Accounting Information Systems: A Business Process Approach

1. Accounting Information Systems: A Business Process Approach Chapter Eleven: The Revenue Cycle

2. Learning Objective • The typical sequence of events in the revenue cycle • Alternative revenue cycle systems • Common documents and reports used in the revenue cycle • The difference between open item and balance forward processing • General ledger implication of event reports

3. Learning Objective (Continue) • Identify the applications of alternative revenue processes on recording, updating and reporting • Use activity diagrams, UML, class diagram and record layouts • Identify execution and recording risks in the acquisition cycle • Identify controls that mitigate revenue cycle risks • Use accounting packages for recording revenue cycle information

4. Exhibits: 11.3 Tables: 11.1 - 11.3

5. Exhibit 11.3  Input Controls • The following types of input controls were identified in Chapter 4. •  Drop-down menus that provide a list of possible values to enter. •  Record checking to determine whether data entered were consistent with data entered in a related table. •  Confirmation of data that were entered by a user by displaying related data from another table. •  Referential integrity controls to ensure that event records are linked to records in the related master table(s). •  Format checks to limit data entered to text, numbers, or dates. •  Validation rules to limit the data that can be entered to certain values. •  Use of defaults from data entered in prior sessions. •  Computer-generated values entered in records. •  Batch control totals taken before data entry compared to printouts after data entry. •  Review of edit report for errors before posting. •  Exception reports that list cases where defaults were overridden or where unusual values were entered.

6. Table 11.1 Alternative Revenue Cycle Systems* Characteristic System Requirements Alternative Ordering Methods: 1. Order before delivery Track orders 2. Immediate customer No need to track orders pickup (no order) Alternative Payment Timing: 1. Before delivery Track advance payments by customers 2. At time of delivery Record cash collections, but may not need to maintain customer balances 3. After delivery Track amounts owed by customers Alternative Forms of Payment: 1. Cash Must reconcile cash collections with sales or reductions in accounts receivable 2. Check Same as above. In addition, if a check is returned non- sufficient-funds, must track amount owed by customer 3. Credit or debit card Must have equipment that can determine card validity Must send transactions to a third party Must save signed receipts for credit card purchases 4. Sales on account Must track amounts owed by store credit customers Must bill customers Must collect cash after sale *This chapter will focus on the shaded alternatives.

7. Table 11.2 Examples of Alternative Revenue Systems Example/Type Order Method Payment Timing Form of Payment Restaurant Order before delivery After service Cash, check, or card Convenience store No order At time of purchase Cash only Magazine publisher Order (subscription) Before receipt Check or card

8. Table 11.3  Layout of Revenue Cycle Records • MASTER TABLES • Customer Table • Contact_ G/L_ Due_ Credit_ Balance • Customer# Name Address Person Telephone Sales Days Limit _Due • 3451 Educate, Inc. Fairhaven, MA Costa 508-888-4531 4000 30 $12,000 $0 • Inventory Table • Budget_ YTD_ • Default Quantity_ Quantity_ G/L_ G/L_ Sales_ Quantity • ISBN Author Title _Price on_Hand Allocated Sales COGS Quantity _Sold • 0-256-12596-7 Barnes Introduction $78.35 0 0 4000 5210 300 • to Business • EVENT TABLES (related detail tables shown at end) • Sales_Order Table (E1) • Order# Date Employee# (Order Entry Clerk) Customer# • 219 05/11/03 201-35-8921 3451 • Shipment Table (E3) • Shipment# Date Order# Employee# (Warehouse) Employee# (Shipper) Freight • 831 05/11/03 219 540-89-5403 027-40-0130 $3.00 • Sales_Invoice Table (E4) • Invoice_ Original_ Amount_ G/L_Post • Invoice# Shipment# Date Due_Date Amount Paid Post_Date _Date • 3003 831 05/12/03 06/11/03 $1,169.90 $0 05/12/03

9. Table 11.3  Layout of Revenue Cycle Records (Continued) Cash_Receipt Table (E6) Payment# Date Employee# (AR clerk) Amount Post_Date G/L_Post_Date Deposit# 4003 05/19/03 031-42-9517 $6,199.90 503 Deposit Table (E7) Deposit# Date Employee# (Cashier) Amount 503 05/19/03 391-87-0202 $6,199.90 EVENT DETAIL TABLES Sales_Order_Detail Table (E1) Order# ISBN Order_Quantity Quantity_Shipped Price 219 0-256-12596-7 15 0 $78.35 219 0-146-18976-4  1 0 $70.00 Shipment_Detail Table (E3) Shipment# ISBN Quantity_Shipped Quantity_Invoiced 831 0-256-12596-7 14 0 831 0-146-18976-4  1 0 Sales_Invoice_G/L_Detail Table (E4) Invoice# G/L_Account# Amount 3003 1050 $1,169.90 3003 4200 ($3.00) 3003 4000 ($1,166.90) 3003 5210 $732.00 3003 1120 ($732.00)

10. Table 11.3  Layout of Revenue Cycle Records (Concluded) Cash_Receipt_Detail Table (E6) Payment# Invoice# Amount 4003 3003 $1,169.90 4003 3052 $5,030.00 Cash_Receipt_G/L_Detail Table (E6) Payment# G/L_Account# Amount 4003 1000 $6,199.90 4003 1050 ($6,199.90)

11. Monthly Activities • Send Customer Statements • Print Accounts Receivable Aging Report • Purge Records

12. Other Types of Revenue Cycle • Cash and Carry: A method of business where customers pick up their merchandise in person and pay cash for it • Credit Card Sales