Chapter 4
Chapter 4
The Revenue Cycle
The Revenue Cycle
Accounti
Accounting Informating Information Systemon Systems,s, 5 5thth edition edition
James A. Hall James A. Hall
O,-ectives )or Chapter 4
O,-ectives )or Chapter 4
•
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flow w oof f rreevevennuue e ttrraannssaaccttiioonns s tthhrroouuggh h tthhe e oorrggaanniizzaattiioonn • • DDooccuummeennttss, , jjoouurrnnaallss, , aannd d aaccccoouunntts s neneeeddeed d ffoor r aauuddiitt t trraaiillss,,tthheemmaaiinntteennaanncceeooffrreeccoorrddss,,ddeecciissiiononmmaakkiinngg,, a annd d finafinanncciiaal l rreeppoorrttiinngg •
• RRiissks ks aassssocociiaatteed d wwiitth h tthhe e rreevevennuue e ccycyclle e aannd d tthhee c coonnttrroollsstthhaattrreedduucceetthheesseerriisskkss • • TThheeooppeerraattiioonnaallaannddccoonnttrroolliimmpplliiccaattiiononssooff t tecechhnnoollooggy y ususeed d tto o aauuttomomaatte e aannd d rreeeennggiinneeeer r tthhee r
O,-ectives )or Chapter 4
O,-ectives )or Chapter 4
•
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thhe e tteecchhnnoollooggy y uusseedd •
• FFuunnccttiioonnaal l ddeeppaarrttmmeenntts s iin n tthhe e rreevevennuue e ccycyclle e aannd d tthhee flo
flow w oof f rreevevennuue e ttrraannssaaccttiioonns s tthhrroouuggh h tthhe e oorrggaanniizzaattiioonn • • DDooccuummeennttss, , jjoouurrnnaallss, , aannd d aaccccoouunntts s neneeeddeed d ffoor r aauuddiitt t trraaiillss,,tthheemmaaiinntteennaanncceeooffrreeccoorrddss,,ddeecciissiiononmmaakkiinngg,, a annd d finafinanncciiaal l rreeppoorrttiinngg •
• RRiissks ks aassssocociiaatteed d wwiitth h tthhe e rreevevennuue e ccycyclle e aannd d tthhee c coonnttrroollsstthhaattrreedduucceetthheesseerriisskkss • • TThheeooppeerraattiioonnaallaannddccoonnttrroolliimmpplliiccaattiiononssooff t tecechhnnoollooggy y ususeed d tto o aauuttomomaatte e aannd d rreeeennggiinneeeer r tthhee r
R E V E N U E C Y R E V E N U E C Y C LC L EE (( S U B S YS U B S Y S TS T E ME M )) SS a la l e s e s OO rr d e rd e r BB ii ll ll ii n gn g / / AA c c oc c o uu nn tt ss RR e c e ie c e i a ! a ! ll ee CC a sa s " R" R e c e ie c e i # t# t s /s / CC oo ll ll e c te c t ii oo nn ss S " i # # i n g S " i # # i n g $$ %% CC rr e d ie d i t t / / CC u s tu s t o o e re r S e r i c e S e r i c e **
Journal ouchers/0ntries
Journal ouchers/0ntries
Ho1 do 1e *et them2
Ho1 do 1e *et them2
33 illin* epartment
illin* epartment prepares a -ournal voucher6
prepares a -ournal voucher6
Accounts Receivable
Accounts Receivable DR DR S
Saallees s CCR R
33 Inventory Control
Inventory Control ept. prepares a -ournal
ept. prepares a -ournal
voucher6
voucher6
C
Coosst t oof f GGoooodds s SSoolld d DDR R IInnvveennttoorry y CCR R
33 Cash Receipts prepares a -ournal voucher6
Cash Receipts prepares a -ournal voucher6
C
Revenue Cycle ata,ases
3 7aster )iles
8 customer master )ile
8 accounts receiva,le master )ile 8 merchandise inventory master
)ile
3 Transaction and Open
ocument 9iles
8 sales order transaction )ile
3 open sales order transaction )ile
8 sales invoice transaction )ile 8 cash receipts transaction )ile
• Other Files
– shipping and price data reference le
– credit reference le (may not be needed)
– salesperson le (may be a master le)
– Sales history le
– cash receipts history le – accounts receivable
7anual %ales Order Processin*
3 e*ins 1ith a customer placin* an order
8 The sales department captures the essential
details on a sales order )orm.
3 The transaction is authori:ed ,y o,tainin*
credit approval ,y the credit department.
3 %ales in)ormation is released to6
8 illin*
8 'arehouse ;stoc+ release or pic+in* tic+et<
8 %hippin* ;pac+in* slip and shippin* notice<
3 The merchandise is pic+ed )rom the 'arehouse and
sent to %hippin*.
8 %toc+ records are ad-usted.
3 The merchandise( pac+in* slip( and ,ill o) ladin* are
prepared ,y %hippin* and sent to the customer.
8 %hippin* reconciles the merchandise received )rom the 'arehouse 1ith the sales in)ormation on the pac+in* slip.
3 %hippin* in)ormation is sent to illin*. illin* compiles
and reconciles the relevant )acts and issues an invoice
to the customer and updates the sales -ournal.
In)ormation is trans)erred to6
3 A/R records the in)ormation in the customer=s
account in the accounts receiva,le su,sidiary
led*er.
3 Inventory Control ad-usts the inventory
su,sidiary led*er.
3 illin*( A/R( and Inventory Control su,mits
summary in)ormation to the eneral >ed*er
dept.( 1hich then reconciles this data and
%ales Return Journal 0ntry
/> posts the )ollo1in* to control accounts6
Inventory—Control
DR
Sales Returns and Allowances
DR
Cost of Goods Sold
CR
7anual Cash Receipts Processes
3 Customer chec+s and remittance advices are
received in the 7ail Room.
8 A mail room cler+ prepares a cash prelist and sends the prelist and the chec+s to Cash Receipts.
8 The cash prelist is also sent to A/R and the Controller.
3 Cash Receipts6
8 veri)ies the accuracy and completeness o) the chec+s 8 updates the cash receipts -ournal
3 A/R posts )rom the remittance advices to the
accounts receiva,le su,sidiary led*er.
8 Periodically( a summary o) the postin*s is sent to
/>.
3 /> department6
8 reconciles the -ournal voucher )rom Cash Receipts
1ith the summaries )rom A/R
8 updates the *eneral led*er control accounts
3 The Controller reconciles the ,an+ accounts.
Authori:ation Controls
3 Proper authori:ation o) transactions ;documentation<
should occur so that only valid transactions *et processed. 3 'ithin the revenue cycle( authori:ation should ta+e place
1hen6
8 a sale is made on credit ;authori:ation< 8 a cash re)und is re?uested ;authori:ation<
8 postin* a cash payment received to a customer=s account ;cash pre&list<
%e*re*ation o) 9unctions
Three Rules
@. Transaction authori:ation should ,e
separate )rom transaction processin*.
". Asset custody should ,e separate )rom
asset record&+eepin*.
. The or*ani:ation should ,e so structured
that the perpetration o) a )raud re?uires
collusion ,et1een t1o or more
%e*re*ation o) 9unctions
3 Sales Order Processing
8 credit authori:ation separate )rom %O processin* 8 inventory control separate )rom 1arehouse
8 accounts receiva,le su,&led*er separate )rom *eneral led*er control account
3 Cash Receipts Processing
8 cash receipts separate )rom accountin* records
%upervision
3 O)ten used 1hen una,le to enact
appropriate se*re*ation o) duties.
3 %upervision o) employees serves as a
deterrent to dishonest acts and is
Accountin* Records
3 'ith a properly maintained audit trail( it is
possi,le to trac+ transactions throu*h the
systems and to )ind 1here and 1hen errors 1ere
made6
8 pre&num,ered source documents 8 special -ournals
8 su,sidiary led*ers 8 *eneral led*er
Access Controls
3 Access to assets and in)ormation
;accountin* records< should ,e limited.
3 'ithin the revenue cycle( the assets to
protect are cash and inventories and
access to records such as the accounts
receivable subsidiary ledger and cash
ournal should ,e restricted.
Independent eri)ication
3 Physical procedures as 1ell as record&+eepin* should ,e independently revie1ed at various points in the system to chec+ )or accuracy and completeness6
8 shippin* veri)ies the *oods sent )rom the 1arehouse are correct in type and ?uantity
8 1arehouse reconciles the stoc+ release document ;pic+in* slip< and pac+in* slip
8 ,illin* reconciles the shippin* notice 1ith the sales invoice
Automatin* the Revenue Cycle
3 Authori:ations and data access can ,e per)ormed
throu*h computer screens.
3 There is a decrease in the amount o) paper.
3 The manual -ournals and led*ers are chan*ed to
dis+ or tape transaction and master )iles.
3 Input is still typically )rom a hard copy document
and *oes throu*h one or more computeri:ed
processes.
3 Processes store data in electronic )iles ;the tape or
dis+< or prepare data in the )orm o) a hardcopy
Automatin* the Revenue Cycle
3 Revenue cycle pro*rams can include6 8 )ormatted screens )or collectin* data 8 edit chec+s on the data entered
8 instructions )or processin* and storin* the data 8 security procedures ;pass1ords or user Is< 8 steps )or *eneratin* and displayin* output
3 To understand )iles( you must consider the record desi*n and layout.
3 The documents and the )iles used as input sources must contain the data necessary to *enerate the output reports.
Computer&ased Accountin* %ystems
3 CA% technolo*y can ,e vie1ed as a
continuum 1ith t1o eBtremes6
8 automation & use technolo*y to
improve e))iciency and e))ectiveness
8 reengineering 8 use technolo*y to
restructure ,usiness processes and )irm
or*ani:ation
Reen*ineerin* %ales Order Processin*
sin* Real&Time Technolo*y
3 7anual procedures and physical documents are
replaced ,y interactive computer terminals.
3 Real time input and output occurs( 1ith some master
)iles still ,ein* updated usin* ,atches.
8 Real-time & entry o) customer order( printout o) stoc+
release( pac+in* slip and ,ill o) ladin*D update o)
credit )ile( inventory )ile( and open sales orders )ile
8 Batch & printout o) invoice( update o) closed sales
Advanta*es o) Real&Time
Processin*
3 %hortens the cash cycle o) the )irm ,y
reducin* the time ,et1een the order date
and ,illin* date
3 etter inventory mana*ement 1hich can lead
to a competitive advanta*e
3 9e1er clerical errors( reducin* incorrect
items ,ein* shipped and ,ill discrepancies
3 Reduces the amount o) eBpensive paper
Reen*ineered Cash Receipts
3 The mail room is a )re?uent tar*et )or reen*ineerin*.
3 Companies send their customers preprinted
envelopes and remittance advices.
3 pon receipt( these envelopes are scanned to
provides a control procedure a*ainst the)t.
3 7achines are open the envelopes( scan remittance
advices and chec+s( and separate the chec+s.
3 Arti)icial intelli*ence may ,e used to read hand1ritin*(
such as remittance amounts and si*natures.
Point&o)&%ale %ystems
3 Point o) sale systems are used eBtensively in
retail esta,lishments.
8 Customers pic! the inventory from the shelves and
ta!e them to a cashier .
3 The cler+ scans the universal product code
;PC<. The PO% system is connected to an
inventory )ile( 1here the price and description are
retrieved.
Point&o)&%ale %ystems
3 The system computes the amount due. Payment is
either cash( chec+( AT7 or credit card in most cases.
8 Eo accounts receiva,les
3 I) chec+s( AT7 or credit cards are used( an on&line
lin+ to receive approval is necessary.
3 At the end o) the day or a cashier=s shi)t( the money
and receipts in the dra1er are reconciled to the
internal cash re*ister tape or a printout )rom the
computer=s data,ase.
Reen*ineerin* sin* 0I
3 0I helps to eBpedite transactions.
3 The customer=s computer6
8 determines that inventory is needed
8 selects a supplier 1ith 1hom the ,usiness has
a )ormal ,usiness a*reement
8 dials the supplier=s computer and places the
order
3 The eBchan*e is completely automated.
EDI System
Purchases %ystem 0I Translation %o)t1are 0I Translation %o)t1are Communications %o)t1are Communications %o)t1are Other 7ail,oB Company A=s mail,oB Company =s mail,oB %ales Order %ystem Application Software Application Software irect Connection A! Company A Company BReen*ineerin* sin* the
Internet
3 Typically( no )ormal ,usiness a*reements
eBist as they do in 0I.
3 7ost orders are made 1ith credit cards.
3 7ainly done 1ith e&mail systems( and thus
a turnaround time is necessary
8 Intelli*ent a*ents are needed to eliminate this
time la*.
CA% Control Considerations
3 Authori:ation & in real&time systems(
authori:ations are automated
8 Pro*rammed decision rules must ,e closely
monitored.
3 %e*re*ation o) 9unctions & consolidation
o) tas+s ,y the computer is common
8 Protect the computer pro*rams
8 Codin*( processin*( and maintenance should
,e separated.
3 %upervision & in PO% systems( the cash
re*ister=s internal tape or data,ase is an
added )orm o) supervision
3 Access Control & ma*netic records are
vulnera,le to ,oth authori:ed and
unauthori:ed eBposure and should ,e
protected
8 7ust have limited )ile accessi,ility
8 7ust sa)e*uard and monitor computer pro*rams
3 Accounting Records & rest on relia,ility and
security o) stored di*itali:ed data
8 Accountants should ,e s+eptical a,out the accuracy o) hard© printouts.
8 Bac"ups & the system needs to ensure that ,ac+ups o) all )iles are continuously +ept
3 Independent erification 8 consolidatin*
accountin* tas+s under one computer pro*ram
can remove traditional independent veri)ication
controls. To counter this pro,lem6
8 per)orm ,atch control ,alancin* a)ter each run
8 produce mana*ement reports and summaries )or end
PC&ased Accountin* %ystems
3 sed ,y small )irms and some lar*e decentrali:ed )irms
3 Allo1 one or )e1 individuals to per)orm entire accountin* )unction
3 7ost systems are divided into modules controlled ,y a menu&driven pro*ram6
8 *eneral led*er 8 inventory control 8 payroll
8 cash dis,ursements
8 purchases and accounts paya,le 8 cash receipts