chapter

12 The revenue cycle

Learning objectives
To learn about the revenue cycle business activities. To learn to flow chart the revenue cycle business activities. To understand the processing of the revenue cycle transactions using a computer. To know what the control practices and procedures are in the revenue cycle.
2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Accounting Information & Reporting Systems by A. Aseervatham and D. Anandarajah. Slides prepared by Kaye Watson.

12-1

key terms
balance forward method bill of lading billing cash on delivery credit limit cycle billing delivery note Goods and Services Tax open invoice method picking slip post-invoicing pre-invoicing remittance advice statement of accounts tax invoice terms of payment 12-2

2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Accounting Information & Reporting Systems by A. Aseervatham and D. Anandarajah. Slides prepared by Kaye Watson.

Revenue cycle
Deals with transaction processing involved in selling goods or services Sales can be made for cash or on credit

2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Accounting Information & Reporting Systems by A. Aseervatham and D. Anandarajah. Slides prepared by Kaye Watson.

12-3

Revenue cycle business activities

Main functions (cash sale): accepting customer requests for goods or services delivery of goods or services invoicing dealing with returned goods receiving and recording customer payments
2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Accounting Information & Reporting Systems by A. Aseervatham and D. Anandarajah. Slides prepared by Kaye Watson.

12-4

Revenue cycle business activities

Additional functions (credit sale): approving credit and credit limits recording accounts receivable sending periodical statements to customers dealing with bad debts

2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Accounting Information & Reporting Systems by A. Aseervatham and D. Anandarajah. Slides prepared by Kaye Watson.

12-5

Revenue cycle business activities

Categories of activities in revenue cycle: 1. processing customer orders 2. delivery/shipping 3. invoicing 4. accounts receivable ledger

2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Accounting Information & Reporting Systems by A. Aseervatham and D. Anandarajah. Slides prepared by Kaye Watson.

12-6

Processing customer orders

Customer orders:
accepting requests from customers preparing sales order

Approving credit and credit limits:

screening new customers setting maximum limit processing requests to increase limit periodic checks on existing 2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Accounting Information & customers 12-7 Reporting Systems by A. Aseervatham and D. Anandarajah. Slides prepared by
Kaye Watson.

Delivery/shipping of goods or providing a service

Delivery/shipping of goods:
receiving sales order preparing the dispatch order and delivery notes

Providing a service:
recording labour and materials used (job card)
2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Accounting Information & Reporting Systems by A. Aseervatham and D. Anandarajah. Slides prepared by Kaye Watson.

12-8

Invoicing and recording accounts receivable

Details on sales invoice:
invoice number name of supplier ABN date of invoice description of goods quantity of goods GST inclusive price discount allowed 12-9

2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Accounting Information & Reporting Systems by A. Aseervatham and D. Anandarajah. Slides prepared by Kaye Watson.

Terms
2/7 - 2% discount if account is paid within 7 days n/30 - net amount payable within 30 days 10/eom - payment required within 10 days after the end of the month 2003 McGraw-Hill Australia Pty days - payment & net cash 30 Ltd, PPTs t/a Accounting Information 12-10 Reporting Systems by A. Aseervatham and D. Anandarajah. Slides prepared by required within 30 days of the end of Kaye Watson.

Types of invoicing
Pre-invoicing:
invoice prepared when sales order is approved

Post-invoicing:
invoice prepared and dispatched after delivery of goods or services

2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Accounting Information & Reporting Systems by A. Aseervatham and D. Anandarajah. Slides prepared by Kaye Watson.

12-11

Accounts receivable ledger

2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Accounting Information & Reporting Systems by A. Aseervatham and D. Anandarajah. Slides prepared by Kaye Watson.

Customers referred to as debtors Accounts receivable is an asset Subsidiary ledger maintains asset details Source document for this ledger is sales invoice issued Statement of accounts sent to customers at end of each period showing details of account transactions and outstanding balance
12-12

Accounts receivable ledger

Credit or adjustment notes:

prepared when goods are returned recorded in sales returns journals

Bad debts:
amounts owing by debtors that are unable to be collected

2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Accounting Information & Reporting Systems by A. Aseervatham and D. Anandarajah. Slides prepared by Kaye Watson.

12-13

Accounts receivable ledger

Revenue cycle ends with customer payments that may take the form of:
cash from cash sales cheques most common form of payment bank transfers direct deposits or EFT

Details of all payments are recorded in the cash receipts 2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Accounting Information & journal Reporting Systems by A. Aseervatham and D. Anandarajah. Slides prepared by
Kaye Watson.

12-14

Sales function

2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Accounting Information & Reporting Systems by A. Aseervatham and D. Anandarajah. Slides prepared by Kaye Watson.

12-15

Sales returns function

2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Accounting Information & Reporting Systems by A. Aseervatham and D. Anandarajah. Slides prepared by Kaye Watson.

12-16

orders Strict procedures for granting credit Set policy on credit amounts and terms and discounts Prompt invoicing in separate department Segregation of duties on dispatch invoice preparation Proper authorisation procedures for discounts, returns and allowances and bad debt write offs 2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Accounting Information & Sequentially pre-numbered invoices, 12-17 Reporting Systems by A. Aseervatham and D. Anandarajah. Slides prepared by receipts etc. Kaye Watson.

Internal controls procedures for the revenue cycle orders to sales Prompt transfer of customer

Computer application systems for the revenue cycle

Computers play an important role where large numbers of transactions are processed:
record the information in the same categories as a manual system quickly produce the documentation required record reservation of goods and services ordered easily generate detailed reports for 2003 management Ltd, PPTs t/a Accounting Information & McGraw-Hill Australia Pty use 12-18 Reporting Systems by A. Aseervatham and D. Anandarajah. Slides prepared by reduce labour Watson. Kaye costs

Controls in the computer environment

Application controls required: Input controls
detect and prevent errors when data is input

Processing controls
detect and prevent errors while processing is in progress

Output controls
detect and prevent errors in outputs from processing
2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Accounting Information & Reporting Systems by A. Aseervatham and D. Anandarajah. Slides prepared by Kaye Watson.

12-19