Revenue Cycle and Control Activities Essay

The r even upue enhancement enhancement motorbike for many companies is considered the primary witness to earn taxation enhancement from the sale of bests or service. Good hears must(prenominal)inessiness be set up to maintain the effectiveness of receivables and assert gross revenue, not doing so can harm the follow and energy be costly to the vocation. sestet classes of internal fakes guides us in evaluating and pattern accomplishment touch. They atomic number 18 potentiality, supervision, sequestration of duties, inlet check, independent hinderance, and accounting records. We get out prove to each one surgical incision that is involved in the revenue steering wheel, its activities, and control activities.The scratch line section discusses the sections that fox the revenue hertz , starting with gross revenue part and closing curtain with Billing Department, knowingly that collections must be certain and adjustments must be made. The siemens section discusses the six activities mentioned antecedent.DepartmentsThe revenue bike is composed of five independent (in activities and somebodynel) segments that be charterd to make operate on and make a sale. Each surgical incision place out its birth, and every department depends on the the preceding department in rewrite to function properly. An additional two activities must be considered in the revenue round atomic number 18 collection of receivables and adjustments to gross revenue and receivables.Sales DepartmentEvery gross revenue operation starts with receiving a client leverage baffle- by mail, in individual, or telephone. indeed controlling the customers parliamentary procedures is guardedly do, and operating procedures must be retained in an adequate manners. The department and so identifies and reviews souvenirs and quantities to determine whether the revision can be placed, then they prep be The Sales Order. The gross revenue order is not the standard coif that the sellers order playing system needs.The gross gross revenue order has live information, much(prenominal)(prenominal)(prenominal) as the customers name account number, description of the items change quantities, and prices. A retroflex of gross gross sales order is placed in the open order shoot, the customer getting the ordered goods faculty take days or even weeks. The customer might get out close to the status of his or her order, order file is updated every snip the status of the order changes .It as well sets instructions to guide variant divisions and department, including reference book, finished goods, raptus, bill, and accounts receivable units.Credit blessing DepartmentTo provide independence to the honorable mention warrant process, the citation department is institutionally and physically specialize from the Sales Department. The impute approval department receives a copy of the sales order from the sales department. The registry real serves as an pronouncement to form a client assent entry check. The check accommodates investigating new-made customers ability to pay gage and creditworthiness, and a line of credit is established. ordinaryly new checking new customers take time more that existing customers. A good control activity is a arrange test, which measures the customer give up refreshful credit. This process set an upper limit that the customer must not pass, if passing it the buy order by the customer entrust be denied.Wargonhouse ProceduresAfter a credit check has been performed and approved, and a sales order is received. The w behouse is trustworthy of egress merchandise and items that were mentioned in the sales order to the exaltation department. In a typical company that nurse finished goods in its armoury, this archive is supervised and controlled by a storekeeper. He is responsible for issue the goods. An other(a) control activity must be make is updating the line of products-take records by the accountant, not by the storekeeper. This judicial separation of duty counters stealth of armoury.The Shipping departmentWhen receiving the finished goods from the warehouse, the shipping clerk must reconcile the products received from the warehouse with the products mentioned in the sales order. This is an important control activity, which ensures delegate the right wing products and quantities to the customer who ordered them. therefore this department prepares shipping paperss , much(prenominal) as the bill of lading as they are loaded into the carrier- cars, trucks etc. These documents numerically controlled and are entered in a shipping register onward being forwarded to the billing department. A gate control is done when shipments are made by truck, this ensure that goods behave been recorded as shipments. The clerk enters these transaction and sends a shipping notice and production line pass to the billing department.The Billi ng DepartmentUpon receiving the Shipping notice and standard release from the shipping department, a sales card with any relevant information somewhat the transactions and bills the customer. Billing departments are responsible of serially numbered shipping documents, comparing documents received from other departments, entering data from sales orderers and secure order on the sales invoice, applying prices and discount to the invoice, make extensions and footing, accumulating total add ups. Controls should be done to ensure the accuracy of sales invoice before sending them to the customer, much(prenominal) as a second person review. The billing clerk enters the transaction into the sales ledger and send the documents to the account receivables and inventory control department.Collection of ReceivablesMost receivables are either consisted of checks, and remission advice and collected by the mail. The coinier is responsible for checks and depositing them, and the remittance advice will be forwarded to the account receivable or the data processing department, which will be recorded in the appropriate accounts. Reductions in the AR are posted periodically to the worldwide ledger control account.Adjustments to Sales and ReceivablesAll adjustments to sales for bookances, returns, and write-offs of account receivables should be supported by a credit memo which is serially numbered. This memo must be signed by an employee having no funds handling duties or nutriment everywhere the customers ledger. Good Internal controls require that goods must be checked and examined before a credit is given, and the memo should have the serial number of the receiving report on the returned shipment. The treasurer give grant the credit manager the authorization to initiate the process of uncollectible receivable write off.update Inventory RecordsThe inventory control function updates the inventory marcher from the information involve in the stock release document whi ch was prepared by the the warehouse. In a typical perpetual system, every item has its own record in the ledger containing data, such as units sold, units received m reorder mastermind, EOQ, and standard cost. The stock release document decrease the amount of the inventory. Over a period of time the total reduction in inventory is summarized in a journal verifier and sent to the general ledger function. tax revenue Cycle controlsAs mention earlier every department of the revenue cycle must have its own controls over is activities, doing so might prevent theft, error, fraud, and enhancing the its operations. Six controls are to be covered in this section regarding mingled department and activities in the revenue cycleTransaction authorization this ensure that legal transactions are processed only, and it include credit check and return insurance policy for sales processing and remittance bring up for cash receipts. Credit Check as mentioned is function carry out by the credit department. This department might uses unhomogeneous test and techniques to determine if the customer is trust worthy or not. Different procedures and done to do credit check, depending on the organization, its changered with the customer, and the materiality of the transactions. Approving for a new customer might take lasting time that existing customer, and a finality that falls within the employee authority may be done quickly.However credit check must be done with consistency of the companys policy. concede Policy is also a credit department project, the returns must be reliable by this department before receiving them. the genius of the sales and the circumstances determine the authorization granted. Again policies set by the organization, such as cash refunds, must be taken into consideration for granting returns. Remittance slant verifies that customers checks and remittance advice match. This reconciliation might abide by errors, such as an extra remittance advic e or and absence of a customers check, it also might detect a expiration between checks and remittances. This list authorizes the posting of a remittance advice to a customers account.Segregation of Duties it ensure that separate someone and department processes the transactions. The size and type of an organization affect this type of control, for instance a personally own small business might not need this kind of control, because the owner is the management. The revenue cycle has tercet rules about the system designers. First, transaction authorization should be separate from transaction processing, such as the warehouse department. The warehouse department cannot issue goods without the confirmation of the credit and the sales department. Second, asset custody should be separate from the task of asset record safe keeping.For instance, the warehouse department has physical custody over its inventory, nevertheless the inventory control is in charge of maintaining the record of inventory levels. Last, the organization must be coordinate so that fraud require hitting between two or more individuals. This means that task should be separated, such as different record keeping individuals. An employee with a total record keeping responsibility, in a collusion with an other employee with custody might take out fraud. Separating task needs more people to commit fraud.Supervision is considered a compensating control for companies who have little number of employees to make a segregation of duties. Supervising those employees detects error made, and unsatisfactory functions. This tool is used also in system with a good segregation function. For instance the mail room is a good place to commit theft for check received, cashing it, and destroying and evidence relating to the theft. Although this might be detected when complaints made by a customer about billing him again, but the best solution is preventing it from the beginning. Therefor a good supervision over employees is considered a good prevention control.Accounting Records this control activity describes how a firms documents, journals, and ledgers form the system in divers(a) stages of processing. Its also an important trait of well-designed accounting systems. Prenumbered Documents, are sequentially numbered documents that allow every transaction to be unambiguously identified. Tracking event related to documents with t system is easy. Special Journals, The revenue cycle uses a specific journals, such as sales journal and the cash receipts journal.Special journal groups resembling transactions into a specific journal. auxiliary Ledgers, theres two subsidiary ledgers in the revenue cycle, the inventory and accounts receivables subsidiary ledgers. They provide links to the documents used to beat the events related to each subsidiary. General Ledgers, these are the basis for every accounting system, and for the set of every financial statement. Sales, Inventory, Cost of good s sold, AR, and cash are affected by the revenue cycles transactions. Files, temporary and permanent wave files are opened as a result from the revenue cycle. Some examples are, sales order files, shipping log, credit records file, back order file, journal vouchers, . rag Controls its used to grant authorization and consent to employee and gravel to the firms assets, such as the physical assets, cash and inventories. ways in protecting these assets are warehouse security, Daily cash deposits, safe/ darkness deposit box, using safes. approach path control over information involves restricting access to documents that control physical assets, such as journals and ledgers. Examples of the access risk Removing ones account from Account receivables ledger, do so he company cant send the customer monthly statements. Access to sales order might start unauthorized shipment of a product. Access to general ledger and cash might steal and cover it up by adjusting the ledgers. autarkical V erification the main reasonableness independent verification is to verify and jibe how accurate and complete the tasks are. Independent verification occur at various point is the process, so that errors are detected and dealt with quickly. Independent Verification in the revenue cycle occur at the following points. First, The shipping department reconciled the goods sent from warehouse with the quantity and type ordered by the customer. this is done by reconciling the stock release document with the packing slip. Second, The billing department reconciles sales ordered with the shipping notice to ensure sending the right invoice with the quantities and prices ordered by the customer. Last, in advance posting to any control accounts, the general ledger function reconciles various journal vouchers and summary reports which were prepared independently.Other Controls include verifying approved buyer, this is not much used, but sometimes a purchase order might be effected and signed by and unauthorized person from the client company. Stamp approval on sales order. It is practical for sales orders to be fraudulently routed around the credit department and sent to the warehouse,s o an approval cast of characters to be used on each sales order. Prenumber sales order forms. scarce prenumbered sales order documents should be used. By doing so, the company can track which sales order numbers did not feed the billing department, which may indicate that a delivery was not invoiced. Lock up unused sales order forms. It is possible for someone to enter an order to a shell company on an unused sales order form, fraudulently mould it as approved by the credit department, and route it to the warehouse as authorization for a delivery.References.1. Whittington, O.Ray, and Pany,Kurt.(2001).Principles of Auditing and other assurance services.13th edition.New York Irwin. 2. Hermanson, Roger, and Strawser, Jerry, and Strawser, Robert.(1989).Auditing theory and Practice.5th edition. Boston Irwin. 3. Bragg, Steven. 2009. Accounting Control best Practices. New Jersey Wiley & Sons Inc. 4. Hall, James. Accounting knowledge Systems. 7th edition. Ohio. Cengage Learning. 5. Wilkinson, Joseph and Cerullo, Micheal and Wong-on-Wing, Bernard and Raval,Vasant .2000 .Accounting Information Systems Essential Concepts and Applications.Wiley 6. Mooney, Kate. 2008. The meaty accounting dictionary. 1st edition. Illinois Sphinx Publishing, An imprint of sourcebooks, inc.