Business Process

The Revenue Cycles

Learning Objectives
• Describe the basic business activities and related information
processing operations performed in the revenue cycle.
• Discuss the key decisions that need to be made in the revenue
cycle, and identify the information needed to make those
decisions.
• Identify major threats in the revenue cycle, and evaluate the
adequacy of various control procedures for dealing with those
threats.

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The Revenue Cycle
• Provides goods and services to customers, and
• Collects cash in payment for those sales
• Primary Objective:
• Provide the right product
• In the right place
• At the right time
• For the right price

12-3 .
 The Revenue Cycle (Context Diagram)

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 DEFINITIONS

• A bill of lading is a legal document between a shipper and a carrier that

details the type, quantity and destination of the goods being carried. The
bill of lading also serves as a shipment receipt when the carrier delivers
the goods at the predetermined destination
• A back order generally indicates that customer demand for a product or
service exceeds a company's capacity to supply it. Backordering is the
process of selling inventory you don't have on hand.
• A packing slip is a list of what is included in a shipment
Revenue Cycle Activities
(Logical DFD Level 0)
deal with customer

1. Sales order entry

2. Shipping
3. Billing
4. Cash collections

. .
 A-Sales Order Entry
(Logical DFD Level 1)

1. Take order from customer

2. Check and approve credit
3. Check inventory
availability
4. Responding to customer
inquiries

. .
 A- Sales Order Threat/Control
Threats Controls
Incomplete/  Data entry edit controls (eg. Field check, sign check, limit check, range
inaccurate orders check, etc)
 Restriction of access to master data (eg. Password, pin code etc)
Invalid orders  Digital signatures or written signatures

Uncollectible  Credit limits

account  Specific authorization to approve sales to new customers or sales that
exceed a customer’s credit limit
 Aging of accounts receivable
Stock-outs or excess  Perpetual inventory control system
inventory  Use of bar-codes or RFID
 Training
 Periodic physical counts of inventory
 Sales forecasts and activity reports
Loss of customers  CRM systems, self-help Web sites, and proper evaluation of customer
service ratings .
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 DEFINITIONS
• Radio-frequency identification (RFID) uses electromagnetic fields to automatically
identify and track tags attached to objects. The tags contain electronically-stored
information. Passive tags collect energy from a nearby RFID reader's interrogating radio
waves.

9 .
 12 examples of RFID across industries
• Manufacturing – A major tire manufacturer is going to insert RFID tags into its tires. The
tags will store a unique number for each tire, which will be associated with the car’s vehicle
identification number.
• Pharmaceuticals – Pharmaceutical companies have embedded RFID chips in drug
containers to track and avert the theft of highly controlled drugs, such as OxyContin.
• Airlines – Continental Airlines uses RFID tags to track passenger bags, while Delta Airlines
is tagging customer bags with RFID technology to reduce the number of lost bags and make
it easier to route bags if customers change their flight plans.
• Restaurants – A premier coffee chain is considering using RFID chips and readers to enable
its suppliers to make after-hour deliveries to stores, which avoids the disruption of staff
members during work hours.
• Toll Roads – Many tolls roads in the United States use RFID technology to collect fees
without the need for toll booth personnel.
• Retail – ExxonMobil uses RFID technology for its “SpeedPass,” which instantly collects
payment on gas stations from a tag on a driver’s keychain, while Wal-Mart is requesting that
all their suppliers apply RFID tags to all cartons of goods delivered.

. .
 12 examples of RFID across industries
• Seaports – Three seaport operators in the United States, which account for 70 % of the
world’s port operations, agreed to deploy RFID tags to track daily arriving containers.

• Government – The U.S. Department of Defence is planning to use RFID technology to trace
military supply shipments.

• Corporate & Municipal – Australia placed RFID tags in employee uniforms to aid in
deterring theft. The same idea would work well in a corporate environment to help control
desktop computers, networking equipment, and personal digital assistants or handheld
computers.

• Credit Card – Visa is combining smart cards and RFID chips so people can conduct
transactions without having to use cash or coins.

• Banks – The European Central Bank is considering embedding RFID chips in Euro notes to
combat counterfeiters and money-launderers. This also would enable banks to count large
amounts of cash in seconds.

• People Tracking – The United Nations uses RFID technology to track the movements of its
personnel.
. .
 B-Shipping
(Logical DFD Level 1)

1. Picking and packing the

order
2. Shipping the order

. .
 B- Shipping threat / control
Threats Controls

Picking the wrong items  Bar-code, QR Code and RFID technology

or the wrong quantity  Reconciliation of picking lists to sales order details

Theft of inventory  Restriction of physical access to inventory

 Documentation of all inventory transfers (no verbal
instruction)
 RFID and bar-code, QR Code technology
 Periodic physical counts of inventory and reconciliation to
recorded quantities
Shipping errors  Reconciliation of shipping documents with sales orders,
(delay or failure to ship, picking lists, and packing slips
wrong quantities, wrong  Use RFID systems to identify delays
items, wrong addresses,  Data entry via bar-code, QR Code scanners and RFID
duplication)  Data entry edit controls (if shipping data entered on
terminals)
.  Configuration of ERP system to prevent duplicate shipments .
 C-Billing
(Logical DFD Level 1)
1. Invoicing
2. Updating accounts
receivable:
• Open invoice
method – (customers
usually pay according
to each invoice )
• Balance forward
method (payment
based on monthly
statement)

. .
 C- Billing threat / control
Threats Controls
Failure to bill  Separation of billing and shipping functions (segregation of duties)
 Periodic reconciliation of invoices with sales orders, picking tickets, and shipping
documents

Billing errors  Configuration of system to automatically enter pricing data

 Restriction of access to pricing master data
 Data entry edit controls
 Reconciliation of shipping documents (picking tickets,
bills of lading, and packing list) to sales orders
Posting errors in  Data entry controls
accounts  Reconciliation of batch totals
receivable  Mailing of monthly statements to customers
 Reconciliation of subsidiary accounts to general ledgers
Inaccurate or  Segregation of duties of credit memo (credit note) authorization from both sales
invalid credit order entry and customer account maintenance
memos  Configuration of system to block credit memos unless there is either
corresponding documentation of return of damaged goods or specific
authorization by management

. .
 D- Cash Collection
• Objective:
• To safeguard customers remittances (money/payment)
• Method of handling cash collection:
• 2 copies of invoices sent to customers
• Image processing technology (eg. QR code)
https://www.youtube.com/watch?v=QMLbTEQJCaI
• Lockbox
• Electronic lockbox
• Electronic Fund Transfer (EFT)
• Electronic Data Interchange (EDI)
• Financial Electronic Data Interchange (FEDI)
• Credit card
• Procurement card

. .
 EFT, Lock boxes

• EFT – Electronic fund transfer, but no remittance advices (RA)

• The Lock boxes -is a service offered by commercial banks to organizations

that simplifies collection and processing of account receivables by having
those organizations' customers' payments mailed directly to a location
accessible by the bank (especially in rural areas).

. .
 .

Electronic Data Interchange (EDI) is the computer-to-computer exchange of

business documents in a standard electronic format between business partners.
 .
• .

FEDI - The electronic transmission of payments and payment related information in standard formats
between companies and/or their banks. FEDI includes electronic formats for invoices, payment initiation,
and remittance information processed through a financial institution or communications intermediary.
(EDI + EFT).
 D-Cash Collections Threat/Control
Threats Controls
Theft of cash  Separation of cash handling function from accounts receivable and
credit functions (segregation of duties)
 Regular reconciliation of bank account with recorded amounts by
someone independent of cash collections procedures
 Use of EFT, FEDI, and lockboxes to minimize handling of customer
payments by employees
 Prompt, restrictive endorsement of all customer cheques
 Having two people open all mail likely to contain customer payments
 Use of cash registers machine
 Daily deposit of all cash receipts
Cash flow  Lockbox arrangements, EFT, or credit cards (keep it variety)
problems  Discounts for prompt payment by customers
 Cash flow budgets
. .
 General Revenue Cycle Threats / Controls
General Threats General Controls

Inaccurate or invalid  Data processing integrity controls (e.g, data matching, file
master data labels, recalculation of batch totals, cross-footing & zero
balance tests, write protection mechanisms, concurrent
update controls – refer chapter system reliability for details).
 Restriction of access to master data
 Review of all changes to master data
Unauthorized  Access controls
disclosure of sensitive  Encryption (conversion of electronic data into another form,
information called cipher text, which cannot be easily understood by
anyone except authorized parties).
Loss or destruction of  Backup and disaster recovery procedures
master data
Poor performance  Managerial reports
. .
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