The Revenue Cycle: Sales to Cash Collections

Transcript:The Revenue Cycle: Sales to Cash Collections:
The Revenue Cycle: Sales to Cash Collections Chapter 10 1 FOSTER School of Business Acctg.320 Questions Addressed What are the basic business activities and data processing operations that are performed in the revenue cycle? What decisions need to be made in the revenue cycle, and what information is needed to make these decisions? What are the major threats in the revenue cycle and the controls related to those threats? FOSTER School of Business Acctg.320 2 Introduction The revenue cycle is a 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. Primary external exchange of information is with customers. FOSTER School of Business Acctg.320 3 Revenue Cycle Objective The revenue cycle’s primary objective is to provide the right product in the right place at the right time for the right price. (no lefts here!) To accomplish that objective, management must make many key decisions: FOSTER School of Business Acctg.320 4 Key Decisions: Revenue Cycle To what extent can and should products be customized to individual customers’ needs and desires? How much inventory should be carried, and where should that inventory be located? How should merchandise be delivered to customers? Should the company perform the shipping function itself or outsource it to a third party that specializes in logistics? What are the optimal prices for each product or service? Should credit be extended to customers? How much credit should be given to individual customers? What credit terms should be offered? How can customer payments be processed to maximize cash flow? FOSTER School of Business Acctg.320 5 AIS basic functions There are 3 basic functions of the AIS in the revenue cycle: (1) capturing and processing data about business activities, (2) storing and organizing that data to support decision making, (3) providing controls: ensure reliability of data & safeguard resources. FOSTER School of Business Acctg.320 6 Revenue Cycle Business Activities Four basic business activities performed in the revenue cycle: Sales order entry Shipping Billing Cash collections FOSTER School of Business Acctg.320 7 Sales Order Entry Sales order entry process entails four steps: taking the customer’s order, checking and approving customer credit, checking inventory availability, and Responding to Customer Inquiries FOSTER School of Business Acctg.320 8 Taking Customer Orders Many different ways: phone, store, field rep., mail, web…etc. Optical scanners can convert hardcopy to electronic data or