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o salesperson file (may be a master file)

Chapter 4 

Sales history file
cash receipts history file
The Revenue Cycle  accounts receivable reports file

Sales Order Processing


THE CONCEPTUAL SYSTEM  Begins with a customer placing an order
o The sales department captures the
Overview of Revenue Cycle Activities
essential details on a sales order form.
Sales Order
 The transaction is authorized by obtaining credit
1 approval by the credit department.
Credit / Customer  Sales information is released to:
Service
2
REVENUE CYCLE
(SUBSYSTEM)
o Billing
Cash Receipts/ o Warehouse (stock release or picking
Collections
6 ticket)
Shipping
o Shipping (packing slip and shipping
3
notice)
 The merchandise is picked from the Warehouse
Billing/ Accounts and sent to Shipping.
Receivable
4/5 o Stock records are adjusted.
 The merchandise, packing slip, and bill of lading
Journal Vouchers/Entries: How do we get them? are prepared by Shipping and sent to the
 Billing Department prepares a journal voucher: customer.
Accounts Receivable DR o Shipping reconciles the merchandise
Sales CR received from the Warehouse with the
sales information on the packing slip.
 Inventory Control Dept. prepares a journal  Shipping information is sent to Billing. Billing
voucher: compiles and reconciles the relevant facts and
issues an invoice to the customer and updates
Cost of Goods Sold DR
the sales journal. Information is transferred to:
Inventory CR
o Accounts Receivable (A/R)
 Cash Receipts prepares a journal voucher: o Inventory Control
 A/R records the information in the customer’s
Cash DR
account in the accounts receivable subsidiary
Accounts Receivable CR
ledger.
Revenue Cycle Databases  Inventory Control adjusts the inventory
 Master files subsidiary ledger.
o customer master file  Billing, A/R, and Inventory Control submits
o accounts receivable master file summary information to the General Ledger
o merchandise inventory master file dept., which then reconciles this data and posts
 Transaction and Open Document Files to the control accounts in the G/L.
o sales order transaction file
Sales Return Journal Entry
 open sales order transaction file
G/L posts the following to control accounts:
o sales invoice transaction file
o cash receipts transaction file Inventory—Control DR
 Other Files Sales Returns and Allowances DR
o shipping and price data reference file Cost of Goods Sold CR
o credit reference file (may not be Accounts Receivable—Control CR
needed)
Cash Receipts Processes o a cash refund is requested
 Customer checks and remittance advices are (authorization)
received in the Mail Room. o posting a cash payment received to a
o A mail room clerk prepares a cash customer’s account (cash pre-list)
prelist and sends the prelist and the
Segregation of Functions
checks to Cash Receipts.
Three Rules:
o The cash prelist is also sent to A/R and
the Controller. 1. Transaction authorization should be separate
 Cash Receipts: from transaction processing.
o verifies the accuracy and completeness 2. Asset custody should be separate from asset
of the checks record-keeping.
o updates the cash receipts journal 3. The organization should be so structured that
o prepares a deposit slip the perpetration of a fraud requires collusion
o prepares a journal voucher to send to between two or more individuals.
G/L
 A/R posts from the remittance advices to the  Sales Order Processing
accounts receivable subsidiary ledger. o credit authorization separate from SO
o Periodically, a summary of the postings processing
is sent to G/L. o inventory control separate from
 G/L department: warehouse
o reconciles the journal voucher from o accounts receivable sub-ledger separate
Cash Receipts with the summaries from from general ledger control account
A/R  Cash Receipts Processing
o updates the general ledger control o cash receipts separate from accounting
accounts records
 The Controller reconciles the bank accounts. o accounts receivable sub-ledger separate
from general ledger
Summary of Internal Controls
Supervision
 Often used when unable to enact appropriate
segregation of duties.
 Supervision of employees serves as a deterrent
to dishonest acts and is particularly important in
the mailroom.

Accounting Records
 With a properly maintained audit trail, it is
possible to track transactions through the
systems and to find where and when errors
were made:
o pre-numbered source documents
o special journals
Authorization Controls o subsidiary ledgers
 Proper authorization of transactions o general ledger
(documentation) should occur so that only valid o files
transactions get processed.
 Within the revenue cycle, authorization should Access Controls
take place when:  Access to assets and information (accounting
o a sale is made on credit (authorization) records) should be limited.
 Within the revenue cycle, the assets to protect Computer-Based Accounting Systems
are cash and inventories and access to records
 CBAS technology can be viewed as a continuum
such as the accounts receivable subsidiary
with two extremes:
ledger and cash journal should be restricted.
o automation - use technology to
Independent Verification improve efficiency and effectiveness
 Physical procedures as well as record-keeping o reengineering – use technology to
should be independently reviewed at various restructure business processes and firm
points in the system to check for accuracy and organization
completeness:
Reengineering Sales Order Processing Using
o shipping verifies the goods sent from
the warehouse are correct in type and Real-Time Technology
quantity  Manual procedures and physical documents are
o warehouse reconciles the stock release replaced by interactive computer terminals.
document (picking slip) and packing slip  Real time input and output occurs, with some
o billing reconciles the shipping notice master files still being updated using batches.
with the sales invoice o Real-time - entry of customer order,
o general ledger reconciles journal printout of stock release, packing slip
vouchers from billing, inventory control, and bill of lading; update of credit file,
cash receipts, and accounts receivable inventory file, and open sales orders file
o Batch - printout of invoice, update of
closed sales order (journal), accounts
Automating the Revenue Cycle
receivable and general ledger control
 Authorizations and data access can be
account
performed through computer screens.
 There is a decrease in the amount of paper. Advantages of Real-Time Processing
 The manual journals and ledgers are changed to  Shortens the cash cycle of the firm by reducing
disk or tape transaction and master files. the time between the order date and billing
 Input is still typically from a hard copy date
document and goes through one or more  Better inventory management which can lead to
computerized processes. a competitive advantage
 Processes store data in electronic files (the tape  Fewer clerical errors, reducing incorrect items
or disk) or prepare data in the form of a being shipped and bill discrepancies
hardcopy report.  Reduces the amount of expensive paper
 Revenue cycle programs can include: documents and their storage costs
o formatted screens for collecting data
o edit checks on the data entered Reengineered Cash Receipts
o instructions for processing and storing  The mail room is a frequent target for
the data reengineering.
o security procedures (passwords or user  Companies send their customers preprinted
IDs) envelopes and remittance advices.
o steps for generating and displaying  Upon receipt, these envelopes are scanned to
output provides a control procedure against theft.
 To understand files, you must consider the  Machines are open the envelopes, scan
record design and layout. remittance advices and checks, and separate
 The documents and the files used as input the checks.
sources must contain the data necessary to  Artificial intelligence may be used to read
generate the output reports. handwriting, such as remittance amounts and
signatures.
Point-of-Sale Systems o Programmed decision rules must be
 Point of sale systems are used extensively in closely monitored.
retail establishments.  Segregation of Functions - consolidation of tasks
o Customers pick the inventory from the by the computer is common
shelves and take them to a cashier. o Protect the computer programs
 The clerk scans the universal product code o Coding, processing, and maintenance
(UPC). The POS system is connected to an should be separated.
inventory file, where the price and description  Supervision - in POS systems, the cash register’s
are retrieved. internal tape or database is an added form of
o The inventory levels are updated and supervision
reorder needs can immediately be  Access Control - magnetic records are
detected. vulnerable to
 The system computes the amount due.  both authorized and unauthorized exposure
Payment is either cash, check, ATM or credit and should be protected
card in most cases. o Must have limited file accessibility
o No accounts receivables o Must safeguard and monitor computer
 If checks, ATM or credit cards are used, an on- programs
line link to receive approval is necessary.  Accounting Records - rest on reliability and
 At the end of the day or a cashier’s shift, the security of stored digitalized data
money and receipts in the drawer are o Accountants should be skeptical about
reconciled to the internal cash register tape or a the accuracy of hard-copy printouts.
printout from the computer’s database. o Backups - the system needs to ensure
o Cash over and under must be recorded that backups of all files are continuously
kept
Reengineering Using EDI  Independent Verification – consolidating
 EDI helps to expedite transactions. accounting tasks under one computer program
 The customer’s computer: can remove traditional independent verification
o determines that inventory is needed controls. To counter this problem:
o selects a supplier with whom the o perform batch control balancing after
business has a formal business each run
agreement o produce management reports and
o dials the supplier’s computer and places summaries for end users to review
the order
 The exchange is completely automated. PC-Based Accounting Systems
o No human intervention or management  Used by small firms and some large
Reengineering Using the Internet decentralized firms
 Typically, no formal business agreements exist  Allow one or few individuals to perform entire
as they do in EDI. accounting function
 Most orders are made with credit cards.  Most systems are divided into modules
 Mainly done with e-mail systems, and thus a controlled by a menu-driven program:
turnaround time is necessary o general ledger
o Intelligent agents are needed to o inventory control
eliminate this time lag. o payroll
 Security and control over data is a concern with o cash disbursements
Internet transactions. o purchases and accounts payable
o cash receipts
CBAS Control Considerations o sales order
 Authorization - in real-time systems,
authorizations are automated
PC Control Issues
 Segregation of Duties - tend to be inadequate
and should be compensated for with increased
supervision, detailed management reports, and
frequent independent verification
 Access Control - access controls to the data
stored on the computer tends to be weak;
methods such as encryption and disk locking
devices should be used
 Accounting Records - computer disk failures
cause data losses; external backup methods
need to be implemented to allow data recovery