ACC 3530 Chapter 14: The Revenue Cycle

Categories of Processes in the Revenue Cycle

• sales order entry

• shipping

• billing

• cash collections

Management Decisions for the Revenue Cycle

• to what extent should products be customized to meet individual customers’ needs and desires?

• what’s the optimal inventory level and where should inventory be stored

• how should the products be delivered to customers? should the company handle shipping or outsource the logistics function to a specialized third party?

Inaccurate/Invalid Master Data

controls:

• data processing integrity controls

• restrict access to master data

• review of all changes to master data

Unauthorized Disclosure of Sensitive Information

controls:

• access controls

• encryption

• tokenization of customer personal information

Loss or Destruction of Data

controls:

• backup and disaster recovery procedures

Poor Performance

controls:

• managerial reports

Sales Order Entry Processing Steps

• take the customer order

  • source document → purchase order

• approve customer credit

  • source document → credit check

• check inventory availability

• respond to customer inquiries

  • source document → sales order

Segregation of Duties Within Sales Order Entry Processing

• each step in the process should have a clear and pre-defined preparer and approver

• avoid potential conflicts of interest in the sales order entry process

  • e.g. review of a customer’s credit limit should not be performed by the sales representative

Electronic Data Interchange (EDI)

• uses standard coding scheme to submit business documents electronically in a format that can be automatically processed by the recipient’s information system

• for businesses that have repeated customer interactions, automating steps in this process may be advantageous

• greater ability to optimize inventory levels given real-time communication capability

• ability to collect all or part of customer payment in advance

Incomplete/Inaccurate Orders

controls:

• data entry edit controls

• restriction of access to master data

Invalid Orders

controls:

• digital signatures or written signatures

Uncollectible Accounts

controls:

• specific authorization to approve sales to new customers or sales that exceed a customer’s credit limit

• review aging of accounts receivable reports

Stockouts and Excess Inventory

controls:

• perpetual inventory control system

• use of bar codes or RFID

• training

• periodic physical counts of inventory

• sales forecasts and activity reports

Loss of Customers

controls:

• CRM systems, self-help websites, and proper evaluation of customer service ratings

Shipping Process

• pick and pack the order

  • source document → picking ticket

• ship the order

  • source documents → packing slip, bill of lading

Picking the Wrong Items or Quantity

controls:

• automation of picking using bar code and RFID technology

• reconciliation of picking lists to sales order details

Theft of Inventory

controls:

• restriction of physical access to inventory

• documentation of all inventory transfers

• RFID and bar code technology

• restrict ability to cancel sales

• control creation of and shipments to “one-time” customers

• periodic physical counts of inventory and reconciliation to recorded quantities

Shipping Errors

controls:

• reconciliation of shipping documents with sales orders, picking lists, and packing slips

• use RFID systems to identify delays

• data entry via bar code scanners and RFID edit controls

• data entry edit controls

• configuration of ERP system to prevent duplicate shipments

Billing Process

• invoicing the customer

  • source document → sales invoice

• updating accounts receivable

  • if payment is received the A/R clerk will update a customer’s open balance on a monthly statement

  • if there’s a dispute or return, a credit memo may be issued to reduce the amount owed

Failure to Bill Customer

controls:

• separation of shipping and billing functions

• periodic reconciliation of invoices with sales orders, picking tickets, and shipping documents

Billing Errors

controls:

• configuration of system to automatically enter pricing data

• restriction of access to pricing master data

• data entry edit controls

• reconciliation of shipping documents

Posting Errors in A/R

controls:

• data entry edit controls

• reconciliation of batch totals

• mail monthly statements to customers

• reconciliation of subsidiary accounts to general ledger

Inaccurate/Invalid Credit Memos

controls:

• segregation of duties of credit memo authorization from both sales order entry and customer account maintenance

• configuration of system to block credit memos unless there’s corresponding documentation of return or specific authorization by management

Cash Collection Process

• process customer payment and update their account balance

• deposit payments to the bank

Theft of Cash

controls:

• segregation of duties

• use of cash registers

• daily deposit of all cash receipts

Cash Flow Problems

controls:

• lockbox arrangements, EFT, or credit cards

• discounts for prompt payment by customers

• cash flow budgeting