods, along with the packing slip and a bill of lading, prepared by Shipping, are sent to the customer. • Billing compiles and reconciles the relevant facts and issues an invoice to the customer and updates the sales journal. The information is transferred to: – accounts receivable – inventory control

Overview of the Manual Sales Order Processing System
• Accounts Receivable records the information in the customer’s account in the accounts receivable subsidiary ledger. • Inventory Control adjusts the inventory subsidiary ledger. • Periodically, Billing, Accounts, Receivable, and Inventory Control submits summary information, typically in the form of a journal voucher to the General Ledger department. The General Ledger department reconciles this data and posts to the control accounts in the general ledger.

DFD of Cash Receipts Process

Overview of the Manual Cash Receipts System
• The customer’s checks and remittance advices are received in the Mail Room. A mail room clerk prepares a cash prelist and sends the list along with the checks to Cash Receipts. A copy of the cash prelist is sent to Accounts Receivable and the Controller. • The Cash Receipts department verifies the accuracy and completeness of the checks, updates the cash receipts journal, prepares a deposit slip, and prepares a journal voucher and sends to General Ledger.

Overview of the Manual Cash Receipts System
• The Accounts Receivable department posts from the remittance advices to the accounts receivable subsidiary...
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