AIS CHAPTER 12

Revenue Cycle
Recurring 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.

The primary external exchange of information is with customers.

4 steps:
Sales Order Entry

Shipping

Billing

Cash Collections

Sales order entry
Checking the customer’s available credit MUST be done before the order is checked for inventory availability.
Sales Order Entry – Checking Inventory Availability
When there are not sufficient items on hand, a BACK ORDER is created.
Example: Holiday shopping

Once the item(s) become available, a PICKING TICKET is created.
The picking ticket authorizes the inventory control function to release merchandise to the shipping department.

Sales Order Entry – Customer Inquiries
Customer service is so important that many companies use special software packages, called Customer Relationship Management (CRM) systems, to support this vital process.
Shipping – Pick and Pack the Order
The PICKING TICKET printed by the SALES ORDER ENTRY triggers the pick and pack process.
Shipping – Ship the Order
The shipping department compares the physical count of inventory with the quantities indicated on the PICKING TICKET and with the quantities indicated on the copy of the SALES ORDER that was sent directly to shipping from sales order entry.

The PACKING SLIP lists the quantity and description of each item included in the shipment.

THE PACKING SLIP SHOULD ALWAYS BE INCLUDED WITH A MERCHANDISE SHIPMENT TO A CUSTOMER

The BILL OF LADING is a legal contract that defines responsibility for the goods in transit.

Billing – Invoicing the Customer
The document created in the billing process is the SALES INVOICE, which notifies customers of the amount to be paid and where to send payment.
Billing – Updating Accounts Receivable
The accounts receivable function uses the information on the invoice to DEBIT the customers’ accounts for CREDIT purchases and credit the customers’ accounts when payment is received.

Under the OPEN-INVOICE METHOD, customers normally pay according to each invoice.
The customer is asked to return a copy of the invoice when mailing in their payment. This return copy is referred to as the REMITTANCE ADVICE

Under the BALANCE-FORWARD METHOD, customers typically pay according to the amount shown on a MONTHLY STATEMENT.
A MONTHLY STATEMENT lists all transactions, including both sales and payments.

REGULARLY REVIEWING AN ACCOUNTS RECEIVABLE AGING REPORT CAN HELP MANAGEMENT SPOT FIRMS WHO ARE FALLING BEHIND IN THEIR PAYMENTS.

Cash Collection
The REMITTANCE ADVICE normally triggers the customer payment recording process.

A LOCKBOX is a postal address to which customers send their remittances. The participating bank picks up the checks from the post office box and deposits them to the company’s account.

Under an ELECTRONIC LOCKBOX arrangement, the bank electronically sends the company information about the customer account number and the amount remitted as soon as it receives and scans those checks.

Revenue Cycle’s Key Decisions
To what extent can and should products be customized to individual customers’ needs and desires?

By using an ERP to merge the billing, sales, and marketing functions, the firm may be able to use customer’s past purchase history to send information about related products and services the customer may be interested in.

Incomplete or Inaccurate Customer Orders THREAT
The following edit checks should be used to ensure accuracy in customer orders:

Reasonableness test
Performed to compare the quantity ordered with the standard amounts normally ordered.

Completeness test
Performed to verify that each transaction record contains all appropriate data items.
Example: Error message saying “Please enter your phone number.”

Limit check
Performed to test a numerical amount against a fixed value
Example: Error message saying “Your order exceeds your available credit. You will be contacted within 8 hours.”

Credit Sales to Customers with Poor Credit THREAT
Separation of duties between credit approval and marketing should resolve the program of granting credit sales to customers with poor credit ratings.
Error in Maintaining Customer Accounts THREAT
The following edit checks should be used to ensure accuracy in updating customer accounts:

VALIDITY CHECKS
Matching customer account numbers and inventory items numbers to the numbers in the customer and inventory master files

Closed-loop verification
Ensure that the proper account is being credited

Field check
Ensure that only numeric values are entered for payment amounts

Theft of Cash THREAT
The following segregation of duties should be used to reduce this risk:

1) Handling cash and posting remittances to customer accounts

2) Handling cash and authorizing credit memos

3) Issuing credit memos and maintaining customer accounts

Segregation of duties and minimization of cash handling can help lessen the exposure of loss of assets.