THE

AUDITING INFORMATION SYSTEM

REVENUE
CYCLE
GROUP 1
OVERVIEW
OF REVENUE
Sales Order Procedures
DFD of Sales Order Processing

CYCLE
System
Sales Order
Bill of Lading

ACTIVITIES
Inventory Subsidiary Ledger
SALES Sales order procedures include the tasks

ORDER
involved in receiving and processing a
customer order, filling the order and
shipping products to the customer, billing

PROCEDURE
the customer at the proper time, and
correctly accounting for the transaction.
02
BILL OF Business Plan

LADING
JOURNAL VOUCHER
INVENTORY SUBSIDIARY LEDGER
 An organization can expect that a certain percentage

SALES
of its sales will be returned. This occurs for a number of
reasons, some of which may be:

RETURN
The company shipped the customer the wrong
merchandise.
The goods were defective.

PROCEDURE
The product was damaged in shipment.
The buyer refused delivery because the seller
shipped the goods too late or they were delayed in
transit.
DFD OF
SALES
RETURN
PROCEDURES
 Prepare Return Slip - When items are returned,

SALES RETURN
the receiving department employee counts,
inspects, and prepares a return slip describing the

PROCEDURE
items.

Prepare Credit Memo - Upon receipt of the return

slip, the sales employee prepares a credit memo.
CREDIT MEMO
 SALES RETURN PROCEDURE
Approve Credit Memo - The credit manager evaluates the circumstances of the return
and makes a judgment to grant (or disapprove) credit. The manager then returns the
approved credit memo to the sales department.
Update Sales Journal - Upon receipt of the approved credit memo, the transaction is
recorded in the sales journal as a contra entry.
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.
Update General Ledger - Upon receipt of the journal voucher and account summary
information, the general ledger function reconciles the figures and posts to the following
control accounts:
CASH
RECEIPTS
PROCEDURE
Involve receiving and securing
the cash; depositing the cash
in the bank; matching the
payment with the customer
and adjusting the correct
account; and properly
accounting for and reconciling
the financial details of the
transaction.
CASH RECEIPTS JOURNAL
Transaction Authorization
Segregation of Duties
Supervision
Accounting Records
Access Controls
Independent Verification
TRANSACTION AUTHORIZATION
To ensure that only valid transactions are
processed.
CREDIT CHECK
Credit check is a function of the credit
department;
Concern/Objective - credit worthiness of a
customer
RETURN POLICY
Processing of sales returns is a function of the credit
department;
The granting of cash refunds or credits to customers is based
on the materiality of the transaction;
As materiality increases, credit approval becomes more
formal.

REMITTANCE LIST
Provides a means for verifying that customer checks and
remittance advices match in amount.
SEGRATION OF DUTIES
NO single individual or department processes a
transaction in its entirety.

1. Transaction authorization should be separate from transaction

processing;
2. Asset custody should be separate from the task of asset record
keeping;
3. The organization should be structured so that the perpetration of a
fraud requires collusion between two or more individuals.
SUPERVISION
Supervison is a compensating control for
companies that have too few employees
where segregation of duties is not adequate.
ACCOUNTING RECORDS
Accounting records form an audit trail that allows
independent auditors to trace transactions through the
various stages of processing.
Pre-numbered Documents - Sequential numbering of documents to
allow transactions to be uniquely identified and for tracking purposes

Special Journals - Upon receipt of the approved credit memo, the

transaction is recorded in the sales journal as a contra entry.

Subsidiary Ledger / General Ledger - Source documents captured by

journals(special journals included or thru vouchers) and subsidiary
ledgers flow into the general ledger for FS preparation- a compete audit
trail.
FILES
The revenue cycle employs several temporary and
permanent files that contribute to the audit trail.

The following are typical examples:

Open sales order file - status of customer orders;
Shipping Log;
Credit records file;
Sales order pending file;
Back order file; and
Journal voucher file.
ACCESS CONTROLS
Prevent and detect unauthorized and
illegal access to the firm's assets.
INDEPENDENT VERIFICATION
Verify the accuracy and completeness of
tasks that other functions in the process
perform.
PHYSICAL SYSTEM
This discusses the importance of understanding manual
systems in the context of Accounting Information Systems
(AIS). Despite the prevalence of computer technology,
manual systems are still relevant for three reasons:

1. Manual systems help students understand key concepts and

visualize the flow of documents.
2. Manual systems illustrate the importance of separating duties and
responsibilities.
3. Studying manual systems provides insight into the development of
computer-based systems.
MANUAL
SALES ORDER
PROCESSING
SYSTEMS
MANUAL
SALES ORDER
PROCESSING
SYSTEMS
CONTROLLER'S OFFICE
Additional controls are necessary for
cash, as it is a liquid asset, and a bank
reconciliation is performed periodically to
prevent misappropriation.
Computer-based accounting
(CBAS) technology can be viewed
as continuum with two extremes:
Automation - use technology
to improve efficiency and
effectiveness
Re-engineering - use
technology to restructure
business processes and firm
organization
AUTOMATING SALES ORDER PROCESSING
WITH BATCH TECHNOLOGY
BATCH
SALES
ORDER
SYSTEM
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.
CREDIT DEPARTMENT APPROVAL
When credit is approved, the sales department releases copies of the sales
order to the billing, warehouse, and shipping departments.

WAREHOUSE PROCEDURES
clerk receives the stock release copy of the sales order and uses this to pick the
goods.

THE SHIPPING DEPARTMENT

The shipping clerk reconciles the products received from the warehouse with the
shipping notice.
KEYSTROKE
The keystroke clerk converts the hard-copy shipping notices to
digital form to produce a transaction file of sales orders.
This is a continuous process.
The keystroke clerk transcribes batches of shipping notices.

EDIT RUN
The edit program first validates all transaction records in the batch
by performing clerical and logical tests on the data.
 REENGINEERING
SALES ORDER
PROCESSING WITH
REAL-TIME
TECHNOLOGY
 TRANSACTION PROCESSING PROCEDURES
Sales Procedures
Under real-time processing, sales clerks receive orders from customers and
process each transaction separately as it is received.

Using a computer terminal connected to a sales order system, the clerk performs the
following tasks in real-time mode:

1. The system accesses the inventory subsidiary file and checks the availability
of the inventory.
2. If credit is approved, the system updates the customer’s current balance to
reflect the sale and reduces inventory by the quantities of items sold to
present an accurate and current picture of inventory on hand and available
for sale.
3. The system automatically transmits a digital stock release document to the
warehouse, a digital shipping notice to the shipping department, and records
the sale in the open sales order file.
 TRANSACTION PROCESSING PROCEDURES
Warehouse Procedures.
The warehouse clerk’s terminal immediately produces a hardcopy printout of the
electronically transmitted stock release document.

Shipping Department
A shipping clerk reconciles the goods, the stock release document, and the hard-
copy packing slip produced on the terminal.

GENERAL LEDGER UPDATE PROCEDURES

At the end of the day, the batch update program searches the open sales order file for
records marked closed and updates the following general ledger accounts: Inventory—
Control, Sales, AR—Control, and Cost of Goods Sold.
 ADVANTAGES OF REAL-TIME
PROCESSING
1. Real-time processing greatly shortens the cash cycle of the firm.
2. Real-time processing can give the firm a competitive advantage in the
marketplace.
3. Manual procedures tend to produce clerical errors, such as incorrect
account numbers, invalid inventory numbers, and price–quantity
extension miscalculations.
4. Real-time processing reduces the amount of paper documents in a
system.
AUTOMATED CASH RECEIPTS SYSTEMS
 MAIN POINTS OF AUTOMATED CASH
RECEIPTS PROCEDURE
Mail Room - The mail room clerk separates the checks and remittance advices and
prepares a remittance list.

Cash Receipts Department - The cash receipts clerk reconciles the checks and the
remittance list and prepares the deposit slips.

Accounts Receivable Department - The AR clerk receives and reconciles the remittance
advices and remittance list.

Data Processing Department - At the end of the day, the batch program reconciles the
journal voucher with the transaction file of cash receipts and updates the AR subsidiary
and the general ledger control accounts (AR—Control and Cash). This process employs the
direct access method described earlier.
 REENGINEERED CASH
RECEIPTS PROCEDURES
Focus on redesigning the entire process of
receiving cash, eliminating unnecessary steps,
replacing traditional procedures, and integrating
technology to improve efficiency.
Such procedures help businesses process
payments efficiently, reduce errors, and increase
revenue.
BENEFITS OF REENGINEERED CASH
RECEIPTS PROCEDURES
Faster Cash Flow
Reduced Human Errors
Lower Costs
Better Fraud Prevention
POS (Point-of-Sale) Systems

Using EDI (Electronic Data

Interchange)
Using the Internet
 POS (POINT-OF-SALE) SYSTEMS
A POS system is a digital register that records
sales, process payments and updates
inventory in real time.
It processes transactions quickly and
updates accounting records automatically
Customers can pay via cash, credit cards,
or digital wallets
POS SYSTEM
FLOWCHART
FOR A GROCERY
OR RETAIL
STORE
1. Customer Purchase &
Payment (Sales Department)
customer buys a product
clerk scans the Universal Product
Code (UPC) label on the items
customer pays (cash or credit
card)
receipt and/or credit card voucher
is generated
2. Sales Recording & Inventory
Update (Computer Operations)
the POS system updates the
inventory automatically
sales are recorded in the sales
journal
sales are processed in batches
a) general ledger
b) cash receipts journal
3. Cash & Credit Card
Reconciliation (Treasure
Department)
all cash receipts and credit card
vouchers are collected
cash and register tape are
compared (includes cash
short/over)
employee fills out a reconciliation
form and prepare a deposit slip
4. End-of-Day Process
(Treasury Department)
once reconciled, deposit slip is
entered into the system for
record-keeping
cash and checks are prepared
for deposit at the bank
credit card transaction are
processed electronically
a copy of the deposit slip is
stored for future reference
 EDI (ELECTRONIC DATA INTERCHANGE)

EDI technology was devised to expedite routine

transactions between businesses to streamline
operations and improve data accuracy.
For instance, replacing paper invoices and
orders with electronic transactions.
EDI technology is used in manufacturing,
logistics, healthcare, retail and finance industries.
 INTERNET-BASED REENGINEERING
The internet became a platform for businesses
to sell products or services directly to customers
worldwide.
Customers shop from their phones, pay, and
receive the products they purchased within days.
This technique is used in: online stores, e-
commerce platforms, and digital marketplaces
like Shopee, Lazada and other official websites.
A type of computer-based
system that specifically runs on
personal computers (PCs) rather
than larger centralized systems.
Primarily used for small-scale
operations with fewer users and
limited connectivity.
Examples: QuickBooks
Desktop, Microsoft Excel
PC-BASED ACCOUNTING SYSTEM MODULES
 PC-BASED ACCOUNTING SYSTEM MODULES

acts as the central

interface for navigating
the system
allows users to access
the accounting
functions
QUICKBOOKS DESKTOP
 PC-BASED ACCOUNTING SYSTEM MODULES

records and summarized

all financial transactions
maintains the chart of
accounts and produces
financial statements
QUICKBOOKS DESKTOP
QUICKBOOKS DESKTOP
 PC-BASED ACCOUNTING SYSTEM MODULES

Handles customer orders

and invoicing
links to inventory and
accounts receivable for
real time updates
QUICKBOOKS DESKTOP
 PC-BASED ACCOUNTING SYSTEM MODULES

manages incoming
payments from
customers
updates accounts
receivable and cash
account balances
 PC-BASED ACCOUNTING SYSTEM MODULES

Tracks suppliers
invoices and payments
Helps manage
expenses and liabilities
 PC-BASED ACCOUNTING SYSTEM MODULES

Processes outgoing
payments for purchases
and expenses
Ensures proper cash flow
management
 PC-BASED ACCOUNTING SYSTEM MODULES

Manages stock
levels, purchases,
and sales
Helps prevent
overstocking or
shortages
 PC-BASED ACCOUNTING SYSTEM MODULES

Automates salary
calculation, tax
deductions, and
employee
payments
Ensures compliance
with tax and labor
regulations
AUDITING INFORMATION SYSTEM

THANK
YOU!
GROUP 1