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44 Cards in this Set

  • Front
  • Back
revenue cycle
a recurring set of business activities and related information processing operations associated with:
Providing goods and services to customers
Collecting their cash payments
The primary external exchange of information is with customers.
primary objective of the revenue cycle
Provide the right product in the right place at the right time for the right price.
revenue cycle Decisions that must be made
Should we customize products?
How much inventory should we carry and where?
How should we deliver our product?
How should we price our product?
Should we give customers credit? If so, how much and on what terms?
How can we process payments to maximize cash flow?
Four basic business activities are performed in the revenue cycle
Sales order entry
Cash collection
Sales order entry is performed by the sales order department.
The sales order department typically reports to the VP of Marketing.
Steps in the sales order entry process include:
Take the customer’s order.
Check the customer’s credit.
Check inventory availability.
Respond to customer inquiries (may be done by customer service or sales order entry).
The sales order (paper or electronic) indicates:
Item numbers ordered
How IT can improve efficiency and effectiveness for Sales Order Entry
Orders entered online can be routed directly to the warehouse for picking and shipping.
Sales history can be used to customize solicitations.
Choiceboards can be used to customize orders.
Electronic data interchange (EDI)
Electronic data interchange (EDI) can be used to link a company directly with its customers to receive orders or even manage the customer’s inventory.
Email and instant messaging are used to notify sales staff of price changes and promotions.
Laptops and handheld devices can equip sales staff with presentations, prices, marketing and technical data, etc.
Specific authorization
For customers who are:
Have past-due balances
Are placing orders that would exceed their credit limit
Specific authorization is done by the credit manager, who reports to the treasurer.
Check Inventory availability
When the order has been received and the customer’s credit approved, the next step is to ensure there is sufficient inventory to fill the order and advise the customer of the delivery date.
The sales order clerk can usually reference a screen displaying:
Quantity on hand
Quantity already committed to others
Quantity on order
If there are enough units to fill the order
Complete the sales order.
Update the quantity available field in the inventory file.
Notify the following departments of the sale:
Send an acknowledgment to the customer.
If there’s not enough to fill the order,
initiate a back order
Customer Relationship Management (CRM) systems
Organizes customer data to facilitate efficient and personalized service.
Provides data about customer needs and business practices so they can be contacted proactively about the need to reorder.
POS System
Point of Sale
The second basic activity in the revenue cycle is filling customer orders and shipping the desired merchandise.
The process consists of two steps
Picking and packing the order
Shipping the order
The warehouse department typically picks the order
The shipping departments packs and ships the order
Both functions include custody of inventory and ultimately report to the VP of Manufacturing.
Picking and packing the order.
A picking ticket is printed by sales order entry and triggers the pick-and-pack process
The picking ticket identifies:
Which products to pick
What quantity
Warehouse workers record the quantities picked on the picking ticket, which may be a paper or electronic document.
The picked inventory is then transferred to the shipping department.
Technology can speed the movement of inventory and improve the accuracy of perpetual inventory records:
Bar code scanners and RFID systems
Conveyer belts
Wireless technology so workers can receive instructions without returning to dispatch.
Radio frequency identification (RFID) tags:
Eliminate the need to align goods with scanner.
Allow inventory to be tracked as it moves through warehouse.
Can store up to 128 bytes of data.
Shipping the order.
The shipping department compares the following quantities:
Physical count of inventory.
Quantities indicated on picking ticket.
Quantities on sales order.
Discrepancies can arise if:
Items weren’t stored in the location indicated
Perpetual inventory records were inaccurate.
If there are discrepancies, a back order is initiated.
The clerk then records online:
The sales order number.
The item numbers ordered.
The quantities shipped.
This process:
Updates the quantity-on-hand field in the inventory master file.
Produces a packing slip.
Multiple copies of the bill of lading
packing slip
The packing slip lists the quantity and description of each item in the shipment.
The bill of lading
The bill of lading is a legal contract that defines responsibility for goods in transit
It identifies:
The carrier
The source
The destination
Special shipping instructions
Who pays for the shipping
The shipment is accompanied by
The packing slip.
A copy of the bill of lading.
The freight bill.
(Sometimes bill of lading doubles as freight bill).
What happens to other copies of the bill of lading?
One is kept in shipping to track and confirm delivery.
One is sent to billing to trigger an invoice.
One is retained by the freight carrier.
This activity involves two tasks:
Updating accounts receivable

Billing is an information processing activity that repackages and summarizes information from the sales order entry and shipping activities.
Requires information from:
Shipping Department on items and quantities shipped.
Sales on prices and other sales terms.
The invoice notifies the customer of:
The amount to be paid.
Where to send payment.
Invoices may be sent/received:
In paper form.
Common for larger companies.
Faster and cheaper than snail mail.
Updating accounts receivable
The accounts receivable function reports to the controller.
This function performs two basic tasks:
Debits customer accounts for the amount the customer is invoiced.
Credits customer accounts for the amount of customer payments.
Two basic ways to maintain accounts receivable:
Open-invoice method
Balance forward method
Open-invoice method:
Customers pay according to each invoice.
Two copies of the invoice are typically sent to the customer.
Customer is asked to return one copy with payment.
This copy is a turnaround document called a remittance advice.
Advantages of open-invoice method:
Conducive to offering early-payment discounts
Results in more uniform flow of cash collections
Disadvantages of open-invoice method:
More complex to maintain
Balance forward method
Customers pay according to amount on their monthly statement, rather than by invoice.
Monthly statement lists transactions since the last statement and lists the current balance.
The tear-off portion includes pre-printed information with customer name, account number, and balance
Customers are asked to return the stub, which serves as the remittance advice.
Remittances are applied against the total balance rather than against a specific invoice.
Cycle billing is commonly used with the balance-forward method
Monthly statements are prepared for subsets of customers at different times.
EXAMPLE: Bill customers according to the following schedule:
1st week of month—Last names beginning with A-F
2nd week of month—Last names beginning with G-M
3rd week of month—Last names beginning with N-S
4th week of month—Last names beginning with T-Z

Advantages of cycle billing:
Produces more even cash flow.
Produces more even workload.
Doesn’t tie up computer for several days to print statements.
Exception procedures: Account adjustments and write-offs:
Adjustments to customer accounts may need to be made for:
Allowances for damaged goods
Write-offs as uncollectible
These adjustments are handled by the credit manager.
Having the credit memos issued by the credit manager is good segregation of duties between:
Authorizing a transaction (write-off).
Recording the transaction.
The final activity in the revenue cycle is collecting cash from customers.
The cashier, who reports to the treasurer, handles customer remittances and deposits them in the bank.
Because cash and checks are highly vulnerable, controls should be in place to discourage theft.
Accounts receivable personnel should not have access to cash (including checks).
Lockbox arrangements.
Customers remit payments to a bank P.O. box.
The bank sends the company:
Remittance advices.
An electronic list of the remittances.
Copies of the checks.
Prevents theft by company employees.
Improves cash flow management.
Lockboxes may be regional, which reduces time in the mail.
Checks are deposited immediately on receipt.
Foreign banks can be utilized for international customers.
Electronic lockboxes
Upon receiving and scanning the checks, the bank immediately sends electronic notification to the company, including:
Customer account number
Amount remitted
Electronic funds transfer and bill payment
Customers remit payment electronically to the company’s bank.
Eliminates mailing delays.
Typically done through banking system’s Automated Clearing House (ACH) network.
PROBLEM: Some banks do not have both EDI and EFT capabilities, which complicates the task of crediting the customer’s account on a timely basis.
Financial electronic data interchange (FEDI).
Integrates EFT with EDI.
Remittance data and funds transfer instructions are sent simultaneously by the customer.
Requires that both buyer and seller use EDI-capable banks.
There are several actions a company can take with respect to any cycle to reduce threats of errors or irregularities
Using simple, easy-to-complete documents with clear instructions (enhances accuracy and reliability).
Using appropriate application controls, such as validity checks and field checks (enhances accuracy and reliability).
Providing space on forms to record who completed and who reviewed the form (encourages proper authorizations and accountability).
Pre-numbering documents (encourages recording of valid and only valid transactions).
Restricting access to blank documents (reduces risk of unauthorized transaction).
Access controls
User IDs and passwords
Compatibility matrices
Controls for individual terminals (e.g., so the receiving dock can’t enter a sales order)
Logs of all activities, particularly those requiring specific authorizations
Bill of Materials
Lists the components that are required to build each product, including part numbers, descriptions,and quantity.
Operations List
Lists the sequence of steps required to produce each product, including the equipment needed and the amount of time required.
Manufacturing Resource Planning (MRP-II)
MRP-II is an extension of MRP inventory control systems:
Seeks to balance existing production capacity and raw materials needs to meet forecasted sales demands.
Often referred to as push manufacturing.
Lean Manufacturing
Lean manufacturing is an extension of the principles of just-in-time inventory systems:
Seeks to minimize or eliminate inventories of raw materials, work in process, and finished goods.
Theoretically, produces only in response to customer orders, but in reality, there are short-run production plans.
Often referred to as pull manufacturing.
Comparison of the two systems
Both plan production in advance.
They differ in the length of the planning horizon.
MRP-II develops plans for up to 12 months ahead.
Lean manufacturing uses shorter planning horizons.
MRP-II is more appropriate for products with predictable demand and a long life cycle.
Lean manufacturing more appropriate for products with unpredictable demand, short life cycles, and frequent markdowns of excess inventory.
Master production schedule
Specifies how much of each product is to be produced during the period and when.
Uses information about customer orders, sales forecasts, and finished goods inventory levels to determine production levels.
Although plans can be modified, production plans must be frozen a few weeks in advance to provide time to procure needed materials and labor.
Scheduling becomes significantly more complex as the number of factories increases.
Raw materials needs are determined by exploding the bill of materials to determine amount needed for current production. These amounts are compared to available levels to determine amounts to be purchased.
Production order
Authorizes production of a specified quantity of a product. It lists:
Operations to be performed
Quantity to be produced
Location for delivery
Also collects data about these activities,