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© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 1 of 160
INTRODUCTION
© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 3 of 161
INTRODUCTION
© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 4 of 161
INTRODUCTION
© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 5 of 161
INTRODUCTION
© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 6 of 161
INTRODUCTION
© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 7 of 161
INTRODUCTION
© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 8 of 161
INTRODUCTION
© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 9 of 161
INTRODUCTION
© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 10 of 161
REVENUE CYCLE BUSINESS
ACTIVITIES
• Four basic business activities are
performed in the revenue cycle:
– Sales order entry
– Shipping
– Billing
– Cash collection
© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 11 of 161
REVENUE CYCLE BUSINESS
ACTIVITIES
• Four basic business activities are
performed in the revenue cycle:
– Sales order entry
– Shipping
– Billing
– Cash collection
© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 12 of 161
SALES ORDER ENTRY
© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 13 of 161
Orders 1.1
Customer Take Customer
Order
Rej
ect
e dO Orders
rde
rs
Response
Inquiries
Ac
kn 1.2
ow DFD for
l ed Approve
gm
en Credit Sales Order Entry
t
Customer Approved
Orders
1.3
1.4 Check
Sales Order Inv. Inventory
Resp. to
Avail.
Cust. Inq. Bac
k Or
ders
Sales Sales Packing
Order Order List
Ware- Purchas-
Shipping Billing
house ing
© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 14 of 161
Orders 1.1
Customer Take Customer
Order
Rej
ect
e dO Orders
rde
rs
Response
Inquiries
Ac
kn 1.2
ow DFD for
l ed Approve
gm
en Credit Sales Order Entry
t
Customer Approved
Orders
1.3
1.4 Check
Sales Order Inv. Inventory
Resp. to
Avail.
Cust. Inq. Bac
k Or
ders
Sales Sales Packing
Order Order List
Ware- Purchas-
Shipping Billing
house ing
© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 15 of 161
Orders 1.1
Customer Take Customer
Order
Rej
ect
e dO Orders
rde
rs
Response
Inquiries
Ac
kn 1.2
ow DFD for
l ed Approve
gm
en Credit Sales Order Entry
t
Customer Approved
Orders
1.3
1.4 Check
Sales Order Inv. Inventory
Resp. to
Avail.
Cust. Inq. Bac
k Or
ders
Sales Sales Packing
Order Order List
Ware- Purchas-
Shipping Billing
house ing
© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 16 of 161
Orders 1.1
Customer Take Customer
Order
Rej
ect
e dO Orders
rde
rs
Response
Inquiries
Ac
kn 1.2
ow DFD for
l ed Approve
gm
en Credit Sales Order Entry
t
Customer Approved
Orders
1.3
1.4 Check
Sales Order Inv. Inventory
Resp. to
Avail.
Cust. Inq. Bac
k Or
ders
Sales Sales Packing
Order Order List
Ware- Purchas-
Shipping Billing
house ing
© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 17 of 161
SALES ORDER ENTRY
© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 18 of 161
SALES ORDER ENTRY
© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 19 of 161
SALES ORDER ENTRY
© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 20 of 161
SALES ORDER ENTRY
© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 21 of 161
SALES ORDER ENTRY
© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 22 of 161
SALES ORDER ENTRY
Ac
kn 1.2
ow
l ed Approve
gm Credit
en
t
Customer Approved
Orders
1.3
1.4 Check
Sales Order Inv. Inventory
Resp. to
Avail.
Cust. Inq. Bac
k Or
ders
Sales Sales Picking
Order Order List
Ware- Purchas-
Shipping Billing
house ing
© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 24 of 161
Orders 1.1
Customer Take Customer
Order
Rej
ect
e dO Orders
rde
rs
Response
Inquiries
Ac
kn 1.2
ow
l ed Approve
gm Credit
en
t
Customer Approved
Orders
1.3
1.4 Check
Sales Order Inv. Inventory
Resp. to
Avail.
Cust. Inq. Bac
k Or
ders
Sales Sales Picking
Order Order List
Ware- Purchas-
Shipping Billing
house ing
© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 25 of 161
SALES ORDER ENTRY
© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 26 of 161
SALES ORDER ENTRY
© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 27 of 161
SALES ORDER ENTRY
© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 28 of 161
SALES ORDER ENTRY
© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 29 of 161
Orders 1.1
Customer Take Customer
Order
Rej
ect
e dO Orders
rde
rs
Response
Inquiries
Ac
kn 1.2
ow
l ed Approve
gm Credit
en
t
Customer Approved
Orders
1.3
1.4 Check
Sales Order Inv. Inventory
Resp. to
Avail.
Cust. Inq. Bac
k Or
ders
Sales Sales Picking
Order Order List
Ware- Purchas-
Shipping Billing
house ing
© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 30 of 161
Orders 1.1
Customer Take Customer
Order
Rej
ect
e dO Orders
rde
rs
Response
Inquiries
Ac
kn 1.2
ow
l ed Approve
gm Credit
en
t
Customer Approved
Orders
1.3
1.4 Check
Sales Order Inv. Inventory
Resp. to
Avail.
Cust. Inq. Bac
k Or
ders
Sales Sales Picking
Order Order List
Ware- Purchas-
Shipping Billing
house ing
© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 31 of 161
SALES ORDER ENTRY
© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 32 of 161
SALES ORDER ENTRY
© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 34 of 161
SALES ORDER ENTRY
© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 35 of 161
SALES ORDER ENTRY
© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 36 of 161
Orders 1.1
Customer Take Customer
Order
Rej
ect
e dO Orders
rde
rs
Response
Inquiries
Ac
kn 1.2
ow
l ed Approve
gm Credit
en
t
Customer Approved
Orders
1.3
1.4 Check
Sales Order Inv. Inventory
Resp. to
Avail.
Cust. Inq. Bac
k Or
ders
Sales Sales Picking
Order Order List
Ware- Purchas-
Shipping Billing
house ing
© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 37 of 161
Orders 1.1
Customer Take Customer
Order
Rej
ect
e dO Orders
rde
rs
Response
Inquiries
Ac
kn 1.2
ow
l ed Approve
gm Credit
en
t
Customer Approved
Orders
1.3
1.4 Check
Sales Order Inv. Inventory
Resp. to
Avail.
Cust. Inq. Bac
k Or
ders
Sales Sales Picking
Order Order List
Ware- Purchas-
Shipping Billing
house ing
© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 38 of 161
SALES ORDER ENTRY
© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 39 of 161
SALES ORDER ENTRY
© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 40 of 161
SALES ORDER ENTRY
© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 41 of 161
SALES ORDER ENTRY
© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 42 of 161
SALES ORDER ENTRY
© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 43 of 161
SALES ORDER ENTRY
• IT should be used to automate responses to
routine customer requests.
• Examples:
– Providing telephone menus or Websites that lead
customers to answers
• EXAMPLE: about:
Timex includes their watch manuals
• Account balances
online, so a customer who’s missing his manual can
• Order status
find out how to reset his watch when Daylight
• Frequently
Savings
askedTime rolls around.
questions (FAQs) No human intervention
required.
– Online chat or instant messaging.
• These methods free up customer service reps to
deal with less routine issues.
© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 44 of 161
SALES ORDER ENTRY
© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 45 of 161
SALES ORDER ENTRY
© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 46 of 161
REVENUE CYCLE BUSINESS
ACTIVITIES
• Four basic business activities are
performed in the revenue cycle:
– Sales order entry
– Shipping
– Billing
– Cash collection
© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 47 of 161
SHIPPING
• 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.
© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 48 of 161
Shipping
Sales Picking List 2.1
Order Pick &
Entry Pack
Goods &
Sales Packing
Order List
Sales Order
2.2
Bill of Ship Inventory
Lading & Goods
Packing Slip
Carrier
© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 49 of 161
Shipping
Sales Picking List 2.1
Order Pick &
Entry Pack
Goods &
Sales Packing
Order List
Sales Order
2.2
Bill of Ship Inventory
Lading & Goods
Packing Slip
Carrier
© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 50 of 161
SHIPPING
• 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.
© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 51 of 161
SHIPPING
© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 53 of 161
Sales Picking List 2.1
Order Pick &
Entry Pack
Goods &
Sales Packing
Order List
Sales Order
2.2
Bill of Ship Inventory
Lading & Goods
Packing Slip
Carrier
© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 54 of 161
Sales Picking List 2.1
Order Pick &
Entry Pack
Goods &
Sales Packing
Order List
Sales Order
2.2
Bill of Ship Inventory
Lading & Goods
Packing Slip
Carrier
© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 55 of 161
SHIPPING
• 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.
© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 56 of 161
SHIPPING
© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 60 of 161
SHIPPING
© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 62 of 161
SHIPPING
• Globalization makes outbound logistics more
complex:
– Distribution methods differ around the world in terms
of efficiency and effectiveness.
– Country-specific taxes and regulations affect
distribution choices.
– Logistical software can also help with these issues.
• Advanced communications systems can provide
real-time info on shipping status and thus add
value:
– If you know a shipment will be late and notify the
customer, it helps the customer adapt.
© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 63 of 161
REVENUE CYCLE BUSINESS
ACTIVITIES
• Four basic business activities are
performed in the revenue cycle:
– Sales order entry
– Shipping
– Billing
– Cash collection
© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 64 of 161
BILLING
© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 65 of 161
p&
Packing Sli
Sales g
Sales Order 3.1 Bill of Ladin
Order Shipping
Entry Billing
Invoice
Sales
General
Ledger &
Rept. Sys. Customer Sales Customer
s
ment
ta te
S
nthly
Mo
3.2
Billing and Maintain Mailroom
Accounts Accts. Remittance
Rec. List
Receivable
© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 66 of 161
p&
Packing Sli
Sales g
Sales Order 3.1 Bill of Ladin
Order Shipping
Entry Billing
Invoice
Sales
General
Ledger &
Rept. Sys. Customer Sales Customer
s
ment
ta te
S
nthly
Mo
3.2
Billing and Maintain Mailroom
Accounts Accts. Remittance
Rec. List
Receivable
© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 67 of 161
BILLING
© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 68 of 161
BILLING
© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 69 of 161
BILLING
© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 70 of 161
BILLING
© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 71 of 161
BILLING
© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 72 of 161
p&
Packing Sli
Sales g
Sales Order 3.1 Bill of Ladin
Order Shipping
Entry Billing
Invoice
Sales
General
Ledger &
Rept. Sys. Customer Sales Customer
s
ment
ta te
S
nthly
Mo
3.2
Maintain Mailroom
Accts. Remittance
Rec. List
© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 73 of 161
p&
Packing Sli
Sales g
Sales Order 3.1 Bill of Ladin
Order Shipping
Entry Billing
Invoice
Sales
General
Ledger &
Rept. Sys. Customer Sales Customer
s
ment
ta te
S
nthly
Mo
3.2
Maintain Mailroom
Accts. Remittance
Rec. List
© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 74 of 161
BILLING
© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 75 of 161
BILLING
• 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
© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 77 of 161
BILLING
© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 78 of 161
BILLING
© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 79 of 161
BILLING
© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 80 of 161
BILLING
© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 81 of 161
BILLING
© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 82 of 161
BILLING
© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 83 of 161
BILLING
© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 85 of 161
BILLING
© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 87 of 161
CASH COLLECTIONS
© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 88 of 161
CASH COLLECTIONS
© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 89 of 161
• Customers remit payments to
a bank P.O. box.
CASH COLLECTIONS • The bank sends the company:
– Remittance advices.
– An electronic list of the
• Possible approaches to collecting cash: remittances.
– Turnaround documents forwarded toofaccounts
– Copies the checks.
receivable. • Advantages:
– Prevents theft by company
– Lockbox arrangements. 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.
© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 90 of 161
CASH COLLECTIONS
© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 91 of 161
CASH COLLECTIONS
• Customers remit payment electronically to the
company’s bank.
• Possible approaches
• Eliminates mailingto collecting cash:
delays.
– Turnaround documents
• Typically forwarded
done through to accounts
banking system’s Automated
Clearing House (ACH) network.
receivable.
• PROBLEM: Some banks do not have both EDI and EFT
– Lockbox arrangements.
capabilities, which complicates the task of crediting
the customer’s
– Electronic lockboxes. account on a timely basis.
© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 92 of 161
CASH COLLECTIONS
© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 93 of 161
CASH COLLECTIONS
© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 94 of 161
CASH COLLECTIONS
© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 95 of 161
REVIEW OF REVENUE CYCLE
ACTIVITIES
• Before we move on to discuss internal
controls in the revenue cycle, let’s do a
brief review of the organization chart,
including:
– Who does what in the revenue cycle?
– To whom do they typically report?
© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 96 of 161
PARTIAL ORGANIZATION CHART FOR
UNITS INVOLVED IN REVENUE CYCLE
CEO
V P o f M a r k e tin g V P o f M a n u fa c tu r in g CFO
S a le s C u s to m e r W a reh o u se S h ip p in g C o n tr o lle r T re a s u re r
O rd e r S e rv ic e
V P o f M a r k e tin g V P o f M a n u fa c tu r in g CFO
S a le s C u s to m e r W a reh o u se S h ip p in g C o n tr o lle r T re a s u re r
O rd er S e rv ic e
• Responds to B illin g A c c o u n ts C r e d it C a s h ie r
customer inquiries
D e p t. R e c e iv a b le M anager
© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 98 of 161
PARTIAL ORGANIZATION CHART FOR
UNITS INVOLVED IN REVENUE CYCLE
CEO
V P o f M a r k e tin g V P o f M a n u fa c tu r in g CFO
S a le s C u s to m e r W a reh o u se S h ip p in g C o n tr o lle r T re a s u re r
O rd e r S e rv ic e
© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 99 of 161
PARTIAL ORGANIZATION CHART FOR
UNITS INVOLVED IN REVENUE CYCLE
CEO
V P o f M a r k e tin g V P o f M a n u fa c tu r in g CFO
S a le s C u s to m e r W a re h o u se S h ip p in g C o n tr o lle r T re a s u rer
O rd e r S e rv ic e
© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 100 of 161
PARTIAL ORGANIZATION CHART FOR
UNITS INVOLVED IN REVENUE CYCLE
CEO
V P o f M a r k e tin g V P o f M a n u fa c tu r in g CFO
S a le s C u s to m e r W a reh o u s e S h ip p in g C o n tr o lle r T re a s u re r
O rd e r S e rv ic e
B illin g A c c o u n ts C r e d it C a s h ie r
• Invoices the D e p t. R e c e iv a b le M anager
customer
© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 101 of 161
PARTIAL ORGANIZATION CHART FOR
UNITS INVOLVED IN REVENUE CYCLE
CEO
V P o f M a r k e tin g V P o f M a n u fa c tu r in g CFO
S a le s C u s to m e r W a re h o u s e S h ip p in g C o n tr o lle r T re a s u re r
O rd e r S e rv ic e
© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 102 of 161
PARTIAL ORGANIZATION CHART FOR
UNITS INVOLVED IN REVENUE CYCLE
CEO
V P o f M a r k e tin g V P o f M a n u fa c tu r in g CFO
S a le s C u s to m e r W a reh o u s e S h ip p in g C o n tr o lle r T re a s u re r
O rd e r S e rv ic e
• Approves credit for new
customers or existing
customers with issues B illin g A c c o u n ts C r e d it C a s h ie r
• Authorizes credits to customer D e p t. R e c e iv a b le M anager
accounts for returns,
allowances, and write-offs
© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 103 of 161
PARTIAL ORGANIZATION CHART FOR
UNITS INVOLVED IN REVENUE CYCLE
CEO
V P o f M a r k e tin g V P o f M a n u fa c tu r in g CFO
B illin g A c c o u n ts C r e d it C a s h ie r
• Deposits cash D e p t. R e c e iv a b le M anager
received from
customers
© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 104 of 161
CONTROL OBJECTIVES, THREATS,
AND PROCEDURES
• In the revenue cycle (or any cycle), a well-designed AIS
should provide adequate controls to ensure that the
following objectives are met:
– All transactions are properly authorized.
– All recorded transactions are valid.
– All valid and authorized transactions are recorded.
– All transactions are recorded accurately.
– Assets are safeguarded from loss or theft.
– Business activities are performed efficiently and effectively.
– The company is in compliance with all applicable laws and
regulations.
– All disclosures are full and fair.
© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 105 of 161
CONTROL OBJECTIVES, THREATS,
AND PROCEDURES
• We’ll soon be discussing the threats that may
occur in the revenue cycle.
• If you understand the preceding objectives, you
probably won’t have to worry about “memorizing”
threats.
• Almost every threat represents a violation of one
of those control objectives.
• Let’s look more closely.
© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 106 of 161
CONTROL OBJECTIVES, THREATS,
AND PROCEDURES
• In the revenue cycle (or any cycle), a well-designed AIS
should provide adequate controls to ensure that the
following objectives are met:
– All transactions are properly authorized.
– All recorded
• Atransactions arewould
related threat valid. be that a transaction
– All valid andwould go through
authorized without
transactions areproper authorization.
recorded.
– • Such
All transactions area transaction might result from either a
recorded accurately.
mistake or a fraud.
– Assets are safeguarded from loss or theft.
• EXAMPLE: An employee might process an
– Business activities are performed efficiently and effectively.
unauthorized write-off of his own account, so
– The company is in
that hecompliance withtoallpay.
wouldn’t have applicable laws and
regulations.
– All disclosures are full and fair.
© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 107 of 161
CONTROL OBJECTIVES, THREATS,
AND PROCEDURES
• In the revenue cycle (or any cycle), a well-designed AIS
should provide adequate controls to ensure that the
following objectives are met:
– All transactions are properly authorized
– All recorded transactions are valid
– All
• The valid and
related authorized
threat is that a transactions are recorded
transaction would be recorded that
isn’t
– Allvalid, i.e., it didn’t
transactions actually occur.
are recorded accurately
• EXAMPLE
– Assets are 1: An employee records
safeguarded from lossa or
return
theftof merchandise on
his own account when the goods were never really returned.
– Business activities are performed efficiently and effectively
• EXAMPLE 2: Many financial statement frauds involve companies
– The company is in compliance with all applicable laws and
recording totally fictitious revenues in order to make the
regulations
company’s financial position appear more favorable than it
– All disclosures
actually is. are full and fair
© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 108 of 161
CONTROL OBJECTIVES, THREATS,
• The related threat would be that a transaction that actually did
AND PROCEDURES
occur didn’t get recorded.
• EXAMPLE 1: An employee fails to record a sale that the
• Incompany made to
the revenue him (or
cycle so he won’t
any haveatowell-designed
cycle), pay the receivable.
AIS
• should
EXAMPLE 2: In financial
provide adequate statement
controlsfraud cases, the
to ensure thatcompany
the
often failsobjectives
following to record transactions
are met: that reduce income or net
assets, e.g., doesn’t record returns from customers or discounts
– All transactions
granted are omission
to them. This properly authorized.
causes net sales to appear
– All recorded
higher than they transactions
really are. are valid.
– All valid and authorized transactions are recorded.
– All transactions are recorded accurately.
– Assets are safeguarded from loss or theft.
– Business activities are performed efficiently and effectively.
– The company is in compliance with all applicable laws and
regulations.
– All disclosures are full and fair.
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CONTROL OBJECTIVES, THREATS,
• The threat would be that a transaction is
AND PROCEDURES
recorded inaccurately. Inaccurate recording
typically means that a transaction is recorded
• In the revenue cycle (or any cycle), a well-designed AIS
either:
should provide adequate controls
– In the wrong to ensure that the
amount
following objectives
– Inare
the met:
wrong account
– – Inproperly
All transactions are the wrong time period
authorized.
– • It could also mean that the transaction was
All recorded transactions are valid.
credited to the wrong agents or participants.
– All valid and authorized transactions are recorded.
– All transactions are recorded accurately.
– Assets are safeguarded from loss or theft.
– Business activities are performed efficiently and effectively.
– The company is in compliance with all applicable laws and
regulations.
– All disclosures are full and fair.
© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 110 of 161
CONTROL OBJECTIVES, THREATS,
AND PROCEDURES
• EXAMPLES: A fraud might involve a company:
– Over-recording the amount of a sale (wrong
• In the revenue cycle amount)
(or any cycle), a well-designed AIS
– Recording
should provide adequate an unearned
controls revenue
to ensure thatasthe
an earned
revenue (wrong account)
following objectives– are met:
Recording a sale earlier than it occurs (wrong
– All transactions are properly authorized.
time period)
– All recorded transactions are the
– Crediting valid.
wrong salesperson for the sale
(wrong agent)
– All valid and authorized transactions are recorded.
– All transactions are recorded accurately.
– Assets are safeguarded from loss or theft.
– Business activities are performed efficiently and effectively.
– The company is in compliance with all applicable laws and
regulations.
– All disclosures are full and fair.
© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 111 of 161
CONTROL OBJECTIVES, THREATS,
AND PROCEDURES
• In the revenue •cycle
The(or
reverse side of these
any cycle), activities might
a well-designed AIS
include: controls to ensure that the
should provide adequate
following objectives– are
Under-recording a sales return (wrong amount)
met:
– Debiting an asset account instead of sales
– All transactions are properly authorized.
returns (wrong account)
– All recorded transactions are valid.
– Recording the return later than it actually
occurred
– All valid and authorized (wrong time
transactions are period)
recorded.
– All transactions are recorded accurately.
– Assets are safeguarded from loss or theft.
– Business activities are performed efficiently and effectively.
– The company is in compliance with all applicable laws and
regulations.
– All disclosures are full and fair.
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CONTROL OBJECTIVES, THREATS,
AND PROCEDURES
• In the revenue cycle (or any cycle), a well-designed AIS
should provide adequate controls to ensure that the
following objectives are met:
– All transactions are properly authorized.
– All recorded transactions are valid.
– All valid and• authorized
Threats intransactions
this area usually involve theft,
are recorded.
– All transactionsdestruction, or accurately.
are recorded misuse of assets, including data.
– Assets are safeguarded from loss or theft.
– Business activities are performed efficiently and effectively.
– The company is in compliance with all applicable laws and
regulations.
– All disclosures are full and fair.
© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 113 of 161
CONTROL OBJECTIVES, THREATS,
AND PROCEDURES
• In the revenue cycle (or any cycle), a well-designed AIS
should provide adequate controls to ensure that the
following objectives are met:
– All transactions are properly authorized.
– All recorded transactions are valid.
– All valid and authorized transactions are recorded.
• The threat is that the activities would be
– All transactions are recorded
performed accurately.
inefficiently or ineffectively.
– Assets are safeguarded from loss or theft.
– Business activities are performed efficiently and
effectively.
– The company is in compliance with all applicable laws and
regulations.
– All disclosures are full and fair.
© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 114 of 161
CONTROL OBJECTIVES, THREATS,
AND PROCEDURES
• In the revenue• cycle
The obvious
(or any threat is a
cycle), non-compliance
well-designedwith
AISlaws
and regulations.
should provide adequate controls to ensure that the
• An example in the revenue cycle could be a car
following objectives arewho:
dealer met:
– All transactions are properly
– Sells authorized.
a vehicle to which he doesn’t have clear title;
– or
All recorded transactions are valid.
– – Refuses to allow a customer to return a car in
All valid and authorized transactions are recorded.
violation of state lemon laws.
– All transactions are recorded accurately.
• Another example might be requesting a credit
– Assets are safeguarded
check onfrom loss or theft.
a customer in violation of the Fair
– Credit
Business activities areReporting
performedAct (FCRA).
efficiently and effectively.
– The company is in compliance with all applicable laws
and regulations.
– All disclosures are full and fair.
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CONTROL OBJECTIVES, THREATS,
AND PROCEDURES
• In the revenue cycle (or any cycle), a well-designed AIS
should provide adequate controls to ensure that the
following objectives are met:
– All transactions are properly authorized.
• The threat is incomplete and/or misleading
– All recorded transactions
disclosures. are valid.
– All valid and• authorized
This threattransactions are recorded.
is more important in other areas,
– All transactions are recorded
particularly accurately.
those areas that involve liabilities
– and contingencies.
Assets are safeguarded from loss or theft.
– • However,
Business activities one threatefficiently
are performed in the revenue cycle could
and effectively.
be misleading disclosures about customers’
– The company is in compliance with all applicable laws and
rights to return product.
regulations.
– All disclosures are full and fair.
© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 116 of 161
CONTROL OBJECTIVES, THREATS,
AND PROCEDURES
• While we’re going to step through a number of
common threats in the revenue cycle, it’s a good
idea to memorize the internal control objectives
so you can think of the relevant threats on your
own.
• If you don’t like the text version, click on the
button below to see a rhyming version of the
same objectives.
Poet’s
Poet’s
Corner
Corner
© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 117 of 161
CONTROL OBJECTIVES, THREATS,
AND PROCEDURES
• There are several actions a company can take
with respect to any cycle to reduce threats of
errors or irregularities. These include:
– 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).
© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 120 of 161
CONTROL OBJECTIVES, THREATS,
AND PROCEDURES
– Pre-numbering documents (encourages recording
of valid and only valid transactions).
– Restricting access to blank documents (reduces
risk of unauthorized transaction).
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THREATS IN SALES ORDER ENTRY
© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 122 of 161
THREATS IN SALES ORDER ENTRY
• You can click on any of the threats below to get
more information on:
• Threats in the sales
– The types oforder
problemsentry
posed by process
each threat.
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THREATS IN SHIPPING
© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 132 of 161
• You can click on any of the threats below to get
more information on:
THREATS
– The typesIN BILLING
of problems posed by each threat.
– The controls that can mitigate the threats.
© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 137 of 161
THREATS IN CASH COLLECTION
© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 143 of 161
GENERAL CONTROL ISSUES
• You can click on any of the threats below to get
more information on:
• Two general objectives
– The types ofpertain
problems to activities
posed in
by each threat.
every cycle: – The controls that can mitigate the threats.
– Accurate data should be available when needed.
– Activities should be performed efficiently and
effectively.
• The related general threats are:
– THREAT 11: Loss, alteration, or unauthorized discl
osure of data
– THREAT 12: Poor performance
© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 147 of 161
REVENUE CYCLE INFORMATION
NEEDS
• We’ve examined the various threats in the
revenue cycle and the controls that can
mitigate those threats.
• Let’s move on to summarize the
information needs in the revenue cycle.
© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 152 of 161
REVENUE CYCLE INFORMATION
NEEDS
• Information is needed for the following
operational tasks in the revenue cycle:
– Responding to customer inquiries
– Deciding on extending credit to a customer
– Determining inventory availability
– Selecting merchandise delivery methods
© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 153 of 161
REVENUE CYCLE INFORMATION
NEEDS
• Information is needed for the following
strategic decisions:
– Setting prices for products/services
– Establishing policies on returns and warranties
– Deciding on credit terms
– Determining short-term borrowing needs
– Planning new marketing campaigns
© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 154 of 161
REVENUE CYCLE INFORMATION
NEEDS
• The AIS needs to provide information to evaluate critical
revenue cycle processes:
– Response time to satisfactorily resolve customer inquiries
– Time to fill and deliver orders
– Percentage of sales orders back ordered
– Customer satisfaction rates and trends
– Analyses of market share and sales trends
– Profitability by product, customer, and region
– Sales volume in dollars and market share
– Effectiveness of advertising and promotions
– Sales staff performance
– Bad debt expense
– Days receivables outstanding
– Remittances processed daily
© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 155 of 161
REVENUE CYCLE INFORMATION
NEEDS
• Both financial and non-financial
information are needed to manage and
evaluate revenue cycle activities.
• Likewise, both external and internal
information is needed.
© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 156 of 161
REVENUE CYCLE INFORMATION
NEEDS
• When the AIS integrates information from the
various cycles, sources, and types, the reports that
can be generated are unlimited. They include
reports on:
– Sales order entry efficiency
– Sales breakdowns by salesperson, region, product, etc.
– Profitability by territory, customer, etc.
– Frequency and size of backorders
– Slow-moving products
– Projected cash inflows and outflows (called a cash
budget)
– Accounts receivable aging
– Revenue margin (gross margin minus selling costs)
© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 157 of 161
REVENUE CYCLE INFORMATION
NEEDS
• Accountants should continually refine and
improve an organization’s performance
reports.
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SUMMARY
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SUMMARY
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