AIS - CHAPTER 14 Revenue Cycle

Revenue Cycle

activities associated with selling goods and services in exchange for cash or a future promise to receive cash

What is the primary external exchange of information with?

The primary external exchange of information is with customers.

What is the revenue's cycle primary objective?

provide the right product in the right place at the right time for the right price.

What are the four basic revenue cycle activities?

1. Sales order entry

2. shipping

3. billing

4. cash collections

What are the threats to the revenue cycle?

Inaccurate or invalid master data

unauthorized disclosure of confidential information

loss or destruction of data

poor performance

A best practice is to implement the ERP system as three separate instances. mitigate risk

One instance, referred to as production, is used to process daily activity.

A second is used for testing and development.

A third instance should be maintained as an online backup to the production system to provide near real-time recovery.

who typically performs the sales order entry process?

The sales department, which reports to the vice president of marketing

but increasingly customers are themselves entering much of this data through forms on a company's website storefront.

sales order entry process entails three steps

taking the customer's order, checking and approving customer credit, and checking inventory availability.

sales order

the document created during sales order entry listing the item numbers, quantities, prices, and terms of the sale

Electronic Data Interchange (EDI)

the use of computerized communications and a standard coding scheme to submit business documents electronically in a format that can be automatically processed by the recipient's information system

What method of payment do business to business use?

Credit

What are some ways to segregate the duties in ERP systems?

To enforce this segregation of duties in ERP systems, sales order entry clerks should be granted read-only access to information about individual customer credit limits; the ability to actually change credit limits should be granted only to the credit manager

accounts receivable aging report

a report listing customer account balances by length of time outstanding

back order

a document authorizing the purchase or production of items that is created when there is insufficient inventory to meet customer orders

picking ticket

a document that lists the items and quantities ordered and authorizing the inventory control function to release that merchandise to the shipping department

stockouts

shortages of products that can result in loss of customers

What is the acquisition cost of a customer?

general marketing rule of thumb is that it costs at least five times as much to attract and make a sale to a new customer as it does to make a repeat sale to an existing customer.

Customer Relationship Management (CRM)

software that organizes information about customers in a manner that facilitates efficient and personalized service

Who should review a document in question while discussing a problem with a customer?

a customer account representative and a credit manager could both review an image of a document in question while discussing the problem with the customer on the telephone.

packing slip

a document listing the quantity and description of each item included in a shipment

packing list

an itemized listing of all of the products included in the shipment

customer order

document indicating the type and quantity of merchandise being requested

bill of lading

a legal contract that defines responsibility for goods while they are in transit

What is the second activity in the revenue cycle?

is filling customer orders and shipping the desired merchandise

(1) picking and packing the order and (2) shipping the order

the warehouse and shipping departments perform these activities

What is the first step in filling a customer order?

removing the correct items from inventory and packaging them for delivery.

Who should sign the document containing the goods?

Both warehouse and shipping employees should sign the document accompanying the goods (or make the appropriate acknowledgment of the transfer online) at the time the goods are transferred from inventory to shipping.

RFID

System of tags which contain data that can be read from a distance using radio waves.

provide real-time information on shipping status and thus provide additional information about possible delays

To reduce data entry errors by shipping employees, bar codes and RFID tags should be used whenever possible

What checks need to be made when shipping data is entered manually?

If shipping data must be entered manually at a terminal, data entry controls such as field checks, limit or range checks, and completeness tests are necessary

What are the two steps involving the billing up customers?

invoicing and updating accounts receivable

Identify all the controls that mitigate the threat of picking the wrong items or the wrong quantity of an item: (Check all that apply.)

Bar code and RFID technology

reconciliation of picking lists to sales order details

Identify all the controls that mitigate the threat of theft of inventory: (Check all that apply.)

Bar code and RFID technology

B.

Periodic physical counts of inventory, and reconciliation to recorded quantities

C.

Restriction of physical access to inventory

D.

Documentation of all inventory transfers

E.

Restrict the ability to cancel sales

Identify all the controls that mitigate the threat of shipping errors: (Check all that apply.)

Data entry edit controls

bar code and RFID technology

invoicing

information processing activity that repackages and summarizes information from the sales order entry and shipping activities

sales invoice

a document notifying customers of the amount of a sale and where to send payment

The accounts receivable function, which reports to the controller, performs two basic tasks:

It uses the information on the sales invoice to debit customer accounts and subsequently credits those accounts when payments are received.

The two basic ways to maintain accounts receivable

open-invoice and the balance-forward methods

open-invoice method

method for maintaining accounts receivable in which customers typically pay according to each invoice

two copies of the invoice are mailed to the customer, who is requested to return one copy with the payment

remittance advice

a copy of the sales invoice returned with a customer's payment that indicates the invoices, statements, or other items being paid

balance-forward method

Method of maintaining accounts receivable in which customers typically pay according to the amount shown on a monthly statement, rather than by individual invoices. Remittances are applied against the total account balance, rather than specific invoices.

monthly statement

a document listing all transactions that occurred during the past month and informing customers of their current account balance

cycle billing

producing monthly statements for subsets of customers at different times

utility company for metropolitan area

credit memo

a document, approved by the credit manager, authorizing the billing department to credit a customer's account

The control procedure for separating the duties of the billing and shipping functions is designed to mitigate the threat of:

the failure to bill customers.

The control procedure for restricting access to pricing master data is designed to mitigate the threat of:

billing errors

The control procedure for mailing monthly statements to customers is designed to mitigate the threat of:

posting errors in accounts receivable.

Which document authorizes reducing the balance owed by a customer?

credit memo

remittance list

a document listing names and amounts of all customer payments received in the mail

Lockbox

a postal address to which customers send their remittances

electronic lockbox

a lockbox arrangement in which the bank electronically sends the company information about the customer account number and the amount remitted as soon as it receives payments

Electronic Funds Transfer (EFT)

the transfer of funds using online banking software

Financial Electronic Data Interchange (FEDI)

the combination of EFT and EDI that enables both remittance data and funds transfer instructions to be included in one electronic package

factoring

the process of selling accounts receivable for cash

1% to 2% of the AR

What are the cost of accepting credit cards

2% to 4%

What is the best control to prevent theft of cash?

Segregation of duties is the most effective control procedure for reducing the risk of such theft

universal payment identification code (UPIC)

a number that enables customers to remit payments via an ACH credit without requiring the seller to divulge detailed information about its bank account

cash flow budget

a budget that shows projected cash inflows and outflows for a specified period

best control procedure to reduce the risk of unanticipated cash shortfalls

Regular monitoring of a cash flow budget would have helped AOE avoid the need for short-term borrowing at unfavorable rates.

A cash flow budget can alert an organization to a pending short-term cash shortage, thereby enabling it to plan ahead to secure short-term loans or factor some of its accounts receivable at the best possible rates. Conversely, an organization that knows a surplus of cash is pending can take steps to invest those excess funds to earn the best possible returns

To minimize the risk of the theft of cash, the person who handles customer payments should not also have the duties of (Check all that apply.)

creating or authorizing credit memos.

reconciling the bank account.

posting remittances to customer accounts.

Factoring accounts receivable is one way to address the threat of

cash flow problems due to past-due accounts.

Which of the following processes involve having customers send payments directly to the organization's bank? (Check all that apply.)

Electronic lockbox

EFT

FEDI