Accounting Information and Controls
sales event data store
contains invoice (sales) records. This is a sales journal in a manual process.
shipping
Outgoing shipment of parts, components, and products. Includes packaging, marking, weighing, and loading for shipment.
Independent shipping authorization
Packing slip establishes, for the shipping personnel, that someone other than the warehouse personnel authorized the shipment.
remittance advice (RA)
A business document used by the payer to notify the payee of the items being paid. Remittance is validated by comparing the payment to the RA. Mismatches are rejected for later processing.
ACH
A processing system for the interbank clearing of electronic payments. Transfers funds from an account in bank A to an account in bank B.
Balance-forward system
AR records consist of a customer's balance (previous balance plus current account activity), like a credit card bill Each month unpaid current balances are rolled into the account balance. Customers pay from periodic statements, rather than individual invoices, and payments are posted to the account balance.
Step 5 in billing the customer
Accounting records are updated: The invoice is added to the accounts receivable master data and the sales transaction data. Notifies G/L process that a sale occurred (Journal voucher).
Step 2 in Managing Customer Accounts
Adjustments are needed for returns, allowances, partial shipments, errors, uncollectibles, and bad debt write-offs. In the B2B world, returns require a request for a return material authorization (RMA) number. The RMA number allows the seller to receive the goods back into inventory (identify the shipment). Generally need to consult AR master data to validate return (ensure the goods were sold in the first place) A credit memo is prepared and sent to the customer as evidence that the process has completed. The AR master data is updated to reflect the return. A journal voucher updates sales returns/allowances, and AR.
Order Goof/Sevices
After vendor selection, the buyer prepares a purchase order (PO)—a request for the purchase of goods or services.Contains data regarding needed quantities, expected unit prices, and required terms.
Warehouse vs shipping
As a practical matter, shipping employees are trained to package goods for shipping and prepare documents for carriers, so more efficient and effective to separate warehouse from shipping
Independent customer master data maintenance:
Assumes a segregation of duties between personnel who create the customer record (authorize sales) and the personnel who create the sales order (execute sales).
picking ticket
Authorizes the warehouse to "pick" the goods from the shelf and send them to shipping. Identifies goods to be picked and (usually) warehouse location.
Sub Processes of the B/AR/CR
Billing Managing customer accounts Receiving payment
Step 2 in billing the customer
Billing can validate items in the sale by comparing the original sales order to the shipping notice, or this may be automated
Step 6 of shipping
Billing is notified so they can release the customer billing
Three Components of the B/AR/C
Billing the customer for goods and/or services Managing receivables and inquiries Cash collection (and recording)
Step 4 of shipping
Goods are packed with the packing slip attached/inside the box
Step 5 of Picking and Packing
Computer prints packing slip and bill of lading which are delivered to the carrier with the goods.
Sales Order Master Data
Contains sales order data for all orders.
Accounts Receivable adjustments event data store
Created as sales returns, bad debit write-offs, estimated doubtful accounts, and other adjustments are processed.
Cash receipts event data store
Created when customer payments are recorded. In a manual system this is the cash receipts journal.
Methods designed to reduce or eliminate float:( effectiveness goal)
Credit Card Debit Card
Step 1 in Managing the Customer Accounts
Customer accounts can run into a number of trouble spots: Overdue accounts may become uncollectible Customers may request returns or merchandise allowance Billing/payment errors may need to be corrected
Effectiveness, Efficiency and safeguarding resources
Customer credit check Compare picking ticket to picked goods Independent shipping authorization Compare shipment to sales order and picking ticket
Review file of open sales orders (tickler file):
Detects any shipments that should have taken place. Ensures that all shipments are made in a timely manner.
Effectiveness goals:
Determine credit worthiness, provide timely order acknowledgement, timely shipment
Purchasing Process
Determine requirements Order goods/services Receive goods/services
sales order notification
Document or computer message sent to the billing department to notify them of a pending shipment.
Step 7 of shipping
Sales order master data is marked "shipped"
Accelerating Cash Receipts ( effectiveness goal)
EFT ACH
Operation Process Control Goals
Effectiveness Goals Efficiency Goals Security Goals
Control Goal Effectiveness
Effectiveness is to reduce float and hasten good funds
Compare picking ticket to picked goods
Example of one-for-one checking that ensures the correct goods are picked from the shelf and any errors are detected and corrected in a timely manner.
Compare shipment to sales order and picking ticket
Example of one-for-one checking that ensures the shipment will be authorized/valid and accurate.
Debit Card
Form of payment authorizing the collector to transfer funds electronically from the payer's bank account to the collector's bank account, eliminating float
Lapping
Fraud by which funds being paid by one customer are stolen, and the theft is covered up by applying funds from another customer to the first customer's account
Warehouse vs. Shipping employees
If combined one employee could pick goods (remove goods from warehouse) and ship in error or to a fraudulent customer without detection
turnaround document
If the RA is the stub from a statement or invoice, it can processed more efficiently and accurately.
Recommended Control plans
Immediately endorse incoming checks Immediately separate checks and remittance advices Lockbox Turnaround documents Reconcile bank account regularly Monitor open accounts receivable
Recommended Control Plans
Independent customer master data maintenance: Review file of open sales orders (tickler file):
Information process control plans
Input Validity Goal Input Completeness Goal Input completeness and input accuracy goals Update completeness and update accuracy
Pre-billing system
Invoice prepared upon acceptance of customer order. Little or no delay between receiving order and shipping. No separate documents: copies of invoices serve as sales order, picking ticket, and packing slip. Inventory control system must be very reliable.
post-billing system
Invoices are prepared after goods are shipped and the shipping notice has been compared to sales order notice.
Credit Card
Method of payment where a third party (i.e., bank) assumes, for a fee, the risk of customer nonpayment
Where does completing the picking ticket happen?
Normally takes place in the warehouse
Step 2 of shipping
Notice of the shipment is sent to billing and updates are made to the sales order and inventory master data
Customer Credit Check
Performed to ensure that an organization does not overextend credit to a customer
Step 2 of picking items
Personnel complete the picking ticket and forward it, along with the goods, to the shipping department.
Step 1 of picking items
Personnel receive a picking ticket, locate and "pick" the goods, and match them with the picking ticket.
Sales Order Processing- Dissemination
Picking Ticket Customer Acknowledgement Sales order notification
Input completeness and input accuracy goals
Populate input forms with existing master data and use preformatted screens for data entry. Enter data close to source. Confirm acceptance.
Input Validity Goal
Populate order and shipping notice with master data and compare order with authorized credit limits
Types of Billing Systems
Post billing system Pre billing system
Lockbox (Effectiveness Goal)
Postal address maintained by a third party bank—used solely for the purpose of collecting checks. Located near customers so that checks may be captured and deposited quickly.
(Order entry sales process) First four of order-to-cash
Presales activities Sales order processing Pick and pack shipping
Security goals
Prevent theft of merchandise inventory and protect sensitive customer master da
Step 1 in billing the customer
Process begins when the billing function receives the shipping notice
inventory master data
Record of each item that is stocked or regularly ordered from a vendor as well as quantities on hand and cost information.
Customer Master Data
Record of every authorized, regular customer including contact information, credit terms, tax status, tolerances for invoice discrepancies, etc.
Accounts Receivable Master Data
Repository of all unpaid invoices issued and awaiting final disposition.
Marketing Data
Repository of sales-oriented data from presales or sales activities often managed by CRM software
Risk in electronic payments
Risk of misdirected payment Risk of fraudulent payee Risk of account takeover fraud and invalid payments Risk of stolen credit card information Risk of identity theft
Detective control
Rotation of duties and forced vacations
Preventive control
Segregation of duties (custody of cash and recording cash)
Unknown situations during pickings
Situations occur when pulled goods are not indicated on the picking ticket or insufficient goods exist. Discrepancies can be discovered/corrected in shipping.
customer acknowledgement
Sent to notify customer of order's acceptance and expected shipment date.
Step 1 of shipping
Ship clerk ensures that the goods and sales data agree
Where does shipping happen?
Shipping department
Shipping employees- shipping
Shipping employees execute the shipping
B/AR/C Process
completes the order-to-cash process by billing, maintaining receivables and collecting cash
Step 4 in billing the customer
Specific items, sales prices, quantities (line items) are recorded in the sales event data
Economic Order Quantity (EOQ)
Technique of analyzing all incremental costs associated with acquiring and carrying particular items of inventory.
Step 3 in billing the customer
The bill/invoice is prepared including shipping, taxes (if any), current prices, credit terms, etc. and is forwarded to the customer
Summary of OE/S Process
The OE/S process is a major player in a successful business May be used for competitive advantage—Uber, Amazon; hotels, air travel, food The retail OE/S process is being automated, often with apps; if you don't have an app or web presence, customers won't know you exist As the business process evolves, so also must the specific internal control procedures necessary to maintain the security and integrity of the process
Step 2 in Receiving Payments
The RA is used to update the accounts receivable master data to reflect the customer's payment This is a controller function, typically performed by the payment applications section of the accounts receivable department. Cashier (or bank in the case of a lockbox or other external collection) records the collection in the cash receipts events data, and notifies the general ledger process of the amount of cash deposited.
Step 5 of shipping
The bill of lading is given to carrier
Update completeness and update accuracy
The input controls take care of sales order and inventory Masterfile update completeness and accuracy
Receiving Payments step 1
The payment and remittance advice trigger the receive payment process.
Float
Time between customer payment and the availability of good funds (funds on deposit and available for use
Sales order Processing-credit approval
Upon a successful credit approval, next process performs the following activities simultaneously Updates the inventory master data to allocate the quantity ordered to the sales order (or reduce inventory balance). Updates the sales order master data to indicate that a completed sales order has been created. Disseminates the sales order. No accounting events, yet.
Efficiency goals:
Use people and computers efficiently by prepopulating screens with master data and entering information close to the source
Remote deposit capture
Uses scanners to capture check images and to use those images, instead of a paper check, to make a deposit to an account.
Warehouse vs. Shipping employees- Warehouse
Warehouse employees who pick goods have custody of assets Shipping employees execute the shipping
Step 3 of Picking and Packing
When all goods are picked, they are moved to the shipping function for final packaging and delivery to the carrier.
Managing Customer Accounts AR Write Offs
Write offs are triggered by periodic review of AR aging which results in two possible adjustments: The recurring (usually annual unless reporting is done quarterly) adjusting entry for estimated bad debts. The write-off of "definitely worthless" customer accounts. Most companies go through a structured collection process before writing off an account Sending bills/account statements is generally a monthly activity and may be done in cycles to spread the work over the month.
Immediately separate checks and remittance advices
accelerate deposits, reduce opportunities to divert cash and prevent lapping.
sales order processing
approval, recording, disseminating Customer enters purchase online Computer automatic PO Manual PO Vendor managed process- being min/max Customer contacts a call center customer sales rep System may update customer relationship management Still no accounting Approved customers are entered in the customer master file Preformatted screens provide prompts and masks so that data is accurate and complete
monitor open accounts receivable
by regularly reviewing and following-up on accounts receivable aging reports to ensure that payments are received in a timely manner.
Input completeness goal:
confirm acceptance of sales order and shipping notice
EFT
ePayments: Generic term used that describes a variety of electronic transfers between entities. Includes wire transfers, credit and debit card processing, mobile payments, and payments made via the ACH Network.
Reconcile bank account regularly
ensure all valid deposits were recorded correctly. Should be performed by someone other than those that handle cash.
Fraud Risk
involve creating and recording fraudulent invoices inflating revenues (not presented to the customer for payment)
open-item system
is used when invoices are prepared and sent for each sale. Customer makes payments for specific invoices when due. AR master data consists of individual open invoices against which payments and adjustments are applied. On a periodic customer statement of account, invoices are listed along with payment details. Each open invoice is aged individually. This is what we used for the SUA
Discrepancies with operating and information
might indicate an unauthorized/invalid or duplicate shipment (no open sales order) or an inaccurate shipment (ship quantities do not agree with picking ticket or sales order).
Immediately endorse incoming checks
protect payments from being fraudulently misappropriated. Endorsement should indicate check is for deposit only.
presale activity
quotes,proposals, bids Answers info request make proposals price negotiations product specifications NO accounting is done here
EBPP
systems that use a website to post customers' bills and to receive their electronic payments. Currently used in healthcare, insurance and utilities and coming soon to every bill you pay, including rent (landlords don't want to handle cash anymore, so pay on the website)
Mobile person-to-person money transfers (effectiveness goals)
use mobile phones and other devices to make payments between individuals
Step 6 of Picking and Packing
¡Shipping personnel record the shipment which triggers updates to the sales order master data (sale completed), inventory master data (inventory reduced), and general ledger master data (recognize revenue).
