Reviewer in Revenue Cycle service employees to answer the questions of

the customers
1. Sales Order Procedures
Check Credit- before processing the order further,
-Include the tasks involved in receiving and processing a the customer’s credit worthiness need to be
customer order, filling the order and shipping the established.
products to the customer, billing the customer at the
Credit approval process- is an authorization control and
proper time, and correctly accounting for the
should be performed as a function separate from the
transaction
sales activity

Conceptual System (Continued from receive-order

task)

1. The receive order task sends the sales

order(credit copy) to the check credit task for
approval
2. The approved sales order then triggers the
continuation of sales process by releasing sales
order information simultaneously to various
tasks. (Stock release, packing slip, shipping
notice, and sales invoice

Receive Order-

1. Receipt of customer order- indicating the type

and quantity of merchandise desired. Orders
may arrive by mail, telephone, or from field of
representative who visited the customer .
(When a customer is also a business entity, the
order is often a copy of the customer’s
purchase order.
2. Transcribe into a formal ***sales order- Pick Goods
captures the customer’s name, address, and
1. The order activity forwards the stock release
account number; the name, number and
document (picking ticket) to the goods function,
description of the items sold; the quantities and
in the warehouse. It identifies the items in the
unit prices of each sold item
inventory that must be located and picked from
3. It is now placed to the customer open order
the warehouse shelves
file- for future reference, the task of filling the
2. After the picking of the stock, the order is
order may take days or weeks. The customer
verified for accuracy of the goods and verified
record in the open order file is updated each
stock release document are sent to the ship
time the status of the order changes (credit
goods task. If the inventory levels are
approval, on back-order, and shipment), for the
insufficient to fill the order, a warehouse
 employee adjusts the verified stock release to 1. To prevent these problems, the billing function
reflect the amount actually going to the awaits for notification from shipping before it
customer. bills
3. The employee then prepares a back-order 2. Upon credit approval, the bill-customer function
record , which stays on file until the inventories receives the sales order (invoice copy) from the
arrive from supplier. These orders are shipped receive order task
before the sales order are processes. 3. Sale order (invoice copy) is placed in an S.O.
4. Finally, the warehouse adjusts the stock records pending file until the receipt of the shipping
to reflect the reduction of the inventory (not notice which describes the products that were
formal accounting procedures and for actually shipped to the customer
warehouse management purposes only.) 4. Upon arrival, the items shipped are reconciled
with those ordered and unit prices, taxes, and
Ship Goods – independent verification control point and
freight charges are added to the invoice copy of
is the last opportunity to detect errors
the sales order
1. Before the arrival of goods and the verified 5. The completed sales invoice is the customer’s
stock release document, the shipping bill, which formally depicts the charges to the
department receives the packing slip and customer.
shipping notice from the receive order function
The billing function performs the following records
2. The packing slip will travel with the goods to
keeping related tasks:
the customer to describe the contents of the
order. The shipment notice will later be  Record the sales in the sales journal
forwarded to the billing function as evidence  Forwards the ledger copy to the sales order to
that the order was filled and shipped (contains the update accounts receivable task
the date of shipment, quantity, name of carrier  Sends he stock release document to update
and freight charges. inventory record task
3. Upon receiving the goods from the warehouse,
the shipping clerk reconciles the physical items
with the stock release, the packing slip, and the
shipping notice to verify that the sales order
was correct
4. The shipping clerk packages the goods, attaches
the packing slip, completes the shipping notice
and prepares the ***bill of lading- the formal
contract between the seller and the shipping
company (carrier) to transport the goods to the
customer. It establishes legal ownership and
responsibility to the assets in transit
5. Once the goods are transferred to the carrier,
the shipping clerk records the shipment in the
shipping log, forwards the shipping notice to the
carrier and the stock release to the bill
customer function as a proof of shipment, and
updates the customer’s open order file

Bill Customer- the shipment of goods marks the

completion of the economic event and the point at
which the customer should be billed. Billing for goods Sales Journal- is a special journal used for recording
not shipped causes confusion damages relations with completed transactions
customers, and requires additional work to make
adjustments to accounting records.
Sales Journals Voucher- at the end of the period, these o Transaction dates
entries are summarized to this voucher o Invoice numbers
o Credits for payments
***Journal Voucher- each represents a general journal
o Returns
entry and indicates the general ledger accounts
o Allowances
affected. Summaries of transactions, adjusting entries,
and closing entries are all entered into the general
ledger via this method

The journal voucher system eliminates the need for a

formal general journal, which is replaced by a journal
voucher file.

 Post to general ledger- receipt of journal

vouchers from billing and inventory control
tasks and an account summary from the AR
function. The general ledger uses the journal
voucher to post the following control accounts:

AR Control xxx

Cost of Goods sold xxx

 Update Inventory records- inventory control
function updates the ***inventory subsidiary Inventory control xxx
ledger accounts from information contained in
Sales xxx
the stock release document.
o Perpetual inventory- has its own record
in the ledger containing at the minimum
data. Each stock release document
reduces the quantity on hand of one or
more inventory accounts
o Periodically, the financial value of the
total reduction in inventory is
summarized in a journal voucher and
sent to the general ledger function for SALES RETURN PROCEDURES:
posting:
Reasons:
COST OF GOODS SOLD XXX
1. The company has shipped the wrong
INVENTORY XXX merchandise
2. The goods were defective
3. The product was damaged during shipment
 Update accounts receivables- customer records 4. The buyer refused delivery because the seller
in the ***accounts receivable (AR) subsidiary shipped the goods too late or they were delayed
ledger are updated from information the sales in transit
order (ledger copy) provides. Includes:
The procedures are:
o Customer name
o Customer address 1. Prepare return slip- the receiving department
o Current balance employee counts, inspects, and prepares the
o Available credit return slip
2. Prepare credit memo- ***credit memo is the
authorization for the customer to receive credit
for the merchandise returned
3. Approve Credit memo- evaluation. The
approved credit memo is returned to the sales
department
4. Update sales journal- the transaction is
recorded in the sales journal as a contra entry.
At the end of the period, total sales returns are
summarized in a journal voucher and sent to
the general ledger department
5. Update inventory and AR records- the
inventory control function adjusts the inventory
records and forwards the credit memo to
accounts receivable, where the customer’s
account is also adjusted
6. Update General Ledger: Cash Receipts procedures
Inventory Control XXX It involves:
Sales Returns and Allowances XXX  Receiving and securing cash
Cost of Goods Sold XXX  Depositing the cash in bank
 Matching payment with customer and adjusting
Accounts Receivable control XXX the correct amount
 Proper accounting for and reconciling the
financial details of the transaction

Procedures:

1. Open mail and prepare remittance advice

a. ***Remittance advice- contain
information needed to service
individual customer’s account (payment
date, account number, amount paid,
 and customer check number)

b. Remittance list (cash pre-list) where all

cash received is logged. 3 copies are
sent to the records and deposit check
function (original), remittance advices
(second copy), reconciliation task (3rd
copy)
2. Record deposit checks- after reconciling the
prelist checks, the employee’s records and REVENUE CYCLE CONTROLS
check in the cash receipts journal. Then the
clerk prepares a bank deposit slip.

3. Update accounts receivable

4. Update general ledger
5. Reconcile cash receipts and deposits

Transaction Authorization

 Credit check
 Return policy
 Remittance list(cash prelist)
 Physical System

 Manual system serves as a visual training aid to

promote better understanding of the key
concepts
 Manual system flowcharts reinforce the
importance of segregation of duties through
clearly defined departmental boundaries
 Manual system is a fundamental component of
the framework for viewing technology
innovations

Manual System- to support the system concepts

presented in the previous models depicting people,
organizational units, and physical documents and
files
Segregation of Duties SALES ORDER PROCESSING
1. Transaction authorization should be  Sales department
separate from transaction processing  Credit department approval
2. Asset custody be separate from the task of  Warehouse procedures
asset record keeping  The shipping department
3. The organization should be structured so  The billing department
that the perpetration of a fraud requires
collusion between 2 or more individuals

Supervision

- provide control in systems that are properly

segregated
2. Sales Return Procedures
Accounting Documents
(Ref: ppt1) (a summary to the prev. exp.)
- firm’s source documents, journals, and
ledgers from an audit trail that allows  Receiving Department
independent auditors to trace transactions o Begins with the receiving
- Prenumbered documents- are sequentially department, where personnel
numbered by the printer (sales orders, receive, count, inspect for damage,
shipping notices, remittance advices) and send returned products to the
- Special journals warehouse
- Subsidiary ledgers  Sales Department
- General ledgers o Upon receipt of the return slip, the
- Files (open sales order file, shipping log, clerk prepares for a credit memo
credit record file, back-order file) depending on the materiality of the
return, company will dictate
Access Controls- prevent and detect illegal access to the
whether credit approval is required
firm’s assets
 Processing the Credit Memo
Independent Verification- verify the accuracy and o Objective: reverse the effects of the
completeness of tasks that other functions in the original sales transaction. Billing
process perform records a contra entry into sales
return, sales allowance journal
Physical System- Processing credit memo
inventory control debits the
 3. Cash Receipts Procedures:
 Mail room
o Customer payments and remittance
advices arrive at the mailroom
where the envelops are opened.
The checks are sent to the cashier in
the cash receipts department, and
the remittance advices are sent to
the AR department
inventory records to reflect the  Cash receipts
return of goods o The cashier records the checks in
the cash receipts journal and
promptly sends them to the bank,
accompanied by two copies of the
deposit slip. Period
 Accounts receivable
o The AR department uses the
remittance advices to reduce the
customer’s account balances
consistent with the amount paid.
The AR clerk prepares a summary of
changes in account balances which
is sent to the general ledger
department
 General Ledger department
o Upon receipt of the journal voucher
and account summary from cash
receipts and AR, respectively, the
general ledger clerk reconciles the
information and posts to the
control accounts
 Controller’s office
o Because cash is a liquid asset and
subject to misappropriation,
additional controls are necessary.
IN this case, someone from the
controller’s office periodically
performs a bank reconciliation by
 comparing deposit slips returned order and uses this to pick the goods. The
from the bank, account summaries inventory and stock release are then sent to the
used to post the accounts, and shipping department.
journal vouchers 4. Shipping department- The shipping clerk
 Concluding remarks reconciles the products received from the
warehouse with the shipping notice. Assuming
no discrepancies exist, a bill of lading is
prepared, and the products are packaged and
shipped via common carrier to the customer.
Computer-Based Accounting Systems The clerk then sends the shipping notice to the
Automation- involves using technology to improve the computer department.
efficiency and effectiveness of a task. It replicates the 5. Keystroke- The keystroke clerk converts the
traditional process it replaces hard-copy shipping notices to digital form to
produce a transaction file of sales orders.
Reengineering- rethinking the business process and the 6. Edit Run - Periodically, the sales order system is
work flow. The objective is to improve operational executed. The system is composed of a series of
performance and reduce costs by identifying and program runs. The edit program first validates
eliminating non-value-added tasks all transaction records in the batch by
AUTOMATION SALES ORDER PROCESSING WITH performing clerical and logical tests on the data.
BATCH TECHNOLOGY typical tests include field checks, limit tests,
range tests, and price-times-quantity
extensions. The edit program recalculates the
batch control totals to reflect any changes due
to the removal of error records. The edited
sales order file is then passed to the file update
run.

1. Sales Department- The sales process begins

with a customer contacting the sales
department and placing an order. The sales
clerk records the essential details and prepares
multiple copies of a sales order, which are held
pending credit approval.
2. Credit department- Approval When credit is
approved, the sales department releases copies
of the sales order to the billing, warehouse, and
Update Procedures
shipping departments. The customer order and
credit approval are then placed in the open This system generates a number of management
order file. reports, including sales summaries, inventory status
3. Warehouse procedures- Next the warehouse reports, transaction listings, and budget and
clerk receives the stock release copy of the sales performance reports. Quality management reports
 play a key role in helping management monitor and send them, along with a copy of the stock release
operations to ensure that controls are in place and document.
functioning properly.
SHIPPING DEPARTMENT
Reengineering Sales Oder Processing with Real-
A shipping clerk reconciles the goods, the stock release
Time technology
document, and the hard-copy packing slip produced on
- Interactive computer terminals replace many of the terminal. The clerk then selects a carrier and repairs
the manual procedures and physical documents of the goods for shipment. From the terminal, the clerk
the previous system. This interactive system transmits a shipping notice containing shipping date and
provides real-time input and output with batch freight charges. The system updates the open sales
updating of only some master files. Sales order order record in real-time and places Y value in the
processing with real-time technology can speed up CLOSED, thus closing the sales order.
the fulfillment cycle by reducing employee
General Ledger Update Procedures
intervention. With sales order system you can move
the products out the door more quickly. The inventory subsidiary and AR subsidiary records
were updated previously during the real-time
Transaction Processing Procedures
procedures. Updating the general ledger accounts in
SALES PROCEDURES real time possess no significant operational delays.
Finally, the batch program prepares and mails costumer
 The system accesses the system subsidiary file
bills and transfers the closed sales records to the sales
and checks the availability of the inventory.
journal.

Based on ref 1:
 If credit is approved, the system updates the
The batch update program searches the open sales
customer’s current balance to reflect the sale
order file for records marked closed and updates the
and reduces inventory by the quantities of
following general ledger accounts: Inventory control,
items sold to present an accurate and current
Sales, AR-control, and Cost of Goods Sold.
picture of inventory on hand and available for
sale. Advantages of Real-time Processing

 Real-time processing greatly shortens the cash

cycle of the firm.
 The system automatically transmits a digital
stock release document to the warehouse, a
digital shipping notice to the shipping
 Real-time processing can give the firm a
department, and records the sale in the open
competitive advantage in the marketplace.
sales order file. The structure of this file
includes a CLOSED field that contains either the
value of N or Y to indicate the status of the
order.  Manual procedures tend to produce clerical
errors, such as incorrect account numbers,
N is the default value in this field when the record is invalid inventory numbers, and price-quantity
created extension miscalculations.
Y indicates that the goods have been shipped, so the
customer can be billed
 Finally, real-time processing reduces the
WAREHOUSE PROCEDURES amount of paper documents in a system.
The warehouse clerk’s terminal immediately produces a
hard-copy printout of the electronically transmitted
stock release document. The clerk then picks the goods
Automated Cash Receipts Procedures Re-engineered Cash Receipts procedures
 Very important part of the revenue cycle  Customer made payments on accounts with
 Records cash and checks physical checks and mailed to the company
 It is extremely vulnerable part  Labor-intensive
 Costly
Automated Cash Receipts Procedure
 Creates a control risk.
 Mail room  The mailroom is the frequent target in the
 Cash receipt department engineering.
 Accounts receivable department  Companies send their preprinted envelopes and
 Data processing departments remittance advices.
 machines open the envelopes, scan remittance
advices and checks and separate the checks
 BASED ON REF 1:
 Opening and checking envelops are time
consuming, costly and can result to risks of
uncertain control
 Organization today develop their mail room
procedure to avoid risks and costs by
reengineering their system using artificial
engineering

Point of Sales (POS) System

 POS systems are commonly used in retail stores

department stores and supermarkets.
 The clerk scans the universal product code
(UPC).
 The system computes the amount due.
  Valid payment is either cash, check, ATM or entering the seller’s home page address into the
credit card in most cases. Internet communication program from a PC, a
 Money and receipts in the drawer are potential customer can access the seller’s
reconciled to the internal cash register tape product list, scan the product line, and place an
 Maintains no customer accounts receivable order.
 Inventory is kept on store shelves not on a
separate warehouse
 Customer picks the item of choice and pays on Control Considerations For Computer Based System
checkout location
Authorization

- Transaction authorization in real-time

End-of-day Procedures processing systems is an automated task.
Management and accountants should be
At the end of the day, cash receipts clerk prepares a
concerned about the correctness of the
three-part deposit slip for the total amount of cash
computer-programmed decision rules and the
received
quality of the data used in this decision.
 1 deposit slip- for file record
Segregation of Duties
 2 deposit slip- accompany the cash in bank
- Tasks that would need to be segregated in
Batch program summarizes the sales and cash receipts
manual systems are often consolidated within
journal voucher, then post to the general ledger.
computer programs.
Journal Entries
Supervision
Cash xxx
- It is the process of supervising the activities
Cash Over/Short xxx specially the financial transaction of the
business. Surveillance cameras and shop floor
Accounts receivable xxx
security personnel can reduce the risk of the
Cost of goods sold xxx inventory and cash of the business.
- To preserve the integrity of accounting records,
Sales xxx organization management must implement
Inventory xxx controls that restrict unauthorized access

Reengineering Using EDI Access Control

Electronic Data Interchange (EDI) - was devised - Organization Management must implement
expedite (speed up) routine transactions between controls
manufacturers and wholesalers and between Accounting Records
wholesalers and retailers
- Accounting Records
EDI is more than just a technology. - (1) DIGITAL JOURNALS AND LEDGERS. Digital
It represents a business arrangement between the journals and master files are the basis for
buyer and the seller in which they agree to terms of financial reporting and many internal decisions.
their relationship Accountants should be skeptical about
accepting, on face value, the accuracy of
Reengineering Using the Internet computer-produced hard-copy printouts of
 Doing Business on the Internet digital records.
 Thousands of organizations worldwide are - (2) FILE BACKUP. The physical loss, destruction,
establishing home pages on the Internet to or corruption of digital accounting records is a
promote their products and solicit sales. By serious concern. The data processing
 department should perform separate file- Access Control -PC systems generally provide
backup procedures. inadequate control over access to data files. Solutions
for dealing with the problem include data encryption,
Independent Verification
disk locks, and physical security devices.
- Independent verification is restored somewhat by
performing batch control balancing after each run
and by producing management reports Accounting Records -Data losses that threaten
accounting records and audit trails plague the PC
and summaries for end users to review.
environment. Formal procedures for creating backup
PC based Accounting System copies of data files and programs can reduce this threat
considerably.
- General purpose systems
- Use them to automate and replace manual
systems
- The software market offers hundreds of PC-
based accounting systems. PC applications
tend to be general-purpose systems that
serve a wide range of needs. This strategy
allows software vendors to mass-produce
low-cost and error-free standard products.
Most PC systems are modular in design.
Their modular design provides users with
some degree of flexibility in tailoring
systems to their specific needs.

PC CONTROL ISSUES

Segregation of Duties

-PC systems tend to have inadequate segregation of

duties. Controlling the PC environment requires a high
degree of supervision, adequate management reports
(such as detailed listings of all transactions), and
frequent independent verification.