1. Accounting Information Systems, 6th edition
James A. Hall
COPYRIGHT © 2009 South-Western, a division of Cengage Learning. Cengage Learning and South-Western
are trademarks used herein under license

2. Objectives for Chapter 4
Tasks performed in the revenue cycle, regardless of the
technology used
Functional departments in the revenue cycle and the flow
of revenue transactions through the organization
Documents, journals, and accounts needed for audit
trails, records, decision making, and financial reporting
Risks associated with the revenue cycle and the controls
that reduce these risks
The operational and control implications of technology
used to automate and reengineer the revenue cycle

3. The Conceptual System
Overview of Revenue Cycle Activities
Three process in revenue cycle for most retail,
wholesale & manufacturing organizations:
Sales order procedure
Sales return procedure
Cash receipt procedure

4. Sales Order
1
Credit / Customer
Service REVENUE CYCLE
2 (SUBSYSTEM)
Cash Receipts/
Collections
6
Shipping
3
Billing/ Accounts
Receivable
4/5

5. Revenue Cycle Databases
Master files • Other Files
customer master file – shipping and price data
accounts receivable master reference file
file – credit reference file (may not
merchandise inventory master be needed)
file – salesperson file (may be a
master file)
Transaction and Open – Sales history file
Document Files – cash receipts history file
– accounts receivable reports file
sales order transaction file
open sales order transaction
file
sales invoice transaction file
cash receipts transaction file

6. DFD of Sales Order Process

7. Journal Vouchers/Entries
How do we get them?
Billing Department prepares a journal voucher:
Accounts Receivable DR
Sales CR
Inventory Control Dept. prepares a journal
voucher:
Cost of Goods Sold DR
Inventory CR
Cash Receipts prepares a journal voucher:
Cash DR
Accounts Receivable CR

8. Sales Order Process Flowchart

9. Sales Order Process Flowchart

10. Manual Sales Order Processing
Begins with a customer placing an order
The sales department captures the essential details on a
sales order form.
The transaction is authorized by obtaining credit
approval by the credit department.
Sales information is released to:
Billing
Warehouse (stock release or picking ticket)
Shipping (packing slip and shipping notice)

11. Manual Sales Order Processing
The merchandise is picked from the Warehouse and
sent to Shipping.
Stock records are adjusted.
The merchandise, packing slip, and bill of lading are
prepared by Shipping and sent to the customer.
Shipping reconciles the merchandise received from the
Warehouse with the sales information on the packing slip.
Shipping information is sent to Billing. Billing compiles
and reconciles the relevant facts and issues an invoice to
the customer and updates the sales journal. Information
is transferred to:
Accounts Receivable (A/R)
Inventory Control

12. Manual Sales Order Processing
A/R records the information in the customer’s account in
the accounts receivable subsidiary ledger.
Inventory Control adjusts the inventory subsidiary ledger.
Billing, A/R, and Inventory Control submits summary
information to the General Ledger dept., which then
reconciles this data and posts to the control accounts in
the G/L.

13. Sales Returns Procedures
The company shipped the customer the wrong
merchandise.
The goods were defective.
The product was damage in shipment.
The buyer refused delivery because the seller shipped the
goods too late or they were delayed in transit.

14. DFD of Sales Returns

15. Sales Returns Flowchart

16. Sales Return Journal Entry
G/L posts the following to control accounts:
Inventory—Control DR
Sales Returns and Allowances DR
Cost of Goods Sold CR
Accounts Receivable—Control CR

17. DFD of Cash Receipts Processes

18. Cash Receipts Flowchart

19. Manual Cash Receipts Processes
Customer checks and remittance advices are received
in the Mail Room.
A mail room clerk prepares a cash prelist and sends the
prelist and the checks to Cash Receipts.
The cash prelist is also sent to A/R and the Controller.
Cash Receipts:
verifies the accuracy and completeness of the checks
updates the cash receipts journal
prepares a deposit slip
prepares a journal voucher to send to G/L

20. Manual Cash Receipts Processes
A/R posts from the remittance advices to the
accounts receivable subsidiary ledger.
Periodically, a summary of the postings is sent to
G/L.
G/L department:
reconciles the journal voucher from Cash Receipts
with the summaries from A/R
updates the general ledger control accounts
The Controller reconciles the bank accounts.

21. Summary of Internal Controls

22. Authorization Controls
Proper authorization of transactions
(documentation) should occur so that only valid
transactions get processed.
Within the revenue cycle, authorization should take
place when:
a sale is made on credit (authorization)
a cash refund is requested (authorization)
posting a cash payment received to a customer’s account
(cash pre‐list)

23. Segregation of Functions
Three Rules
1. Transaction authorization should be separate from
transaction processing.
2. Asset custody should be separate from asset record‐
keeping.
3. The organization should be so structured that the
perpetration of a fraud requires collusion between
two or more individuals.

24. Segregation of Functions
Sales Order Processing
credit authorization separate from SO processing
inventory control separate from warehouse
accounts receivable sub‐ledger separate from general
ledger control account
Cash Receipts Processing
cash receipts separate from accounting records
accounts receivable sub‐ledger separate from general
ledger

25. Supervision
Often used when unable to enact
appropriate segregation of duties.
Supervision of employees serves as a
deterrent to dishonest acts and is
particularly important in the mailroom.

26. Accounting Records
With a properly maintained audit trail, it is
possible to track transactions through the systems
and to find where and when errors were made:
pre‐numbered source documents
special journals
subsidiary ledgers
general ledger
files

27. Access Controls
Access to assets and information (accounting records)
should be limited.
Within the revenue cycle, the assets to protect are
cash and inventories and access to records such as the
accounts receivable subsidiary ledger and cash journal
should be restricted.

28. Independent Verification
Physical procedures as well as record‐keeping should be
independently reviewed at various points in the system to
check for accuracy and completeness:
shipping verifies the goods sent from the warehouse are
correct in type and quantity
warehouse reconciles the stock release document (picking
slip) and packing slip
billing reconciles the shipping notice with the sales invoice
general ledger reconciles journal vouchers from billing,
inventory control, cash receipts, and accounts receivable

29. Automating the Revenue Cycle
Authorizations and data access can be performed
through computer screens.
There is a decrease in the amount of paper.
The manual journals and ledgers are changed to
disk or tape transaction and master files.
Input is still typically from a hard copy document
and goes through one or more computerized
processes.
Processes store data in electronic files (the tape or
disk) or prepare data in the form of a hardcopy
report.

30. Automating the Revenue Cycle
Revenue cycle programs can include:
formatted screens for collecting data
edit checks on the data entered
instructions for processing and storing the data
security procedures (passwords or user IDs)
steps for generating and displaying output
To understand files, you must consider the record design
and layout.
The documents and the files used as input sources must
contain the data necessary to generate the output reports.

31. Computer‐Based Accounting Systems
CBAS technology can be viewed as a continuum with
two extremes:
automation ‐ use technology to improve
efficiency and effectiveness
reengineering – use technology to
restructure business processes and firm
organization

32. Example: Automated Batch Sales

33. Reengineering Sales Order Processing Using
Real‐Time Technology
Manual procedures and physical documents are replaced
by interactive computer terminals.
Real time input and output occurs, with some master
files still being updated using batches.
Real‐time ‐ entry of customer order, printout of stock
release, packing slip and bill of lading; update of credit
file, inventory file, and open sales orders file
Batch ‐ printout of invoice, update of closed sales
order (journal), accounts receivable and general ledger
control account

34. Real‐time Sales Order

35. Advantages of Real‐Time
Processing
Shortens the cash cycle of the firm by reducing the time
between the order date and billing date
Better inventory management which can lead to a
competitive advantage
Fewer clerical errors, reducing incorrect items being
shipped and bill discrepancies
Reduces the amount of expensive paper documents and
their storage costs

36. Reengineered Cash Receipts
The mail room is a frequent target for reengineering.
Companies send their customers preprinted envelopes
and remittance advices.
Upon receipt, these envelopes are scanned to provides a
control procedure against theft.
Machines are open the envelopes, scan remittance
advices and checks, and separate the checks.
Artificial intelligence may be used to read handwriting,
such as remittance amounts and signatures.

37. Automated Cash Receipts

38. Point‐of‐Sale Systems
Point of sale systems are used extensively in retail
establishments.
Customers pick the inventory from the shelves and take them to a
cashier.
Daily Procedure
The clerk scans the universal product code (UPC). The
POS system is connected to an inventory file, where the
price and description are retrieved.
The inventory levels are updated and reorder needs can
immediately be detected.

39. Point‐of‐Sale Systems
The system computes the amount due.
Payment is either cash, check, ATM or credit
card in most cases.
No accounts receivables
If checks, ATM or credit cards are used, an on‐
line link to receive approval is necessary.

40. Point‐of‐Sale Systems
End‐of‐day Procedure
At the end of the day or a cashier’s shift, the money and
receipts in the drawer are reconciled to the internal cash
register tape or a printout from the computer’s database.
Cash over and under must be recorded
Journal voucher posted to GL account:
Cash DR
Cash Over/Short DR
A/R (credit card) DR
COGS DR
Sales CR
Inventory CR

41. Computerized POS

42. Reengineering Using EDI
EDI helps to expedite transactions.
The customer’s computer:
determines that inventory is needed
selects a supplier with whom the business has a formal
business agreement
dials the supplier’s computer and places the order
The exchange is completely automated.
No human intervention or management

43. EDI System
Company A Company B
Application Purchases Sales Order Application
Software System System Software
EDI EDI
Translation Translation
Software Software
Direct Connection
Communications Communications
Software Software
Other
Mailbox
Company VAN Company
A’s mailbox B’s mailbox
Other
Mailbox

44. Reengineering Using the
Internet
Typically, no formal business agreements exist as they
do in EDI.
Most orders are made with credit cards.
Mainly done with e‐mail systems, and thus a
turnaround time is necessary
Intelligent agents are needed to eliminate this time lag.
Security and control over data is a concern with
Internet transactions.

45. CBAS Control Considerations
Authorization ‐ in real‐time systems, authorizations
are automated
Programmed decision rules must be closely monitored.
Segregation of Functions ‐ consolidation of tasks by
the computer is common
Protect the computer programs
Coding, processing, and maintenance should be
separated.

46. CBAS Control Considerations
Supervision ‐ in POS systems, the cash register’s
internal tape or database is an added form of
supervision
Access Control ‐ magnetic records are vulnerable to
both authorized and unauthorized exposure and should
be protected
Must have limited file accessibility
Must safeguard and monitor computer programs

47. CBAS Control Considerations
Accounting Records ‐ rest on reliability and
security of stored digitalized data
Accountants should be skeptical about the accuracy of
hard‐copy printouts.
Backups ‐ the system needs to ensure that backups of
all files are continuously kept
Independent Verification – consolidating
accounting tasks under one computer program
can remove traditional independent verification
controls. To counter this problem:
perform batch control balancing after each run
produce management reports and summaries for end
users to review

48. PC‐Based Accounting Systems
Used by small firms and some large decentralized firms
Allow one or few individuals to perform entire
accounting function
Most systems are divided into modules controlled by a
menu‐driven program:
general ledger
inventory control
payroll
cash disbursements
purchases and accounts payable
cash receipts
sales order

49. PC Control Issues
Segregation of Duties ‐ tend to be inadequate and
should be compensated for with increased
supervision, detailed management reports, and
frequent independent verification
Access Control ‐ access controls to the data stored
on the computer tends to be weak; methods such as
encryption and disk locking devices should be used
Accounting Records ‐ computer disk failures cause
data losses; external backup methods need to be
implemented to allow data recovery

50. Internal Control
Risk Exposures in the Revenue Cycle - I
Risk Exposure
1) Credit sales made to customers 1) Losses from bad debts
who represent poor credit risks
2) Unrecorded or unbilled shipments 2) Losses of revenue; overstatement
of inventory and understatement of
accounts receivable in the balance
sheet
3) Errors in preparing sales invoices 3) Alienation of customers and
possible loss of future sales; losses of
revenue
Figure 12-22

51. Risk Exposures in the Revenue
Cycle ‐ II
Risk Exposure
4) Misplacement of orders from 4) Losses of revenue and alienation of
customers or unfilled backorders customers
5) Incorrect posting of sales to 5) Incorrect balances in accounts
accounts receivable records receivable and general ledger account
records
6) Posting of revenues to wrong 6) Overstatement of revenue in one
accounting periods, such as year (year of premature booking) and
premature booking of revenues understatement of revenue in the next
Figure 12-22 (continued)

52. Risk Exposures in the Revenue
Cycle ‐ III
Risk Exposure
7) Fictitious credit sales to nonexistent Overstatement of revenues and
customers accounts receivable
8) Excessive sales returns and 8) Losses in net revenue, with the
allowances with certain of the credit proceeds from subsequent payments
memos being for fictitious returns by affected customers being
fraudulently pocketed
9) Theft or misplacement of finished 9) Losses in revenue; overstatement of
goods in the warehouse or on the inventory on the balance sheet
shipping dock
Figure 12-22 (continued)

53. Risk Exposures in the Revenue
Cycle ‐ IV
Risk Exposure
10) Fraudulent write-offs of customers’ 10) Understatement of accounts
accounts by unauthorized persons receivable; losses of cash receipts
when subsequent collections on
written-off accounts are
misappropriated by perpetrators of the
fraud
11) Theft (skimming) of cash receipts, 11) Losses of cash receipts;
especially currency, by persons overstatement of accounts receivable
involved in the processing; often in the subsidiary ledger and the
accompanied by omitted postings to balance sheet
affected customers’ accounts
12) Lapping of payments from 12) Losses of cash receipts; incorrect
customers when amounts are posted account balances for those customers
to accounts receivable records whose records are involved in the
lapping
Figure 12-22 (continued)

54. Risk Exposures in the Revenue
Cycle ‐ V
Risk Exposure
13) Accessing of accounts receivable, 13) Loss of security over such records,
merchandise inventory, and other with possibly detrimental use made of
records by unauthorized persons the data accessed
14) Involvement of cash, merchandise 14) Losses of or damages to assets
inventory, and accounts receivable
records in natural or human-made
disasters
15) Planting of virus by disgruntled 15) Loss of customer accounts
employee to destroy data on magnetic receivable data needed to monitor
media collection of amounts from previous
sales
Figure 12-22 (continued)

55. Risk Exposures in the Revenue
Cycle ‐ VI
Risk Exposure
16) Interception of data transmittal 16) Loss of data which may be used to
between customers and the web site the detriment of customers
17) Unauthorized viewing and 17) Loss of security over customer
alteration of other customer account records resulting in misstatement of
data via the Web accounts receivable balances
18) Denial by a customer that an 18) Loss of sales revenues
online order was placed after the
transaction is processed
Figure 12-22 (continued)

56. Risk Exposures in the Revenue
Cycle ‐ VII
Risk Exposure
19) Use of stolen credit cards to place 19) Loss of shipped goods for which
orders via the Web payments will not be received
20) Breakdown of the web server due 20) Loss of sales revenues and
to unexpectedly high volume of alienation of customers
transactions
Figure 12-22 (continued)

57. Typical Control Objectives for the Revenue Cycle
Semua customer yang diterima untuk credit sales adalah credit‐
worthy
Semua barang yang dipesan dikirim dan semua jasa
dilaksanakan sesuai dengan tanggal yang disetujui oleh semua
pihak.
Semua barang yang dikirim diotorisasi dan ditagih All shipped
goods are authorized dan ditagih sesuai dengan periode
akuntansi yang tepat.
Semua sales returns and allowances diotorisasi dan dicatat
dengan teliti dan berdasarkan actual return of goods
Semua cash receipts dicatat dengan lengkap dan akurat.
Semua credit sales dan transaksi cash receipts transactions
diposting ke customers’ accounts yang tepat pada accounts
receivable ledger
Semua accounting records, merchandise inventory,
and cash dilindungi.

58. General Controls of the
Revenue Cycle ‐ I
Organizational Controls
Unit‐unit dengan fungsi kustodian harus dijaga agar
terpisah satu sama lain.
Fungsi kustodian harus dipisah dari fungsi record‐
keeping.
Untuk sistem yang dikomputerisasi, pengembangan
sistem harus dijaga agar terpisah dari operasi‐operasi
sistem.

59. General Controls of the Revenue Cycle ‐ II
Documentation Controls
Dokumentasi yang lengkap dan up‐to‐date harus tersedia
termasuk didalamnya adalah salinan dokumen,
flowcharts, record lay‐outs, dan laporan.
Program untuk edit dan proses sales dan cash receipt
harus diorganisasikan ke buku atau paket terpisah yang
ditujukan ke masing‐masing programer, komputer
operator, dan system user.
Kebijakan manajemen yang berhubungan dengan credit
approvals, account write‐off, dsb harus dalam bentuk
tertulis.

60. General Controls of the Revenue Cycle ‐ II
Asset Accountability Controls
A/R subsidiary ledger (master file) harus sering direkonsiliasi
dengan A/R control account di GL.
Merchandise inventory record harus dijaga pada ledger dan
direkonsiliasi secara periodik ke merchandise inventory
control account
Bank reconciliation, harus dibandingkan balance pada bank
account dengan cash account balance di GL.
Petugas bagian pengiriman yang menyetujui penerimaan
order dan pengambilan barang dari gudang dengan
menandatangani stock request atau shipping order.
Mail room clerk yang menyiapkan daftar semua receive
remittances.
Customer yang mereview monthly statement dari sales dan
payments untuk jumlah‐jumlah yang salah.

61. General Controls of the Revenue Cycle ‐ II
Management Practice Controls
Kebijakan manajemen yang berhubungan dengan revenue
cycle yang harus ditetapkan dan diikuti adalah sbb:
Pegawai (programer dan akuntan harus dilatih dengan
hati‐hati), pegawai yang menangani kas harus diikat
dengan surat perjanjian.
Perubahan dan pengembangan sistem harus melalui
prosedur yang jelas yang melibatkan prior approvals,
testing, dan sign‐offs.
Audit terhadap prosedur dan kebijakan sales dan cash
receipt harus dilakukan.
Manajer harus melakukan review periodic analyses,
control summaries, dan laporan‐laporan tentang aktivitas
account dan computer‐approved transactions.

62. General Controls of the Revenue Cycle ‐ II
Data Center Operations Controls
Jadwal pemrosesan komputer untuk sales dan cash receipts
batches harus ditetapkan dengan jelas.
Sistem informasi dan pegawai bagian akuntansi harus diawasi
secara aktif dan pekerjaannya direview dengan bantuan
computer processing control reports dan access logs.
Authorization Controls
Semua transaksi credit sales (atau service order) harus
diotorisasi oleh manajer kedit. Pada sistem yang
dikomputerisasi otorisasi dilakukan dengan program aplikasi
yang dibagun dengan aturan persetujuan kredit.
Manajer tidak terlibat dalam pengolahan sales atau pada A/R.
Salinan permintaan barang dari sales order harus mengotorisasi
pengambilan barang dari gudang dan pemindahan barang ke
shipping dock.

63. General Controls of the Revenue Cycle ‐ III
Access Controls
Berikan password pada petugas yang diberi otorisasi untuk
mengakses A/R dan file‐file yang berhubungan dengan
customer, untuk melaksanakan tugas‐tugas yang telah
ditentukan.
Batasi terminal‐terminal untuk melaksanakan fungsi‐fungsi
yang berhubungan dengan transaksi sales dan cash receipts.
Catat semua transaksi sales and cash receipt ke sistem.
Sering‐seringlah mengeluarkan master file A/R dan
merchandise inventory ke magnetic tape backups
Lindungi gudang dan lemari besi secara fisik.
Gunakan lockbox collection system pada situasi yang feasible.

64. Application Controls of the
Revenue Cycle: Input ‐ I
1. Siapkan pre‐numbered documents dan dokumen yang
dirancang dengan baik untuk dokumen sales,
shipping, and cash receipts, masing‐masing dokumen
diotorisasi oleh orang yang berwenang.
2. Validasi data sales orders dan remittance advices
seperti data yang disiapkan dan dimasukkan untuk
pengolahan. Pada computer‐based systems, validasi
harus dilaksanakan dengan sarana program edit check.
Saat data dimasukkan ke computer‐readable medium,
key verification dicocokkan.

65. Application Controls of the
Revenue Cycle: Input ‐ II
3. Betulkan kesalahan yang terdeteksi selama data entry
dan sebelum data diposting ke record‐record
customer dan inventory.
4. Precompute batch control totals yang berhubungan
dengan data penting pada sales invoices (atau
shipping notices) dan remittance advices.
Precomputed batch control totals haus dibandingkan
dengan totals yang dihitung selama posting ke
accounts receivable ledger dan setiap kali processing
run. Pada cash receipts, total pada remittance advices
harus dibandingkan dengan total pada deposit slips.

66. Application Controls of the Revenue
Cycle: Processing ‐ I
1. Pindahkan barang yang dipesan dari gudang barang jadi
(finished goods warehouse) dan kirim barang‐barang hanya
berdasarkan otorisasi tertulis seperti stock request copies
2. Invoice customers hanya diberiahukan oleh bagian
pengiriman atas jumlah yang telah dikirimkan.
3. Pengeluaran credit memos untuk sales returns hanya jika
disertai bukti (seperti receiving report) telah diterima bhwa
barang memang benar‐benar dikembalikan.
4. Periksa semua perhitungan pada sales invoices sebelum
dikirim dan diposting ke customers’ accounts yang tepat.
Bandingkan sales invoices dengan shipping notices and open
orders, untuk meyakinkan nahwa jumlah yang dipesan
direkonsiliasi dengan order yang dikirim dan back‐ordered.

67. Application Controls of the Revenue
Cycle: Processing ‐ II
5. Periksa bahwa jumlah total yang diposting ke accounts
receivable accounts dari batch transaksi sama dengan
precomputed batch totals, dan posting jumlah total ke
general ledger accounts yang tepat.
6. Depositokan semua kash yang diterima lengkap dengan
minimum of delay, sehingga menghilangkan
kemungkinan cash receipts yang sedang digunakan
untuk membayar pegawai atau untuk membayar petty
cash funds.
7. Betulkan kesalahan yang dibuat selama tahapan
pengolahan biasanya dengan membalik kesalahan
posting ke perkiraan dan masukan data yang benar.
Audit trail yang berhubungan dengan perkiraan yang
dikoreksi akan menunjukkan kesalahan aslinya, the
reversals, and the corrections

68. Application Controls of the Revenue
Cycle: Output
1. Siapkan monthly statements, yang harus diposkan ke
semua credit customers, terutama jika pendekatan
balance forward digunakan.
2. Salinan file dari semua dokumen yang berkaitan
dengan transaksi sales dan cash receipts dicek secara
periodik dengan urutan nomor pada tiap file untuk
melihat celah yang ada. Jika transaksi tidak didukung
dengan preprinted documents, seperti yang sering
terjadi pada online computer‐based systems, tandai
nomor transaksi ke transactions.
3. Siapkan daftar transaksi yang dicetak dan account
summaries pada periodic basis untuk menyediakan
audit trail dan dasar untuk review.

69. Web Security Procedures
Authentication, user identification number dan password
dibutuhkan untuk akses ke private network.
Authorization
Use of an Access Control List
Accountability, untuk menetapkan tanggung jawab atas
segala modifikasi pada Web sites Web sercer log harus
dipelihara.
Data Transmission, untuk menjaga kerahasiaan dan
integritas data yang dikirim via Web harus menggunakan
enkripsi.
Disaster Contingency & Recovery Plan,
Diperlukan prosedur backup yang cukup termasuk fault
tolerance untuk meminimalkan gangguan yang tidak
diharapkan.
Recovery plan direncanakan untuk meyakinkan rekonstruksi
dari data yang hilang.