AIS - Revenue Cycle P4-1

PROBLEM 4-1

Systems Description

Describe the procedures, documents, and departments involved when insufficient inventory is available to fill a customer’s approved order ??!

Economic enterprises, both for-profit and not-for-profit, generate revenues through business processes that constitute their revenue cycle. In its simplest form, the revenue cycle is 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. Many days or weeks may pass between the point of sale and the subsequent receipt of cash.

This time lag splits the revenue transaction into two phases:

(1) the physical phase: involving the transfer of assets or services from the seller to the buyer and:

(2) the financial phase: involving the receipt of cash by the seller in payment of the account receivable.

Most firms treat each phase as a separate transaction. Hence, the revenue cycle actually consists of two major subsystems:

(1) the sales order processing subsystem

(2) the cash receipt subsystem

The three process that constitute the revenue cycle

• Sales order procedures
• Sales return procedures
• Cash receipts procedures
• SALES ORDER PROCEDURES
• Receive order

The sales process begins with the receipt of a customer order indicating the type and quantity of merchandise desired.

At this point, the customer order is not in a standard format and may or may not be a physical document. Orders may arrive by mail, by telephone, or from a field representative who visited the customer.

Check Credit

Before processing the order further, the customer’s creditworthiness needs to be established. The circumstances of the sale will determine the nature and degree of the credit check. For example, new customers may undergo a full financial investigation to establish a line of credit.

Pick Goods

The receive order activity forwards the stock release document (also called the picking ticket) to the pick goods function, in the warehouse.

This document identifies the items of inventory that must be located and picked from the warehouse shelves. It also provides formal authorization for warehouse personnel to release the specified items.

stock release form…

Ship Goods

Before the arrival of the goods and the verified stock release document, the shipping department receives the packing slip and shipping notice from the receive order function.

Bill Customer

The shipment of goods marks the completion of the economic event.

And the point at which the customer should be billed. Billing before shipment encourages inaccurate record keeping and inefficient operations.

When the customer order is originally prepared, some details such as inventory availability, prices, and shipping charges may not be known with certainty.