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the revenue cycle
aka revenue process consists of two sub-processes (sales and cash receipts)
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5 key documents and records involved in sales process
- customer order
- bill of lading
- Sales Invoice
- Sales Transaction Files and A/R Master File
- Master File (general ledger)
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customer order
starting point for the process is order from a customer, received by the company's sales department
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once receive an order the sales department prepares
a form called a sales order
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is the sale is "on account (not a cash or credit-card sale) then the company's
credit manager (credit department) will evaluate the customer's credit balance and history prior to shipment and either approve or reject the sale
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when sales order is approved, then
- one copy of sales order is sent to the billing department
- a second copy is sent to the WAREHOUSE (where goods will be prepared for shipping)
- lastly the goods and copy of the sales order are sent to the SHIPPING department
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controls that are in step 1 (customer order)
- authorization (check credit before sale approved)
- segregation of duties (different departments)
- Adequate documents and records (sales orders are pre-numbered)
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bill of lading
it's the "shipping document" which is a contract between the company (seller) and the freight carrier (UPS)
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after the goods have been shipped a copy of bill of lading is sent to the
billing department
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internal controls in bill of lading (5 of them)
- -Authorization (inventory is released from warehouse to shipping department only after an approved sales order is received)
- -Segregation of duties (custody of assets- merchandise- is segregated from recording of sales transactions (acct dept)
- -Adequate documents and records (bill of lading is pre-numbered)
- -Access Controls (access to inventory is limited- warehouse has fence, locks, alarms, guards)
- -Independent Verification (shipping dept verifies goods sent to them from warehouse match goods ordered on the sales order)
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step 3: sales invoice
"bill" sent to the customer, indicating the amount owed terms of the sale, payment due date, ect.
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sales invoice is prepared by
billing department after receiving a copy of the sales order (from the sales dept) and a copy of bill of lading (shipping dept)
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a copy of sales invoice is sent to the
A/R dept where they sale is recorded in the sales journal
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internal controls in sales invoice (step 3)- 2 internal
- -Adequate documents/records (invoices are pre-numbered)
- -Independent Verification (before preparing the sales invoice, billing dept verifies the info on the sales matches info on bill of lading
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step 4: sales transaction file (sales journal) and A/R Master file (A/R sub ledger)
in computerized acct sys, sales transactions are entered into the sales transaction file which i used to update data in the A/R Master File
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Internal controls in step 4 (sales tran file) - 3
- -Segregation of Duties (record-keeping function, the A/R separate from G/L)
- -Access Controls (locks, passwords)
- -Independent Verification (A/R sub ledger is reconciled with the A/R account in the G/L)
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in manual acct systems, sales transactions are recorded by the company's
A/R dept in the sales journal and are posed to the A/R sub ledger
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Step 5: Master File (General Ledger)
periodically, A/R dept sends totals for daily (weekly) sales transactions to the G/L dept for posting to the A/R and sales accts in the Master file (G/L)
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Internal controls for step 5 (master file) - 2
- -Segregation of Duties (same as step 4)
- -Access Controls (locks and passwords)
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automation vs reengineering
- -Automation: simple changes of manual tasks (i.e. improve accuracy and speed)
- -Reengineering: rethinking how the sales process is performed in order to find new and better procedures that improve performance and reduce costs
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3 functions performed manually
- 1. receiving customer order
- 2. checking customer credit worthiness
- 3. warehousing and shipping
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3 functions used by a computer to perform
- the billing
- accounts receivable
- general ledger functions
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