Chapter 12: Revenue Cycle

Front 1

revenue cycle

Back 1

set of business activities and related information processing operations associated with providing goods and services to customers and collecting cash in payment for those sales

Front 2

four basic revenue cycle activities

Back 2

1. sales order entry
2. shipping
3. billing
4. cash collections

Front 3

4 steps in sales order entry

Back 3

1. take customers order
2. check credit limit
3. check inventory availability
4. respond to customer inquiries

Front 4

Revenue margin

Back 4

Equals gross margin minus all expenses incurred to generate sales. Integrates the effects of changes in both productivity and customer behavior. A metric to evaluate overall performance of revenue cycle activities.

Front 5

4 threats to sales data entry

Back 5

1. inaccurate or incomplete customer orders
2. sales to customers with poor credit
3. orders are not legitimate
4. stockouts, carrying costs, markdowns

Front 6

sales order indicates:

Back 6

items ordered, quantity, prices and salesperson

Front 7

electronic data interchange (EDI)

Back 7

used by customers to submit an order electronically in a format compatible with the company's sales order processing system
-improves effectiveness and efficiency

Front 8

what edit checks should be performed on sales order data

Back 8

-Validity checks on the customer account and inventory item numbers.
-Completeness test to make sure all needed information was collected.
-Reasonableness tests comparing the quantity ordered to past history.

Front 9

controls for order not legitimate

Back 9

receipt of signed purchase order, digital signature, requiring paypal, security code on credit cards, or emails to confirm transaction

Front 10

Incomplete or inaccurate customers orders- what controls could mitigate this

Back 10

a. data entry controls such as completeness checks
b. automatic lookup of reference data like customer address
c. reasonableness test comparing quantity ordered to past history

Front 11

credit limit

Back 11

maximum allowable balance that management wishes to allow for a customer based on that customer's past credit history and ability to pay. done automatically by system

Front 12

controls to mitigate sales to customers with bad credit

Back 12

proper authorization, setting credit limits, specific authorization for overdue balances, exceeding credit limit, credit approved prior to releasing goods,

Front 13

accounts receivable aging report

Back 13

lists customer account balances by length of time outstanding

Front 14

controls to mitigate stock outs, carrying costs, and markdowns

Back 14

-accurate inventory control and sales forecasting systems
-online inventory systems that show changes to inventory in real time
-periodic counts of physical inventory against recorded amounts
-regular review of sales forecasts to make adjustments

Front 15

back order

Back 15

if there is not sufficient inventory on hand to fill the order, notifies production department to produce requested goods

Front 16

picking ticket

Back 16

lists the items and quantities of each item to be picked that the customer ordered; authorizes inventory control function to release merchandise to shipping dept

Front 17

Customer Relationship Management (CRM)

Back 17

-organizes customer data to facilitate efficient and personalized service
-provides data about customer needs and business practices

Front 18

shipping department is responsible for (3things)

Back 18

-physical count of inventory picked
-quantities indicated on picking ticket
-quantities on sales order

Front 19

Shipping

Back 19

second basic activity in the revenue cycle, filling customer orders and shipping the desired merchandise. Two steps: 1) picking and packing the order 2) shipping the order

Front 20

who picks the order

Back 20

warehouse departments

Front 21

who packs and ships the order

Back 21

shipping department- compares the physical count of inventory with the quantities indicated on the picking ticket and with the quantities indicated on the sales order

Front 22

controls to mitigate theft of inventory

Back 22

-secure and restricted access
-inventory transfers documented
-inventory only released for shipping only with approved sales orders
-employees who handle inventory should sign documents or enter their codes online so that accountability for losses is traceable
-wireless communication and RFID
-physical counts of inventory periodically

Front 23

shipment is included with

Back 23

-bill of lading
-packing slip

Front 24

packing slip

Back 24

lists the quantity and description of each item included in shipment

Front 25

bill of lading

Back 25

legal contract that defines responsibility for the goods in transit

identifies carrier, source, destinations, and any special instructions, and who must pay carrier

Front 26

controls to mitigate shipping errors

Back 26

-require shipping clerks to enter the quantities being shipped before goods are actually shipped
-bar code scanners and RFID
-field checks and completeness checks for manual entry
-packing slip and bill of lading not printed until accuracy of shipment is verified

Front 27

third basic activity in revenue cycle

Back 27

billing customers

two separate but related tasks: invoicing and updating accounts receivable

Front 28

billing has two tasks

Back 28

invoicing and updating accounts receivable

Front 29

sales invoice

Back 29

basic document that notifies customers of the amount to be paid and where to send the payment

Front 30

billing department requires information from

Back 30

shipping department on items shipped and quantities
and sales on prices and other sales terms

Front 31

EDI invoices sent are beneficial in what ways

Back 31

faster than snail mail, common for larger companies

Front 32

accounts receivable function

Back 32

reports to controller

performs two basic tasks:
uses the info on the sales invoice to debt customer accounts and then credits those accounts when payments are received

Front 33

open-invoice method

Back 33

-customers typically pay according to invoice
-conductive to offering early-payment discounts
-more complex to maintain
-used when customer is usually other businesses when the number of transactions is small but the amount of the transactions is large

Front 34

balance-forward method

Back 34

-customers pay according to their monthly statement rather than invoice
-more efficient, reduces costs because you dont bill for each sale
-used by utility companies, credit card issuers, and national retail chains

Front 35

cycle billing

Back 35

monthly statements are prepared for subsets of customers at different times

Front 36

monthly statement

Back 36

lists all transactions including both sales and payments, that occurred during the past month and informs customers of their current account balances

Front 37

credit memo

Back 37

authorizes crediting of customers account

Front 38

credit memos are used for

Back 38

returns, allowances for damaged goods, uncollectibles

Front 39

who writes a credit memo

Back 39

credit manager

Front 40

threats in billing (3)

Back 40

-failure to bill the customers
-billing errors
-errors in maintaining customer accounts

Front 41

controls to mitigate failure to bill

Back 41

-segregate shipping and billing
-sales orders, picking tickets, packing slips, and sales invoices should be sequentially numbered and periodically accounted for
-In invoice-less systems, you must ensure that every shipment is recorded, since the shipment triggers recording of the account receivable

Front 42

controls to mitigate billing errors

Back 42

-have the customer retrieve prices from inventory master file
-avoid quantity errors by checking quantities on packing slip against quantities on the sales order
-bar code scanners reduce data entry errors

Front 43

controls to mitigate errors in maintaining customer accounts

Back 43

-edit checks such as validity and field checks
-batch totals to detect posting errors
-compare number of accounts updated with number of checks received
-reconciliations by independent party
-send monthly statements to customers to provide independent review

Front 44

accounts receivable should not have access to

Back 44

cash or checks

Front 45

remittance list

Back 45

prepared by mailroom personnel, a document identifying the names and amounts of all customer remittances and send it to accounts receivable

Front 46

lockbox

Back 46

bank PO box to which customers send their remittances and bank notifies company electronically

Front 47

electronic funds transfer (ETF)

Back 47

customers send their remittances electronically to the company's bank and thus eliminate the delay associated with the time that payment is in the mail

Front 48

financial electronic data interchange (FEDI)

Back 48

integrates ETF with exchange of remittance data (EDI)

automates billing and cash collection processes

only works is both the selling company and its customers use banks that are capable of providing EDI services

Front 49

theft of cash controls to mitigate

Back 49

-Segregation of duties between:
Handling cash and posting to customer accounts.
Handling cash and authorizing credit memos.
Authorizing credit memos and maintaining customer accounts.
-Minimizing the handling of money and checks through lockbox arrangements, etc.
-Two people opening mail together.
-Remittance data sent to accounts receivable, cash & checks sent to cashier.
-Checking that total credits to accounts receivable equal total debits to cash.
-Compare remittance list with validated deposit slips and bank statements
-Sending monthly statements to customers to provide independent review.
-Using cash registers in retail establishments that automatically produce a written record of all cash received.
-Having bank reconciliations done by an independent party

Front 50

cash flow budget

Back 50

provides estimate of cash inflows and outflows

an alert to the organization to a pending short-term cash shortage