Chapter 4 - Revenue Cycle

Picketing ticket

Identifies the items of inventory that must be located and picked from the warehouse shelves.

3 processes that make up the revenue cycle

Sales order procedures Sales return procedures Cash receipts procedures

BASIC TECHNOLOGY CASH RECEIPTS SYSTEM

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Cash Receipts - RECONCILE CASH RECEIPTS AND DEPOSITS

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Cash Receipts - UPDATE ACCOUNTS RECEIVABLE RECORDS

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Cash Receipts - UPDATE GENERAL LEDGER

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Cash Receipts Procedures

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Sales Order - RECEIVE ORDER

> Receipt of a customer (w/ quantity and type of goods) > Turn it into formal sales order (name, address, and description of the items sold) > Place copy in customer order file

SALES ORDER - AR, Inventory Control, and GL Department

AR and inventory control clerks update their respective subsidiary ledgers (using billing info) Inventory control system automatically checks to see if the quantity on hand has fallen below the reorder point. If yes: the inventory record is flagged "on order" to prevent it from being ordered again before the inventory is replaced through the purchases process. Example of setting a flag: Quantity to be ordered is placed in the on-order flag field. A record is added to the purchase requisition file > triggers the purchases procedures. AR and inventory control clerks prepare hard-copy journal vouchers and account summaries, which they send to the GL department for reconciliation and posting to the GL accounts.

Sales Order - UPDATE ACCOUNTS RECEIVABLE RECORDS

AR subsidiary ledger updated from info provided by the sales order (ledger copy)

MULTILEVEL SECURITY

Access control list (ACL) Role-based access control (RBAC)

Access control list (ACL)

Assigns privileges (right to perform computer program procedures and access data files) directly to the individual.

CASH RECEIPTS - Controller's office

Bank reconciliation by comparing deposit slips returned from the bank, account summaries used to post to the accounts, and journal vouchers.

Sales Order - BILL CUSTOMER

Bill-customer function receives the sales order (invoice copy) from the receive order task. Placed in an S.O. pending file until receipt of the shipping notice, which describes the products that were actually shipped to the customer. Items shipped are reconciled with those ordered (unit prices, taxes, and freight charges are added to the invoice copy of the sales order). Completed sales invoice is the customer's bill, which formally depicts the charges to the customer.

CASH RECEIPTS - Cash Receipts

Checks recorded in cash receipts journal and sent them to the bank, accompanied by two copies of the deposit slip. Journal voucher prepared and sent to GL department

Role-based access control (RBAC)

Creating standard tasks (e.g., cash receipts processing) called roles. Each role is assigned access privileges to specific data and procedures (ie. right to add a record to the cash receipts journal). Once a role is created, individuals are assigned to it. Individuals may be easily added or deleted from roles as their job responsibilities change.

SALES ORDER - Credit Department Approval

Credit department is segregated from the sales department. Verifies the customer's credit worthiness New customers: Access an online credit bureau

Sales Return - APPROVE CREDIT MEMO

Credit manager evaluates the return and makes a judgment & returns it to the sales department.

Sales Return - PREPARE CREDIT MEMO

Credit memo: authorization for the customer to receive credit for the merchandise returned

CASH RECEIPTS - Mail Room

Customer checks + remittance advices arrive Checks + remittance advices reconciled, checks endorsed, prepares remittance list with remittance advices and checks Sends the checks and a copy of the remittance list to the cashier in the cash receipts department. Remittance advices and a copy of the remittance list are sent to the AR department.

EDI poses unique control problems for organizations

Ensuring that, in the absence of explicit authorization, only valid transactions are processed. Trading partner will access the firm's accounting records in a way that is unauthorized by the trading partner agreement.

SALES ORDER - Billing Department

Enters transactions into the sales journal file and distributes stock release and ledger copies of the sales order to the inventory control and AR departments, respectively. Clerk prints out a hard-copy journal voucher reflecting total sales and sends it to GL department.

Sales Order - POST TO GENERAL LEDGER

GL uses the journal vouchers to post to Accounts Receivable Control Cost of Goods Sold Inventory Control Sales

Sales Order - UPDATE INVENTORY RECORDS

Info in stock release document >> Updates inventory subsidiary ledger accounts

Sales Return - UPDATE GENERAL LEDGER

Inventory-Control Sales Returns and Allowances > Cost of Goods Sold > Accounts Receivable-Control

SALES ORDER - The Shipping Department

Order is determined correct — a bill of lading is prepared. Products are packaged and shipped to the customer Records transaction in the shipping log + sends shipping notice + stock release to billing dept. *provides proof that the product has been shipped *trigger document that initiates the billing process.

SALES ORDER - Warehouse Procedures

Receives stock release copy of the sales order > uses this to locate the inventory Inventory items + stock release sent to the shipping department. Warehouse records inventory reduction in the stock records file

Sales Order Procedures

Receiving and processing a customer order Filling the order and shipping products to the customer Billing the customer at the proper time Correctly accounting for the transaction

Sales Return - PREPARE RETURN SLIP

Receiving dept counts, inspects, and prepares a return slip describing the items The goods + copy of the return slip → warehouse to be restocked. Sends the 2nd copy of the return slip to the sales function to prepare a credit memo.

CASH RECEIPTS - General Ledger Dept

Reconciles the information and posts to the control accounts.

Cash Receipts - OPEN MAIL AND PREPARE REMITTANCE LIST

Record each check on remittance list (cash prelist), *Remittance advices: payment date, account number, amount paid, and customer check number

Sales Order - CHECK CREDIT

Sales order (credit copy) sent to the check-credit task for approval Returned approved sales order releases sales order information simultaneously to various tasks.

BASIC TECHNOLOGY SALES ORDER PROCESSING SYSTEM

Sales Department Credit Department Approval Warehouse Procedures The Shipping Department The Billing Department Accounts Receivable, Inventory Control, and General Ledger Departments

Billing Function

Send stock release document to the update inventory records task. Forward ledger copy of the sales order to the update accounts receivable task. Records the sale in the sales journal

Sales Return Procedures

Shipped wrong goods to customer Defective goods Damaged product Buyer refused delivery because the seller shipped the goods too late or they were delayed in transit.

Sales Order - SHIP GOODS

Shipping dept receives the packing slip and shipping notice from the receive order function. Shipping notice forwarded to the billing function: evidence that customer's order was filled and shipped. Physical items reconciled with stock release, packing slip, and shipping notice to verify order is correct. *Ship goods function the last opportunity to detect errors before shipment. The shipping clerk packages goods, attaches the packing slip, completes the shipping notice, and prepares a bill of lading. The bill of lading: formal contract between the seller and the shipping company (carrier) to transport the goods to the customer. Establishes legal ownership/responsibility for assets in transit. Once transferred to the carrier, the shipping clerk records the shipment in the shipping log, forwards the shipping notice and the stock release to the bill-customer function as proof of shipment, and updates the customer order file to reflect the "shipped" status of the transaction

Sales Order - PICK GOODS

Stock release document (picking ticket) forwarded to the pick goods function in the warehouse. Formal authorization for warehouse personnel to release the specified items. Verified stock release document and the goods are sent to the ship goods task. If inventory levels are low: warehouse adjusts the verified stock release to reflect the amount actually going to the customer. Employee prepares a back-order record, which stays on file until the inventories arrive from the supplier. Warehouse adjusts the stock records to reflect the reduction in inventory. *Not the formal accounting records for controlling inventory assets.

Sales Return - UPDATE SALES JOURNAL

Transaction is recorded in the sales journal as a contra entry. Credit memo → inventory control function for posting. @ period end: total sales returns are summarized in a journal voucher and sent to the GL department.

CASH RECEIPTS - AR

Uses the remittance advices to reduce the customers' account balances consistent with the amount paid Prepare summary of changes to account balances, which is sent to the GL department.

Cash Receipts - RECORD AND DEPOSIT CHECKS

Verify the accuracy of checks against the prelist. Record check in the cash receipts journal Prepare bank deposit slip showing amount of the day's receipts Forward with checks to the bank. Bank teller validates deposit slip and returns it to the co. for reconciliation. Summarize journal entries and send a journal voucher to the general ledger function.

REENGINEERING USING EDI

expedite routine transactions between manufacturers and wholesalers, and between wholesalers and retailers. Customer's computer is connected to the seller's computer via a private network or the Internet. When the customer's computer system detects the need to order inventory, it automatically transmits a purchase order (customer order) to the seller. Seller's system receives the customer order and processes it automatically.

SALES ORDER - Sales department

manually records essential details on a sales order >> sent to credit department

Shipping notice

pertinent new facts such as the date of shipment, the items and quantities actually shipped, the name of the carrier, and the freight charges.

Trading partner agreement

strategic business arrangement between buyer and seller Agree to the terms of their relationship. For example, they agree to the selling price, the quantities to be sold, guaranteed delivery times, payment terms, and methods of handling disputes