sales and receipts term 1

What is the Revenue and Receipts Cycle?

The internal control cycle covering all steps from a customer order through to cash being received and banked (order → approval → delivery → invoicing → recording → receipts).

List the 8 stages of the Revenue & Receipts Cycle

1) Orders & credit approval 2) Picking/packing/dispatch 3) Delivery 4) Invoicing 5) Recording 6) Credit notes/returns 7) Debtors management/write-offs 8) Cash receipts

What are the "5 DNA elements" of a good internal control?

Document (pre-numbered/printed), Detail (full information), Independent check/comparison, Signature (evidence), Distribution & sequence follow-up

Define "Validity" as a control objective in the revenue cycle

To ensure that recorded sales/invoices relate to real transactions with real customers (no fictitious sales)

Define "Completeness" as a control objective in the revenue cycle

To ensure that all sales/deliveries/invoices that occurred have in fact been recorded, with nothing omitted

Define "Accuracy" as a control objective in the revenue cycle

To ensure correct quantities, correct approved prices, and correct calculations/casting on sales documents

Define "Cut-off" as a control objective

To ensure transactions are recorded in the correct accounting period

Define "Authorisation" as a control objective

To ensure orders, credit, prices, discounts, credit notes and bad debt write-offs are properly approved before action is taken

How must control objectives always be phrased?

Starting with "To ensure that…" - this exact phrasing earns a specific communication skills mark

What must a sales order form always be?

Pre-numbered and pre-printed, containing customer name, product codes, quantities, price, VAT, discount and date

Why must the customer sign/confirm the sales order?

As evidence that the order is genuine and has been accepted/approved by the customer (prevents fictitious or incorrect orders)

What must a sales/credit manager check before approving an order? (list 5)

1) Inventory availability 2) Re-perform calculations 3) Price agrees to approved price list 4) Discount eligibility 5) Credit limit & outstanding balance (or new customer creditworthiness)

Why must approved orders be reviewed for missing numbers?

To ensure all orders are executed (completeness) and to detect fictitious/duplicate orders (validity)

Who typically prepares the delivery note?

The storeman responsible for picking/packing the goods

What must the delivery note contain?

Customer name/address, product code, description, quantity, delivery date, and often the sales order number

What must an independent person (e.g. inventory foreman) do before goods are dispatched?

Compare the physical goods to the delivery note and the approved sales order for quality, quantity and description, then sign as evidence

What is the role of the gatekeeper/security guard at dispatch?

To match physical goods/boxes in the vehicle to the delivery notes before the vehicle may exit the premises (often recorded in a gate register)

Why must the customer sign the delivery note on receipt?

As proof of receipt and that quality, quantity and description match the order - provides documentary evidence a valid sale occurred

What happens to the signed delivery note after customer receipt?

One copy is kept by the customer; the signed copy is returned to the business (usually to the invoicing/accounting department) to support invoicing

What source documents are used to prepare an invoice?

The customer-signed delivery note (for quantities) and the approved sales order/approved price list (for prices)

What check should a second/independent person perform on an invoice?

Re-perform calculations and compare price/quantity back to the approved sales order and delivery note, then sign

What is a "3-way match" in the revenue cycle?

Matching the sales order, delivery note and invoice to each other before recording, and following up unmatched documents/missing numbers

What is a Goods Returned Voucher (GRV)?

A pre-numbered, pre-printed document prepared by the storeman recording details of goods returned by a customer, compared to the original invoice

What should be checked before goods are accepted as a return?

Proof of original purchase (invoice), that the return is within the policy time limit, goods are undamaged and in original packaging

What source documents should a credit note be prepared from?

The Goods Returned Voucher (GRV) and the original customer invoice - never prepared "from scratch"

Who should authorise a credit note?

An independent, senior person (e.g. sales return manager), only after reviewing supporting documentation, evidenced by signature

Give a classic bad segregation-of-duties combination in the revenue cycle (orders)

One person receiving orders, checking creditworthiness, approving orders, issuing credit notes AND writing off bad debt

Give a classic bad segregation-of-duties combination (debtors)

One person recovering outstanding debt, issuing credit notes, AND writing off/recording bad debt

What is the "ARC" mnemonic for segregation of duties?

No one person should combine Authorisation, Record-keeping and Custody of the same transaction/asset

What must happen before a bad debt is written off?

Senior management/board must approve the write-off, after reviewing supporting documentation and a pre-numbered bad debt authorisation form, signed as evidence

What is required for a bad debt policy?

A documented, management-approved policy defining when debtors qualify for write-off (e.g. after 180 days outstanding)

Why must document number sequences be reviewed regularly?

To identify missing numbers (completeness - orders/deliveries/invoices not executed) and duplicate numbers (validity - fictitious transactions)

Who should perform the sequence check on documents?

An independent person not involved in preparing or approving the original documents

What is the standard penalty in model answers for not stating WHY a document copy goes to a department?

Typically lose half the marks for that distribution point (e.g. 2 out of 4 available marks, no negative marking)

Differentiate "weakness" vs "consequence" vs "recommendation"

Weakness = what control is missing/broken (fact from the scenario); Consequence = the risk/impact if not fixed; Recommendation = the specific fix that reverses the weakness

What communication skill mark is commonly awarded for weakness/consequence/recommendation questions?

Presenting the answer in the required table/column format

What communication skill mark is commonly awarded for "design a system" questions?

Layout and structure - logical process order, use of numbering/bullets

Name 3 documents used across the revenue cycle that must be pre-numbered

Sales order, delivery note, invoice (also: GRV, credit note, bad debt authorisation form)

What IFRS standard links to the importance of accuracy/cut-off controls in this cycle?

IFRS 15 (Revenue from Contracts with Customers) - the five-step model for revenue recognition

What Companies Act linkage is relevant to this cycle?

Companies Act 71 of 2008 record-keeping requirements and directors' duties around adequate accounting records and internal financial controls

What must happen if goods ordered are not in stock?

The customer should be informed and, ideally, placed on a back-order/register that is followed up regularly

What check should be done on discounts (e.g. loyalty discounts)?

An independent person must verify the customer qualifies (e.g. length of relationship) before the discount is applied, per the approved discount policy

Why is "no credit check on existing customers before further sales" a weakness?

Because outstanding balances change over time; failing to recheck risks extending credit beyond the approved limit, increasing bad debt risk

What is the risk if delivery notes are not matched back to sales orders in the sales department?

Orders may not be followed up as fulfilled, or fictitious/duplicate deliveries could go undetected

What must happen to unused/blank pre-numbered documents (stationery control)?

They should be kept locked away/in a safe with access restricted to authorised persons, and a stationery register maintained

What is the risk of one person preparing AND approving the same document (e.g. credit note)?

Errors or fraudulent/fictitious entries could go undetected, since there is no independent check

What should an independent person do with debtors reconciliations?

Review and sign the reconciliation prepared by the accounting clerk, to detect errors or fraud

What are the typical distribution copies of an approved sales order (4 copies)?

Customer (proof of order), Sales department (sequence check/follow-up), Warehouse/inventory (to pick goods), Accounting department (to match before invoicing)

What are the typical distribution copies of an approved delivery note?

Customer (proof/checking goods), Sales department (match to orders), Accounting/inventory records (update records/invoice), Filed in warehouse (sequence check)

What exam instruction phrase should you always check before answering?

The "NOTE: you are not required to address…" scope restriction - writing about excluded areas earns no marks and wastes time

What are the 5 typical checks a sales/credit manager performs before signing an order as approved?

Inventory availability, re-perform calculations, agree price to price list, check discount eligibility, check credit limit/outstanding balance

Why must goods be checked against BOTH the delivery note AND the sales order (not just one)?

To catch errors that might exist on only one of the two documents and confirm the delivery note itself accurately reflects what was actually ordered

What is the purpose of a gate register?

To record vehicle registration, time of inspection, and confirm all goods leaving have matching delivery notes, signed by the guard as evidence

Why should the same person not both recover outstanding debt and authorise bad debt write-offs?

Because they could conceal theft of receipts by fraudulently writing off the related debtor balance as a bad debt

What review should management perform on bad debts written off?

Regularly review the bad debts written off for reasonableness against the approved policy

What is the risk when order forms are not sent to the customer for confirmation before dispatch?

Orders could be based on emails sent by an unauthorised person or in error, leading to incorrect goods being dispatched