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The Revenue Cycle: Sales and Cash Collections

The Revenue Cycle: Sales and Cash Collections. 11. Chapter. UAA – ACCT 316 Accounting Information Systems Dr. Fred Barbee. A Brief Overview of Transaction Cycles. A Transaction Cycle is . . .

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The Revenue Cycle: Sales and Cash Collections

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  1. The Revenue Cycle: Sales and Cash Collections 11 Chapter UAA – ACCT 316 Accounting Information Systems Dr. Fred Barbee

  2. A Brief Overview of Transaction Cycles

  3. A Transaction Cycle is . . . . . . A group of related business activities (transactions).

  4. Transaction Cycles for a Manufacturing Firm

  5. Labor Customers Fin. Goods Cash Cash Materials Plant EXPENDITURE CYCLE Subsystems Purchasing & A/P Cash Disbursements Payroll CONVERSION CYCLE Subsystems Production Planning and Control Cost Accounting REVENUE CYCLE Subsystems Sales Order Processing and Cash Receipts Fin. Goods Cash

  6. Transaction Cycles for a Merchandising Firm

  7. Merchandising Shipments Cash Receipts Sale of Merchandise GL & Fin Rpt Cycle PP&E, Investments The Revenue Cycle Purchase of Mdse, & Labor, Etc. Cash Disbursements Merchandise Receipts

  8. Merchandising Shipments The Expenditure Cycle Cash Receipts Sale of Merchandise GL & Fin Rpt Cycle PP&E, Investments Purchase of Mdse, & Labor, Etc. Cash Disbursements Merchandise Receipts

  9. Merchandising Shipments Cash Receipts Sale of Merchandise The Finance Cycle GL & Fin Rpt Cycle PP&E, Investments Purchase of Mdse, & Labor, Etc. Cash Disbursements Merchandise Receipts

  10. GL & Financial Reporting Merchandising Shipments Cash Receipts Sale of Merchandise GL & Fin Rpt Cycle PP&E, Investments Purchase of Mdse, & Labor, Etc. Cash Disbursements Merchandise Receipts

  11. The Revenue Cycle: A Definition

  12. The Revenue Cycle . . . . . . is a recurring set of business activities and related information processing operations associated with providing . . . • Goods/Services to customers; and • Collecting cash in payment for those sales

  13. Merchandising Shipments Cash Receipts Sale of Merchandise GL & Fin Rpt Cycle PP&E, Investments The Revenue Cycle Spans activities from “Sale” to “Receipt of Cash.” Key Transactions: Sales Cash Receipts Purchase of Mdse, & Labor, Etc. Cash Disbursements Merchandise Receipts

  14. The major purpose of the revenue cycle is to facilitate the exchange of products or services with customers for cash.

  15. The Revenue Cycle Business Activities

  16. 1.0 Sales Order Entry

  17. Sales Order Entry • Key Decisions and Information Needs • Inventory Availability • Customer Credit Status

  18. Sales Order Entry • Main Activities • Taking customer orders • Credit Approval • Check inventory availability • Respond to customer inquiries

  19. 2.0 Shipping

  20. Shipping • Pick and Pack the order • Ship the order

  21. 3.0 Billing

  22. Billing • Billing • Maintain Accounts Receivable

  23. 4.0 Cash Collections

  24. The Revenue Cycle: Objectives

  25. Objectives of the Cycle . . . • Record sales orders promptly and accurately. • Verify credit worthiness. • Ship products or perform services. • Bill for products and services in a timely manner.

  26. Objectives of the Cycle . . . • Record and classify cash receipts promptly and accurately. • Post sales and cash receipts to customers’ accounts. • Safeguard products until shipped. • Safeguard cash until deposited.

  27. The Revenue Cycle: Data Input

  28. Sources of Input . . . • Customers • Salespersons • Credit records • Inventory records

  29. Sources of Input . . . • Finished goods warehouse • Suppliers • Shipping department

  30. Forms of Input . . . • Customer order • Sales order • Order acknowledgment • Picking list

  31. Forms of Input . . . • Packing slip • Bill of lading • Shipping notice • Sales invoice

  32. Forms of Input . . . • Remittance advice • Deposit slip • Back order • Credit memo • Credit application

  33. Sales A/R Cash Sales Disc. Bad Debts Sales R&A Allowance Typical Accounts in the Revenue Cycle

  34. Merchandising Shipments Cash Receipts Sale of Merchandise GL & Fin Rpt Cycle PP&E, Investments The Revenue Cycle Spans activities from “Sale” to “Receipt of Cash.” Key Transactions: Sales Cash Receipts Purchase of Mdse, & Labor, Etc. Cash Disbursements

  35. Typical Accounts . . . • Sales • Sales Returns and Allowances • Sales Discounts • Accounts Receivable

  36. Typical Accounts . . . • Bad Debts Expense • Allowance For Doubtful Accounts • Inventory • Cash

  37. Typical Functions of a Revenue Cycle

  38. Obtain Cust. Order Typical Functions of the Revenue Cycle Check Credit Enter Sales Order Ready Goods Shpt. Ship Goods Bill Cust. Rec. & Dep. Cash Post Trans. Perform Service Maintain Rec. Records

  39. Segregation of Functions

  40. Transaction authorization should be separate from • transaction processing

  41. Transaction Custody should be separate from • asset Record-keeping

  42. The organization should be so structured that the perpetration of a fraud requires . . . . . . collusion between 2 or more individuals.

  43. Organizational Independence

  44. Functional Responsibility in a . . . Sales Order Application System

  45. Functional Responsibility • For sales, control is achieved by separating the transaction’s . . . • Origination • Authorization • Recording • Execution

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