Revenue Cycle

Basic technology
cash receipts
system
Mail room
Isa room in which incoming
and outgoing mail is processed
and sorted
Cash receipts
The cashier records the checks
in the cash receipts journal and
promptly sends them to the
bank, accompanied by two
copies of the deposit slip.
Accounts receivable

The AR department uses the

remittance advice to reduce
the customers account
balances consistent with the
amount paid.
General ledger department

The general ledger clerk

reconciles the information
and posts to the control
accounts.
Controller’s office
Thecontroller’s office periodically
performs a bank reconciliation by
comparing deposit slips returned
from the bank, account summaries
used to post to the accounts and
journal vouchers.
Advanced technology revenue
cycle
Allow system designers to
integrate accounting and other
business functions through a
common information system.
Integrated sales order
processing system
 Sales procedures
1. The system accesses the inventory subsidiary file and
checks the availability of the inventory items requested.
2. If credit approved, the system adds a record to the
sales invoice file, transmit a digital stock release
document to the warehouse and sends a digital copy of
the packing slip to the shipping department.
3. The warehouse clerks terminal immediately produces
a hard copy print out of the electronically transmitted
stock release document.
4. The shipping department performs its usual task of
reconciling the goods with the packing slip, preparing
them for shipment, and selecting a carrier.
5. Upon receipt of the shipping notice, the system
automatically performs the following accounting tasks:
Updates the customer’s credit history record to
reflect the sale.
Reduces the quantity on hand field in the inventory
subsidiary records by the quantities of items sold to
present an accurate and current picture of inventory
on hand and available for sale.
 Determines if the inventory quantity on hand has fallen below
the reorder point and if so, adds a record to the purchase
requisition file.
 Places an “on-order” flag in the inventory record as
previously described.
 Insertsa shipped date in sales invoice record to indicate the
order’s status.
 Updates the general ledger accounts.
 Finally,the system produces and distributes various
management reports, such as sales summaries, inventory
status reports and general ledger change reports.
Automatic Data Processing Procedures

When the cash receipts data entry is complete, the

system automatically performs the following task:
Closes the sales invoices that are covered by the
customer checks by placing the customer check
number and payment date in the invoice record.
Post to the GL accounts
Prepare and distribute various management reports.
 Revenue cycle risk and internal controls
Sellingto un-creditworthy customers
Shipping customers the wrong items or incorrect
quantities.
Inaccurately recording sales and cash receipts
transactions in journals and accounts.
Misappropriation of cash receipts and inventory.
Unauthorized access to accounting records and
confidential reports.
 Two major categories of internal control:

Physical controls
IT controls
 Summary of Revenue Cycle Risks And Controls

Risk Physical control IT control

Sales to un-creditworthy
customers Transaction Authorization- credit check  Automated credit check

  Segregation of duties- separate credit and sales functions  

 Scanner technology
 Shipping wrong items/ Automated inventory ordering
quantities Independent verification- shipping department reconciles shipment with order 

Inaccurate record keeping  Transaction authorization-remittance list  Input data edits

 Automated posting to accounts

  Accounting records- audit trail documents, journals, accounts and files
 File back up
  Independent verification- shipping, billing and GL 

 Multilevel security to achieve

 Misappropriation of assets Transaction authorization- remittance list segregation of duties

  Supervision- mail room  

Access control- warehouse security, daily deposits of cash, night deposit box, lock
  safes   
 Password control
Access control- source documents, journals, ledgers Multilevel security to prevent
 Unauthorized access to data  Segregation of duties- sub ledgers, GL, asset custody unauthorized access to data.
Transaction authorization

The objective of this is to ensure

that only valid transactions are
processed. The authorization
process in the sales function is a
credit check of the customer.
 Segregation of duties:
The objective of this is to separate
transaction authorization from transaction
processing.
To provide independence to the credit
authorization process, the credit function
should be organizationally and physically
segregated from the sales function.
 Independent verification:
The shipping function verifies that the
goods sent from the warehouse are
correct in type and quantity. The stock
release document and the packing slip
should be reconciled before the goods
are sent to the customer.
Accounting records
Described how a firm’s source
documents, journals and ledgers form
an audit trail that allows independent
auditors to trace transactions through
various stages of processing.
Is an important operational feature of
well designed accounting systems.
 supervision

The mail room is a point of risk in most cash

receipts systems. The individual who opens the
mail has access both to cash and to the
remittance advice. A dishonest employee could
use this opportunity to steal the check, cash it,
and destroy the remittance advice, thus leaving
no evidence of the transaction.
 Access controls
The ff. physical access controls should be in place to help
prevent and detect unauthorized access to the firm’s asset:
 Warehouse security, such as fences, alarms, and guards.
 Depositing cash daily in the bank
 Using a safe or night deposit box for cash
 Locking
cash drawers and safes in the cash receipts
department.
It controls
Automated credit checking:

The system logic makes the

decision to grant or deny
credit based on the customer’s
credit history contained in the
credit history file.
Scanner TECHNOLOGY
Product code scanners in the
warehouse and shipping
department will reduce the risk
of human error in picking and
shipping incorrect products.
Automated inventory ordering

When an inventory record is updated

to reflect a sale, the computer logic
should check to determine if the
reduction in inventory drops the
inventory quantity on hand to a point
below the inventory reorder point.
 Input data edits:
The ff. input controls or edits are programed into the system
to minimize the risk from data input errors:
 Checks for missing data, numeric alphabetic data, and valid
data values, would reduce the risk of undetected data entry
errors by clerks in the account receivable, inventory control,
billing and cash receipts department.
 Checkdigit edits provide control over accessing the wrong
accounts when posting customer sales and cash receipts
transaction. It reduce the risk of such errors in both basic and
advance technology systems.
 Automated posting to subsidiary and GL
accounts

The record keeping functions,

which in the basic technology
system were performed manually
by accounting clerks, are
automated in the advanced
technology system.
File back up
Reduce the risk of data loss.
Multi level security
Employs program techniques that
permit simultaneous access to a central
system by many users with different
access privileges but, prevents them
from obtaining information for which
they lack authorization.
Password control
Digital accounting records are
vulnerable to authorized and
undetected access. This may
take thee form of an attempt to
fraud, a destructive act by
disgruntled employee, or an
Point of sale system

Daily procedures
The checkout clerk scans the Universal Product Code label on the items being purchased with a laser light
scanner.
 When all the UPC’s are scanned, the system automatically calculate taxes, discounts and the total for the
transaction.
 The clerk enters the transaction into the POS system via the register’s keypad and a record of the sale is
added to the sales journal in real time.
 At the end of the clerk’s shift, a supervisor unlocks the register and retrieves the internal tape.
 The clerk access the system and records cash received and cash short/over in the cash receipt journal.
 The clerk files the credit card vouchers and secures the cash in the safe for deposit in the bank at the end of
the day.
End of day procedures

At the end of the day, the cash receipts clerk

prepares a three part deposit slip for the
total amount of the cash received.
Finally, a batch program summarizes the
sales and cash receipts journals, prepare a
journal voucher and posts to the general
ledger accounts.
 Dr. Cr.

Cash xxx
Cash over/short xxx
Accounts receivable(credit card) xxx
Cost of goods sold xxx
Sales xxx
inventory xxx
Point of sale control issue
Authorization
Supervision
Accesscontrol
Accounting records
Independent verification
Reengineering using EDI
Reengineering using the internet
authorization
In POS system, the authorization
process involves validating credit
card charges and establishing
that the customer is the valid
user of the card
supervision
ThePOS environment places both
inventory and cash at risk.
Customers have direct access to
inventory and the crime of
shoplifting is of great concern to
management.
Access control
Because POS systems involve
cash transactions, the
organization must restrict
access to cash assets.
Accounting records
In addition to the usual
revenue cycle records, the
internal cash register’s tape
is an important accounting
document.
 Independent verification
When the clerk whose shift has ended takes
the cash drawer to the cash room, its
contents are reconciled against the internal
register tape. The cash drawer should
contain cash and credit card vouchers equal
to the amount recorded on the tape.
Reengineering using EDI

EDI
technology was devised to
expedite routine transactions
between manufacturers and
wholesalers and between
wholesalers and retailers.
Reengineering using internet

Thousands of organizations worldwide

have home pages on the internet to
promote their products and solicit sales.
By visiting the seller’s home page, a
potential customer can access the
seller’s product list, scan the product
line and place an order.
Thank you for listening 
Reported by: Aira Palabon