The Revenue Cycle

1
The Revenue Cycle

• Respond to customer inquiries
• Develop agreements with customers to provide
  goods and services in the future
• Provide services or ship goods to the customer
• Recognize claim for goods and services provided
• Collect cash
• Deposit cash in bank
• Prepare reports

2
Alternative Revenue Systems
Chapter Focus
3
Revenue Cycle Events
Accept order (El) A bookstore manager (customer)
sends an order with details of all books (ISBN,
author, title, publication year, and quantity).
The order entry clerk enters the order data into
the computer. The computer system checks whether
the order is from an existing customer. If the
order is from a new customer, the clerk creates a
customer record in the Customer Table in the
computer system. Then, the system checks the
Inventory Table to determine whether inventory is
available. The order information is recorded in
the Order and Order_Detail tables by ELERBEs
computer system. The computer system also updates
the Quantity_Allocated field in the Inventory
Table. The clerk prints two copies of the sales
order. One copy of the sales order is sent to
the warehouse to serve as a picking ticket. The
second copy serves as a packing slip and is sent
to the Shipping Department. Pick goods (E2) A
warehouse employee uses the picking ticket to
locate goods to be picked. In addition to the
products and quantities, the picking ticket
identifies warehouse locations to make it easy
for warehouse employees to assemble the order.
The employee picks the goods from the warehouse
for shipping, packs the goods in a package, notes
the actual amounts packed on the picking ticket,
and the package to the Shipping Department.
4
Revenue Cycle Events
Ship goods (E3) After receiving the goods and
picking ticket from the warehouse, the shipping
clerk reconciles the picking ticket and packing
slip and updates the packing slip for any changes
indicated on the picking ticket. The clerk then
prepares a bill of lading describing the package,
carrier, route, and so on, and attaches it to the
package. The shipping clerk enters the shipment
data into the computer system. The computer
records the shipment data in the Shipment and
Shipment_Detail tables and updates the Quantity
_On_Hand in the Inventory Table. A copy of the
packing slip and bill of lading are sent to
ELERBEs Accounts Receivable Department. The
clerk gives the package and the original packing
slip to the carrier. Bill customer (E4) At the
end of the day, the accounts receivable clerk
reviews the packing slips and bills of lading
provided by the shipper and compares them to the
shipping records displayed on the computer. Once
any errors are corrected, the invoice is recorded
in the Sales_Invoice and Sales_
Invoice_G/L_Detail Tables and a sales invoice is
printed. When this process is complete, a sales
journal is printed listing all of the new
invoices. If it appears satisfactory, the
invoices are mailed to the customers, the invoice
records are posted, and the balances due in the
Customer Table are updated. In addition, records
are added to the General_Ledger_Transfer Table.
5
Revenue Cycle Events
Collect cash (E5) The customer receives the
invoice or customer statement and tears off a
stub that includes the Customer as well the
numbers of the unpaid invoice(s). The customer
mails the stub (also known as a remittance
advice) with the check. With another employee
present, the mail clerk opens the mail daily and
takes out the checks and remittance advice. The
checks are endorsed by printing on the back of
each check, For Deposit Only. First National
Bank, Account 5506690203, ELERBE, Inc. Two
copies of a remittance list, showing the
Customer and amount paid by each customer, are
prepared, with a total at the bottom. One copy
goes to the cashier with the checks, and the
other copy goes to the accounts receivable clerk
with the remittance advice. Record collection
(E6) The accounts receivable clerk gives each
customer credit for payment by recording the cash
receipts in the Cash_Receipt and
Cash_Receipt_Detail tables. The clerk prints a
cash receipts journal that lists the cash
collections ordered by customer number. The clerk
compares the total on the cash receipts journal
to the remittance list. If they agree, the clerk
posts the batch, which updates the balances due
in the customers account and adds records to the
General_Ledger_Transfer Table.
6
Revenue Cycle Events
Deposit cash (E7) At the end of the day, the
cashier totals the checks and compares the total
to the remittance list. The cashier uses the
system to start recording a deposit. The system
reads the Cash_Receipt Table and displays all of
the receipts that have not yet been deposited.
These will be the same cash receipts recorded by
the accounts receivable clerk in E6. (Of course,
other cash receipts may have been recorded by
others in the company, but for simplicity we will
disregard that possibility.) The cashier selects
each cash receipt for deposit, and the system
creates a deposit record with the total amount of
the invoices selected. Next, the system prints a
deposit slip. The cashier takes the checks and
deposit slip to the hank and makes the deposit.
Then, the cashier gives a copy of the slip to the
controller. Reconcile cash (E8) Daily, the
controller compares the amount on the deposit
slip to the amount on the cash receipts journal.
7
Overview Activity Diagram (E1-E3)
Send Order
Customer
P Picking Ticket
Accept Order (E1)
Order Entry Clerk
PS Packing Slip
P Picking Ticket picked
Warehouse Employee
Pick Goods (E2)
B Bill of Lading
Ship Goods (E3)
Shipping Clerk
PS (shipped)
Computer
O Order
I Inventory
C Customer
I Inventory (sold)
I Inventory (allocated)
S Shipment
8
Overview Activity Diagram (E4-E8)
B Bill of Lading
SJ Sales Journal
PS (shipped)
CRCash Receipts Journal
Record Collection (E6)
Bill Customer (E4)
I Invoice
A/R Clerk
RA remittance
Pay
Customer
Check
L List
Mail Clerk
Collect (E5)
CK Check
Deposit (E7)
Cashier
DS Deposit Slip
Compare (E8)
Controller
Computer
GL
I Invoice
S Shipment
GL
C Customer (- bal)
C Customer
CR Cash Receipt
9
UML Diagram
Customer
Employee (entry clerk)
(E1) Sales_Order
Employee (ship clerk)
Inventory
(E3) Shipment
Employee (A/R clerk)
(E4) Sales_Invoice
Employee (A/R clerk)
(E6) Cash_Receipt
G/L Transfer
(E7)Deposit
Employee (cashier)
10
Tables
Customer
Inventory
Order
How would this be used?
Shipment
11
Tables
Sales_Invoice
Cash_Receipt
Deposit
Detail Tables Sales_Order, Shipment,
Sales_Invoice_G/L, Cash_Receipt,
Cash_Receipt_G/L
12
Revenue Risks

• Execution
• Unauthorized shipment, shipment sent twice,
  selling wrong product, wrong quantity, wrong
  quality, to wrong buyer, collecting the wrong
  amount late (or never)
• Recording
• Recording an event the wrong of times (0 or
  1), wrong details about event (product,
  quantity, entities), cash receipt
• Update
• Reducing inventory by wrong amount, incorrect
  update of customers balance due, incorrect
  updating of G/L

13
Revenue Risks and Workflow Controls
14
Revenue Cycle Menu
15
File Maintenance

• Have to have customers and inventory before we
  can enter transactions
• Referential integrity and control
• Other maintenance controls
• Limit maintenance to high level employees
• Have standards credit reports, quality of
  supplier so that customers and suppliers and up
  to par
• Performance reviews
• Save information in Master files, e.g.
  Budgeted_Sales_Quantity and YTD_Quantity_Sold

16
Accept Order (E1)

• What would be different if they went online?
• Lack of IT knowledge
• Design, order infrastructure, etc.
• Moving data back and forth
• Reliance on ISP
• What if ELERBE sold services and not goods?

17
Pick and Ship Goods (E2 E3)

• Exception report for missing books
• How would Inventory on hand be updated? 3? 0?
• What else gets changed due to shipment?

18
Bill Customer (E4)

• Manual vs. automated billing of customers
• ELERBE wanted A/R clerk to review shipping
  charges and prices before shipping (look at
  Unposted Sales Report)
• Opens door for human error

19
Record Cash Collection (E6)

• Suppose we have a suspicious payment (4003).
  How would we go about auditing the trail of
  events?
• Foreign keys

20
Deposit Cash and Reconcile Cash (E7E8)

• Deposit table not used in general ledger
• How can you tell?
• Still useful
• Audit trail at bank
• bank reconciliation

21
Other Monthly Activities

• Customer Statements
• Accounts receivable aging report
• Purging records
• Open item system
• Purge all records associated with paid in full
  (completed) transactions
• Balance forward system (e.g. credit card)
• Purge all records associated with previous
  periods
• Roll the balance due forward