THE REVENUE

CYCLE
ACCOUNTING INFORMATION SYSTEM
 TWO MAJOR SUBSYSTEMS

CONCEPTUAL REVENUE CYCLE SYSTEM

PHYSICAL SYSTEM
THE CONCEPTUAL
SYSTEM
 SALES ORDER PROCEDURES

• RECEIVE ORDER
• CHECK CREDIT
• PICK GOODS
• SHIP GOODS
• BILL CUSTOMER
• UPDATE INVENTORY RECORDS
• UPDATE ACCOUNTS RECEIVABLE
• POST TO GENERAL LEDGER
 SALES RETURN PROCEDURES

• PREPARE RETURN SLIP

• PREPARE CREDIT MEMO
• APPROVE CREDIT MEMO
• UPDATE SALES JOURNAL
• UPDATE INVENTORY AND AR RECORDS
• UPDATE GENERAL LEDGER
CREDIT MEMO - THIS
DOCUMENT IS THE
AUTHORIZATION FOR THE
CUSTOMER TO RECEIVE CREDIT
FOR THE MERCHANDISE
RETURNED
 CASH RECEIPTS PROCEDURES

• OPEN MAIL AND PREPARE REMITTANCE ADVICE

• RECORD AND DEPOSIT CHECKS
• UPDATE ACCOUNTS RECEIVABLE
• UPDATE GENERAL LEDGER
• RECONCILE CASH RECEIPTS AND DEPOSITS
REVENUE CYCLE CONTROLS
THE PHYSICAL
SYSTEM
Manual Systems
 SALES ORDER PROCESSING

• SALES DEPARTMENT
• CREDIT DEPARTMENT APPROVAL
• WAREHOUSE PROCEDURES
• THE SHIPPING DEPARTMENT
• THE BILLING DEPARTMENT
• ACCOUNTS RECEIVABLE, INVENTORY CONTROL, AND GENERAL LEDGER
DEPARTMENT
 SALES RETURN PROCEDURES

• RECEIVING DEPARTMENT
• SALES DEPARTMENT
• PROCESSING THE CREDIT MEMO
 CASH RECEIPTS PROCEDURES

• MAIL ROOM
• CASH RECEIPTS
• ACCOUNTS RECEIVABLE
• GENERAL LEDGER DEPARTMENT
• CONTROLLER’S OFFICE
 Computer-Based
Accounting Systems
 AUTOMATION
• INVOLVES USING TECHNOLOGY TO IMPROVE THE EFFICIENCY AND EFFECTIVENESS OF A
TASK.
• TOO OFTEN, HOWEVER, THE AUTOMATED SYSTEM SIMPLY REPLICATES THE TRADITIONAL
(MANUAL) PROCESS THAT IT REPLACES

 REENGINEERING
• INVOLVES RADICALLY RETHINKING THE BUSINESS PROCESS AND THE WORK FLOW
• THE OBJECTIVE OF REENGINEERING IS TO IMPROVE OPERATIONAL PERFORMANCE AND
REDUCE COSTS BY IDENTIFYING AND ELIMINATING NON–VALUE-ADDED TASKS. THIS
INVOLVES REPLACING TRADITIONAL PROCEDURES WITH PROCEDURES THAT ARE
INNOVATIVE AND OFTEN VERY DIFFERENT FROM THOSE THAT PREVIOUSLY EXISTED
AUTOMATING SALES ORDER PROCESSING
WITH BATCH TECHNOLOGY
THREE (3) KEY FIELDS:
 SALES ORDER NUMBER IS THE PRIMARY KEY BECAUSE IT IS THE ONLY FIELD THAT UNIQUELY
IDENTIFIES EACH RECORD IN THE FILE
 ACCOUNT NUMBER
 INVENTORY NUMBER
• BOTH ARE SECONDARY KEYS SINCE NEITHER OF THESE KEYS UNIQUELY IDENTIFIES SALES ORDER
RECORDS
 REENGINEERING SALES ORDER PROCESSING
WITH REAL-TIME TECHNOLOGY

INTERACTIVE COMPUTER TERMINALS REPLACE MANY OF THE

MANUAL PROCEDURES AND PHYSICAL DOCUMENTS OF THE
PREVIOUS SYSTEM. THIS INTERACTIVE SYSTEM PROVIDES REAL-
TIME INPUT AND OUTPUT WITH BATCH UPDATING OF ONLY SOME
MASTER FILES.
 TRANSACTION PROCESSING PROCEDURES

• SALES PROCEDURES
• WAREHOUSE PROCEDURES
• SHIPPING DEPARTMENT
 GENERAL LEDGER UPDATE PROCEDURES
 AT THE END OF THE DAY, THE BATCH UPDATE PROGRAM SEARCHES THE OPEN SALES ORDER
FILE FOR RECORDS MARKED CLOSED AND UPDATES THE FOLLOWING GENERAL LEDGER
ACCOUNTS:
• INVENTORY—CONTROL
• SALES
• AR—CONTROL,
• COST OF GOODS SOLD

 THE INVENTORY SUBSIDIARY AND AR SUBSIDIARY RECORDS WERE UPDATED PREVIOUSLY

DURING THE REAL-TIME PROCEDURES.
 AN ALTERNATIVE APPROACH IS TO UPDATE THE GENERAL LEDGER ACCOUNTS IN REAL
TIME, IF DOING SO POSES NO SIGNIFICANT OPERATIONAL DELAYS.
 FINALLY, THE BATCH PROGRAM PREPARES, AND MAILS CUSTOMER BILLS AND TRANSFERS
THE CLOSED SALES RECORDS TO THE CLOSED SALES ORDER FILE (SALES JOURNAL).
 ADVANTAGES OF REAL-TIME PROCESSING
 REENGINEERING THE SALES ORDER PROCESSES TO INCLUDE REAL-TIME TECHNOLOGY CAN
SIGNIFICANTLY REDUCE OPERATING COSTS WHILE INCREASING REVENUES

ADVANTAGES:
 GREATLY SHORTENS THE CASH CYCLE OF THE FIRM
 CAN GIVE THE FIRM A COMPETITIVE ADVANTAGE IN THE MARKETPLACE. BY MAINTAINING
CURRENT INVENTORY INFORMATION, SALES STAFF CAN DETERMINE IMMEDIATELY WHETHER THE
INVENTORIES ARE ON HAND.
 MANUAL PROCEDURES TEND TO PRODUCE CLERICAL ERRORS, SUCH AS INCORRECT ACCOUNT
NUMBERS, INVALID INVENTORY NUMBERS, AND PRICE–QUANTITY EXTENSION MISCALCULATIONS.
REAL-TIME EDITING PERMITS THE IDENTIFICATION OF MANY KINDS OF ERRORS AS THEY OCCUR
AND GREATLY IMPROVES THE EFFICIENCY AND THE EFFECTIVENESS OF OPERATIONS.
 REDUCES THE AMOUNT OF PAPER DOCUMENTS IN A SYSTEM. DOCUMENTS IN DIGITAL FORM ARE
EFFICIENT, EFFECTIVE, AND ADEQUATE FOR AUDIT TRAIL PURPOSES.
 AUTOMATED CASH RECEIPTS PROCEDURES

• MAIL ROOM
• CASH RECEIPTS DEPARTMENT
• ACCOUNT RECEIVABLES DEPARTMENT
• DATA PROCESSING DEPARTMENT
REENGINEERED CASH RECEIPTS PROCEDURES
SOME ORGANIZATIONS HAVE REENGINEERED THEIR MAIL ROOM PROCEDURES TO
EFFECTIVELY REDUCE CONTROL RISK AND COST. BELOW IS AN EXAMPLE OF
REENGINEERED CASH RECEIPT PROCEDURE IN AN ORGANIZATION:
1. THE MAIL ROOM CLERK PLACES BATCHES OF UNOPENED ENVELOPES INTO A
MACHINE THAT AUTOMATICALLY OPENS THEM AND SEPARATES THEIR CONTENTS
INTO REMITTANCE ADVICES AND CHECKS. BECAUSE THE REMITTANCE ADVICE
CONTAINS THE ADDRESS OF THE PAYEE, THE CUSTOMER WILL NEED TO PLACE IT AT
THE FRONT OF THE ENVELOPE SO IT CAN BE DISPLAYED THROUGH THE WINDOW.
2. WHEN THE ENVELOPE IS OPENED, THE MACHINE KNOWS THAT THE FIRST
DOCUMENT IN THE ENVELOPE IS THE REMITTANCE ADVICE. THE SECOND IS,
THEREFORE, THE CHECK.
3. THE PROCESS IS PERFORMED INTERNALLY AND, ONCE THE ENVELOPES ARE OPENED,
MAIL ROOM STAFF CANNOT ACCESS THEIR CONTENTS.
4. THE SYSTEM SCANS THE REMITTANCE ADVICES AND THE CHECKS TO VERIFY THAT
THE DOLLAR AMOUNTS ON EACH ARE EQUAL AND THAT THE CHECKS ARE SIGNED.
ANY ITEMS THAT ARE INCONSISTENT OR THAT THE VALIDATION SYSTEM CANNOT
INTERPRET ARE REJECTED AND PROCESSED SEPARATELY BY HAND.
5. THE SYSTEM PREPARES A COMPUTER-READABLE FILE OF CASH RECEIPTS, WHICH IS
THEN POSTED TO THE APPROPRIATE CUSTOMER AND GENERAL LEDGER ACCOUNTS.
6. BATCHES OF CHECKS ARE SENT TO THE CASH RECEIPTS DEPARTMENT FOR DEPOSIT
IN THE BANK.
7. TRANSACTION LISTINGS ARE SENT TO MANAGEMENT IN THE AR, CASH RECEIPTS,
AND GENERAL LEDGER DEPARTMENTS FOR REVIEW AND AUDIT PURPOSES.
 POINT-OF-SALE (POS) SYSTEMS

 POS SYSTEMS LIKE THE ONE SHOWN IN THE PREVIOUS ILLUSTRATION ARE USED
EXTENSIVELY IN GROCERY STORES, DEPARTMENT STORES, AND OTHER TYPES OF
RETAIL ORGANIZATIONS.
 IN THIS EXAMPLE, ONLY CASH, CHECKS, AND BANK CREDIT CARD SALES ARE VALID.
THE ORGANIZATION MAINTAINS NO CUSTOMER ACCOUNTS RECEIVABLE.
 INVENTORY IS KEPT ON THE STORE’S SHELVES, NOT IN A SEPARATE WAREHOUSE.
 THE CUSTOMERS PERSONALLY PICK THE ITEMS THEY WISH TO BUY AND CARRY THEM
TO THE CHECKOUT LOCATION, WHERE THE TRANSACTION BEGINS.
 REENGINEERING USING EDI
DOING BUSINESS VIA EDI
 ELECTRONIC DATA INTERCHANGE (EDI) TECHNOLOGY WAS DEVISED TO EXPEDITE
ROUTINE TRANSACTIONS BETWEEN MANUFACTURERS AND WHOLESALERS AND BETWEEN
WHOLESALERS AND RETAILERS.
 THE CUSTOMER’S COMPUTER IS CONNECTED DIRECTLY TO THE SELLER’S. COMPUTER VIA
TELEPHONE LINES. WHEN THE CUSTOMER’S COMPUTER DETECTS THE NEED TO ORDER
INVENTORY, IT AUTOMATICALLY TRANSMITS AN ORDER TO THE SELLER. THE SELLER’S
SYSTEM RECEIVES THE ORDER AND PROCESSES IT AUTOMATICALLY. THIS SYSTEM
REQUIRES LITTLE OR NO HUMAN INVOLVEMENT.
 EDI POSES UNIQUE CONTROL PROBLEMS FOR AN ORGANIZATION.
 ONE PROBLEM IS ENSURING THAT, IN THE ABSENCE OF EXPLICIT AUTHORIZATION, ONLY
VALID TRANSACTIONS ARE PROCESSED.
 REENGINEERING USING THE INTERNET
DOING BUSINESS ON THE INTERNET
 BY ENTERING THE SELLER’S HOME PAGE ADDRESS INTO THE INTERNET
COMMUNICATION PROGRAM FROM A PC, A POTENTIAL CUSTOMER CAN ACCESS THE
SELLER’S PRODUCT LIST, SCAN THE PRODUCT LINE, AND PLACE AN ORDER.
 TYPICALLY, INTERNET SALES ARE CREDIT CARD TRANSACTIONS.
 BECAUSE OF THE NEED FOR AN EMPLOYEE TO REVIEW THE E-MAIL FILE BEFORE
PROCESSING, THE TURNAROUND TIME FOR PROCESSING INTERNET SALES IS
SOMETIMES LONGER THAN FOR TELEPHONE ORDERS.
 IN ADDITION TO UNPRECEDENTED BUSINESS OPPORTUNITIES, RISKS FOR BOTH THE
SELLER AND THE BUYER ACCOMPANY THIS TECHNOLOGY. CONNECTING TO THE
INTERNET EXPOSES THE ORGANIZATION TO THREATS FROM COMPUTER HACKERS,
VIRUSES, AND TRANSACTION FRAUD.
 CONTROL CONSIDERATIONS FOR
COMPUTER-BASED SYSTEMS
• AUTHORIZATION
• SEGREGATION OF DUTIES
• SUPERVISION
• ACCESS CONTROL
• ACCOUNTING RECORDS
• DIGITAL JOURNALS AND LEDGERS
• FILE BACKUP

• INDEPENDENT VERIFICATION
 PC-Based
Accounting Systems
 PC CONTROL ISSUES

• SEGREGATION OF DUTIES
• ACCESS CONTROL
• ACCOUNTING RECORDS