TOPIC 3

• Revenue cycle


  The direct exchange of finished goods or services for cash in a single transaction between a seller and a buyer. More complex revenue cycles process sales on credit.
• Revenue cycle


  1. Sales order processing subsystem

  2. Cash receipts subsystem

  
• Sales order procedures


  1. Receive order

  2. Check credit

  3. Pick goods

  4. Ship goods

  5. Bill customer

  
• Sales order


  Captures vital information such as the customer's name, address, and account number; the name, number, and description of the items sold; and the quantities and unit prices of each item sold.

  
• Open order file


  Enables customer service employees to respond promptly and accurately to customer questions about the status of orders.
• Check credit


  Establishes the customer's creditworthiness before processing the order further.
• Pick goods


  Locates and picks the items of inventory from the warehouse shelves based on the stock release document.
• Ship goods


  Reconciles the physical items with the stock release, the packing slip, and the shipping notice to verify that the order is correct before shipping.
• Bill of lading


  A formal contract between the seller and the shipping company (carrier) to transport the goods to the customer.
• Bill customer


  Records the sale in the sales journal, forwards the ledger copy of the sales order to the update accounts receivable task, and sends the stock release document to the update inventory records task.

  
• Sales journal


  A special journal used for recording completed sales transactions.
• Journal voucher

  Represents a general journal entry and indicates the general ledger accounts affected.

  
• Update inventory records


  Updates inventory subsidiary ledger accounts from information contained in the stock release document.

  
• Perpetual inventory system


  Every inventory item has its own record in the ledger containing, at a minimum, the item number, description, unit of measure, quantity on hand, and unit cost.

  
• Update accounts receivable


  Updates customer records in the accounts receivable subsidiary ledger from information contained in the sales invoice.

  
• Journal voucher


  Summaries of transactions, adjusting entries, and closing entries are all entered into the general ledger via this method. When properly approved, journal vouchers are an effective control against unauthorized entries to the general ledger. The journal voucher system eliminates the need for a formal general journal, which is replaced by a journal voucher file.
• Update inventory records


  1. Inventory control function updates inventory subsidiary ledger accounts from information contained in the stock release document

  2. Periodically, the financial value of the total reduction in inventory is summarized in a journal voucher and sent to the general ledger function for posting

  
• Update accounts receivable


  1. Customer records in the accounts receivable (AR) subsidiary ledger are updated from information the sales order (ledger copy) provides

  2. Periodically, the individual account balances are summarized in a report that is sent to the general ledger

  
• Post to general ledger

  1. General ledger uses the journal vouchers to post to control accounts

  2. AR summary is used to verify the accuracy of the journal vouchers from billing

  
• Reasons for sales returns

  • The company shipped the customer the wrong merchandise
  • The goods were defective
  • The product was damaged in shipment
  • The buyer refused delivery because the seller shipped the goods too late or they were delayed in transit
• Prepare return slip


  1. Receiving department employee counts, inspects, and prepares a return slip describing the items

  2. Goods and copy of return slip go to warehouse to be restocked

  3. Second copy of return slip sent to sales function to prepare credit memo

  
• Prepare credit memo


  1. Sales employee prepares credit memo, which is the authorization for the customer to receive credit for the merchandise returned

  2. If specific authorization is required, credit memo goes to credit manager for approval

  3. If clerk has sufficient authority, credit memo is sent directly to billing function to reverse customer sales transaction

  
• Approve credit memo


  Credit manager evaluates circumstances of return and grants or disapproves credit

  
• Update sales journal


  1. Transaction recorded in sales journal as a contra entry

  2. Credit memo forwarded to inventory control function for posting

  3. At end of period, total sales returns summarized in journal voucher and sent to general ledger

  
• Update inventory and AR records

  1. Inventory control adjusts inventory records and forwards credit memo to accounts receivable, where customer's account is also adjusted

  2. Inventory control and accounts receivable send journal vouchers summarizing total value of returns to general ledger

  
• Update general ledger


  General ledger reconciles figures from journal vouchers and account summaries, and posts to control accounts
• Open mail and prepare remittance advice

  1. Mail room employee opens envelopes, reconciles checks and remittance advices, and records each check on a remittance list

  2. Remittance list original sent with checks to record and deposit checks function, second copy with remittance advices to update AR function, third copy to reconciliation task
• Record and deposit checks

  1. Cash receipts employee verifies checks against prelist, records checks in cash receipts journal, prepares bank deposit slip, and sends to bank

  2. At end of day, cash receipts employee summarizes journal entries and sends journal voucher to general ledger

  
• Update accounts receivable


  1. Remittance advices used to post to customers' accounts in AR subsidiary ledger

  2. Periodically, changes in account balances summarized and forwarded to general ledger
• Update general ledger


  General ledger reconciles figures from journal voucher and account summary, posts to cash and AR control accounts, and files journal voucher
• Reconcile cash receipts and deposits

  Periodically, a clerk reconciles cash receipts by comparing prelist, deposit slips, and related journal vouchers