Returns Cycle (Revenue and Receipts)

Transaction types and functions

-Initiate, execute: Receive goods back or grant a Initiate discount

-Record, process: Issue credit note & recording

Accounts

Sales and discount allowed or debtors

Risks Receiving goods or granting a discount ( initiate and execute )

1. Grant credit although goods are not sent back - Validity

2. Discount not granted i.t.o policy - Validity

Risks When the credit note is issued and recorded ( record and process )

1. Incorrect discount on the credit note - Accuracy

2. All credit notes not accounted for - Completeness

3. Credit note incorrectly recorded - Accuracy

Controls

1. RETURNS AND GRANTING OF DISCOUNTS

Credit note

-Details on the person returning the goods

-Description of the goods and the amount .

-This acknowledges the reduction in the customer's account for non - payment reason .

1. RETURNS AND GRANTING OF DISCOUNTS

-One copy goes to customer as evidence goods were returned .

-One copy goes accounting department so that the debtor's account can be reduced

-One copy goes to the warehouse and inventory records so that the stock levels and figures can be updated

-One copy remains in our own records ( of the goods receiving department ) .

-The credit note must be checked and authorised by the credit manager and signed .

-The credit note is then used to compile the sales return journal , which is then posted to the ledgers .

-The returned goods must then be sent to inventory department or warehouse .

-The goods are checked by the storeman with the credit note as well as a number sequence check and then missing orders are followed up on .

-The inventory records are then updated and include the goods returned

Allowance for credit losses Accounts

Provision for doubtful debts [ SOCI & SFP ]

Allowance for credit losses

Authorisation Calculation Adjustment of the provision

Write - off of bad debts Accounts

Bad debts ( SOI ) , Debtors , Movement in allowance for credit losses [ SOCI & SFP ] )

Write - off of bad debts

Authorisation Write off of bad debt

PROVISION FOR BAD DEBTS

-a calculation regarding controls around debtors

-A policy is used

-Must be approved by senior management

-Performing a calculation

BAD DEBTS

-A list is used to identify appropriate debtors

-Must be approved by senior management

-Writing off assets

Risks Allowance for credit losses of debtors

-Incorrect calculation or incorrect judgement used for the provision - accuracy

-Calculation not approved i.t.o the policy - validity

-Incorrect recording ( Journal entries and general ledger ) - accuracy

Risks Write - off of bad debts

1. Debts are not written off i.t.o the policy - validity

2. Write off bad debts while still collectable - validity

3. Not writing off bad debts that will not be collected - completeness

4. Incorrect recording ( journal entries and debtors ledger ) - accuract

Allowance for credit losses of debtors Write - off of bad debts Controls

Provision for bad debts Write off debtor as a bad debt

Provision for bad debts

Authorised → Calculated →Adjustment of the provision →recorded in SFP & SCI

Write off debtor as a bad debt

-A pre - numbered bad debt authorisation form must be compiled by a committee or the minutes of meeting and presented in two - fold . Details must include : Information on the debtor, The date, The amount written off

-tge debtors recording department will decrease the debtors account by the amount stipulated .

-Own records of the committee authorising the write - off must be adjusted in order to have a history of debt written off .

-The writing off of bad debts must be authorised by management after an independent staff member has checked whether the client can pay or not .

-The write off must then be recorded in the SCI where the decrease of debtors and increase bad debts occurs .