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23 Cards in this Set
- Front
- Back
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Purpose of the revenue cycle |
verify credit worthiness ship product or perform service bill customer timely and accurately record and classify cash receipts post sales and cash receipts to appropriate accounts in A/R sub ledger produce documents and manage reports |
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Functions of revenue cycle |
obtain order from customer credit check enter sales order assemble goods for shipment ship the ordered goods bill the customer receive/ deposit cash maintain accounts recievable post the transaction to the ledger prepare financial reports misc.
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Obtain order from customer |
B2B: generate purchase order- purchase rder is a ratification of contract
B2C: ecomerce; telephone sales; brick and mortar |
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Credit Check |
Credit Limit Credit Rating-with large scale one shot transactions we make a decision about extending credit to a customer (perform an investigation; maybe have merchandise collateralized)
Credit Cards- Essentially a cash transaction to the vendor; risk is shifted to card company; controversy over swipe feeds-swipes ost the vendor and the card company discounts the cost of the item to the vendor |
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Enter Sales order |
Sales entry document(B2B)>Generate confirmation to cusomter>gnerate picking slip (tells warehouse what to assemble)>generate pacing slip (what physically goes into the box) |
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Assemble Goods for shipment |
strategy in ecommerce is based on having a compettitive advantage with respect to fulfilment |
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Ship Ordered Goods |
Bill of Lading> FOB point of origin: becomes customer property at time of shipment FOB point of destination: becomes customer property at time of delivery
relevance is who pays shipping; who bears risk; when do we book revenue |
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Bill Customer |
Post to A/R sub ledger |
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Receive/ deposit payment |
Document: Cash receipt prelist Post to cash Receipts journal and A/R sub ledger Deposit slip- part of reconciliation process- ties back to cash receipt prelist |
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Maintain A/R |
B2B uses Open invoice- obligations and cash receipts are attached to specific invoice numbers- stays open because of 2/10 net 30
B2C uses Balance forward-payments are applied to specific transactions; the purpose of keeping a "transcript" of transactions is the justify balance to customer |
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Post Transactions to the general Ledger |
Batch v. realtime |
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Prepare financial reports |
Monthly statement to customer Sales summaries (daily or even multiple times per day) Budget analysis A/R aging schedules
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Misc. |
Comissions Sales returns collections procedures |
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Risks and controls of revenue cycle |
Granting credit to high risk customer Errors in shipments/ invoices/ A/R postings Loss of support documentation Fictitious returns of merchandise fraudulent write off of account inventory shortage diversion of cash receipts (lapping)
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Granting credit to high risk customer |
When clients want to boost sales, they over grant credit- "vapor ware"- quality of receivables need to be tested |
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Standard Operating Procedures for granting credit |
a. run credit checks using experian b.possibly rub background checks c. checks should be ongoing (in case customer goes into bankruptcy) -chapter 11 is an attempt to pull out of bakruptcy -business will try to negotiate with creditor -in the best interest of the creditor: will salvage some money; maintain relationship with potentially profitable customer d. some businesses build default rate into credit high risk industries |
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errors in |
a. under end to be self correction
b. over shipping or under charging tend not to be reported and should be monitored
c. Controls:tick marks;invoice preparation;secondary checking
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Loss of support documentation |
If a customer claims to have not received inventory, you must produce the bill of lading |
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Fictitious returns of merchandise |
B2B:Request RMA (return merchandise authorization) number>Recieving document number>credit to account - there should be separation between record keeping and custodial function -person who creates RMA should never accept return physically Stores: some allow centralized returns, some allow any POS but track return activity |
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Fraudulent write off of account |
a. approval should not be done by the same person who processes the transaction b. there should be alerts to internal audit |
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inventory shortage |
likely theft. potentially due to not updating inveontory |
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Lapping (diversion of cash) |
a. using cash from one sale to cover cash stolen from another sale b. check deposits- using social engineering to gain confidence
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Controls for lapping |
a.limited tenure policy -red flags are employees who never miss work -banking industry will not allow deferal of vacation time -rotate assignments- problem is assignment is a valuable skill like knowing a truck route b.internal audit policy -SOP for driver- cash is turned in daily with emergency cases having reports -random sampling
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