The Expenditure Cycle

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CHAPTER 10

THE REVENUE CYCLE: SALES AND CASH COLLECTIONS

SUGGESTED ANSWERS TO DISCUSSION QUESTIONS

10.1This should generate a great deal of discussion. The basic issue concerns the willingness of consumers to divulge the kind of information that would allow companies to personalize the sales interaction versus concerns that such information would be misused or sold to other parties. In addition, with the growing problem of identity theft, consumers are becoming increasingly concerned about the safety and security of their personal information. Companies that wish to collect this data will most likely have to demonstrate the need for this information to the consumer and also the company’s ability to keep this information secure.

10.2Digitized products force little change on the four business activities of the revenue cycle. For all products, whether digitized or not, an order must be taken, the product shipped, an invoice delivered, and cash collected. The only thing that digitized products do is change the way these four activities are carried out. Digitized products actually facilitate the four activities by incorporating electronic sales orders, shipping, billing, and cash collections.

10.3Employees need to be trained to use the POS properly. Such training should include understanding how the POS works, stressing that . In that errors on the employees part will directly affect the inventory master file numbers. If an item does not “scan”, then it must be rescanned or dealt with so that the integrity of the records is upheld. Similarly, employees should be trained not to skip sales. If an item does not “scan”, the employee should be trained to accurately enter in the “bar code” of the item. Entering a generic or erroneous code not only creates an inventory error, but it also frustrates the customer who may take their business elsewhere. In addition, employees should be trained to report and/or fix errors in bar codes as they are encountered and in a timely manner.

10.4The report already provides dollar amounts outstanding by number of days past due by customer and by invoice. However, the percentage of total accounts receivable categorized by days past due would help to alert management of categories that are increasing. This could also be reported by customer and by invoice. This way if a particular invoice was not being paid, the company could more quickly identify the invoice, contact the customer, and potentially resolve any problems or disputes about the particular invoice. In addition, reporting by customer can help to identify chronic “slow paying” customers so that corrective action could be taken such as offering discounts for quick payment, changes in term, and notifying the credit manager to restrict credit for this particular customer. Furthermore, the company may have a certain threshold for each category of past due accounts either in percentages or absolute dollars. A metric could be calculated and presented that highlights the categories exceeding that threshold.

10.5This is a good question to get students to explore and compare the role of technology in dynamic price setting policies. You may want to preface the discussion by relating the following scenario: You have graduated from collage and started your own consulting firm. A client has an urgent need that requires you to travel to his location. Since this is a last minute trip, you pay full price for an airline ticket. Since this client is on a fixed contract, you cannot charge the cost of the ticket back to the client. While riding on the airplane you find yourself sitting next to a college student who is majoring in accounting. During the course of the conversation with this accounting student, you find that he purchased his airline ticket from a discount reseller and paid less than half of what you paid for the same flight. How do you feel about this arrangement? Do think this type of...
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