Chapter 12 The Revenue Cycle Sales to Cash

Chapter 12 The Revenue Cycle: Sales to Cash Collections Dr. Mohamed Mousa 1 -1

Ø The Revenue Cycle: Is a recurring set of business activities and related information processing operations associated with providing goods and services to customers and collecting cash payment for those sales. ØThe importance of the Revenue Cycle: v Provides goods and services to customers v Collects cash in payment for those sales Ø Primary Objective: Provide the right product In the right place At the right time for the right price Dr. Mohamed Mousa 1 -2

1 - Sales order entry The revenue cycle Dr. Mohamed Mousa 2 - Shipping 3 - Billing 4 - Cash collections 1 -3

1 - Sales order entry § Take order § Check and approve credit § Check inventory availability Dr. Mohamed Mousa 1 -4

Sales Order Threats Incomplete/inaccurate orders Invalid orders Uncollectible accounts Stockouts or excess inventory Loss of customers Dr. Mohamed Mousa 1 -5

The most important Sales Order Entry Controls ü ü ü Data entry edit controls. Credit limits Aging of accounts receivable Perpetual inventory control system Periodic physical counts of inventory Sales forecasts and activity reports Dr. Mohamed Mousa 1 -6

2 - Shipping 1. Picking and packing the order 2. Shipping the order Dr. Mohamed Mousa 1 -7

Shipping Threats Picking the wrong items or the wrong quantity Theft of inventory Shipping errors. Dr. Mohamed Mousa 1 -8

The most important Shipping controls üReconciliation of picking lists to sales order details üDocumentation of all inventory transfers. üPeriodic physical counts of inventory and reconciliation to recorded quantities. üReconciliation of shipping documents with sales orders, picking lists, and packing slips. üData entry edit controls. Dr. Mohamed Mousa 1 -9

3 - Billing 1. Invoicing 2. Updating accounts receivable Dr. Mohamed Mousa 1 -10

Billing Threats Failure to bill Billing errors Posting errors in accounts receivable Inaccurate or invalid credit memos Dr. Mohamed Mousa 1 -11

The most important Billing Controls Ø Separation of billing and shipping functions Ø Periodic reconciliation of invoices with sales orders, picking tickets, and shipping documents. Ø Restriction of access to pricing master data Ø Data entry edit controls Ø Reconciliation of batch totals Ø Mailing of monthly statements to customers Ø Reconciliation of subsidiary accounts to general ledger Dr. Mohamed Mousa 1 -12

Cash Collections Threats 1. Theft of cash 2. Cash flow problems Dr. Mohamed Mousa 1 -13

Cash Collection Controls ü Cash flow budgets ü Discounts for prompt payment by customers ü Daily deposit of all cash receipts ü Prompt, restrictive endorsement of all customer checks ü Regular reconciliation of bank account with recorded amounts by someone independent of cash collections procedures ü Separation of cash handling function from accounts receivable and credit functions Dr. Mohamed Mousa 1 -14

The revenue cycle (Credit sales): Dr. Mohamed Mousa 1 -15

The revenue cycle (Cash sales): Dr. Mohamed Mousa 1 -16