Accounting Information System Revenue Cycle model.pptx

AIS Revenue Cycle Model

1. Revenue Cycle Process

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3. Overview The sales business process is the primary revenue cycle application in many organizations. The sales business process includes the following activities : • Inquiry (optional) • Contract creation (optional) • Order entry • Shipping • Billing

4. Inquiry - Th e sales business process often begins when a potential customer makes an inquiry or requests a quotation. Contract Creation - Some companies require that contracts (legal agreements) be prepared before selling to customers as a matter of company policy. A contract is an outline agreement to provide goods or services to a customer. A contract usually specifies quantities and a general time frame for deliveries.

5. Order entry - It prepares the sales order document. The order-entry activity is essentially the same whether it is the first activity in the sales business process or occurs subsequent to inquiry, contract preparation, or both. Shipping – Shipping activity is initiated with the preparation of a shipping document called a delivery. A delivery document is created to arrange for the delivery of goods to the customer. All the information that is required to prepare and deliver the goods to the customer is contained in the delivery. The delivery is usually prepared at the production or distribution location. Billing - Deliveries are included in the billing work schedule and are invoiced. The ERP copies much of the data used in billing from the customer’s sales order or from the customer’s delivery document.

6. An invoice for the shipment is prepared and issued to the customer. The issuing of the invoice is the end of the sales business process.

7. SAP ERP Illustration ERP(Enterprise resource planning) systems are capable of storing and processing a vast amount of information pertaining to the sales business process. This section provides an overview of the data that are stored and processed in the sales business process by SAP ERP.2 The sales business process is part of SAP ERP’s sales and distribution module. Customer Master Records - contain all the information that pertains to a customer. Customer master records have to be created before processing sales orders in SAP ERP because the information in customer master records is used in sales order processing. SAP ERP requires four types of master records: • Sold-to-customer records • Ship-to-customer records • Bill-to-customer records • Payee–customer records

8. SAP ERP “Create Customer” Input Screens

9. Sales Order Entry Creating a Sales Order A customer master record has to exist before a sales order can be created. SAP ERP can copy information from the master record into the sales order as necessary. Create Sales Order: Initial Screen –This screen is used to input information for the sales area. There are three mandatory fields. The sales organization field identifies the unit responsible for the sale.

10. Create Sales Order Screen This screen has two parts: a document header and an area for item data. The document header contains fields for items that describe the entire order. The sold-to party field collects the customer’s code. The customer’s purchase order number is entered into the purchase order number field. Database Features Each activity in the sales business process—quotation, order, delivery, invoice, and so on—generates a document. SAP ERP’s document flow feature allows one to track and view these documents. A query is a request for information in a database. SAP ERP features powerful query capabilities. One can display an order by inputting the order number. One can display a list of documents according to a specific criterion.

11. Transaction Cycle Controls in Order Processing

12. Order entry Figure 8.5 details activities in the sales and credit operation functions in processing a customer purchase order. As Figure 8.5 illustrates, the order-entry function should be subject to the control of an independent credit function to maintain a separation of duties within the business process. Once credit has been approved, the order is released for processing. The figure uses message flows between pools to illustrate the effect of operations on databases maintained for customers, orders, and inventory.

13. Credit Management’s authorization of credit standing may be general or specific in nature. General authorization applies to all customers. Establishment of general requirements to be met in determining customers’ credit limits is an example of general authorization because no specific customer is involved. Inventory Inventory picks the order as described on a picking list. The picking list is prepared from the delivery document that is prepared by the order database to process the approved order. Picking information is input to update delivery information in the order database.

14. Shipping - In the revenue cycle, shipping refers to the process of physically delivering the products or services to the customers after they've been ordered and paid for.

15. Bill of lading - is the documentation exchanged between a shipper and a carrier such as a trucking company

16. Billing and Accounts Receivable Details activities in operations pertaining to billing. The figure uses message flows between pools to illustrate the effect of billing activity on databases maintained for accounts receivable and general ledger.

17. Customer Account Management Business Process The customer account management business process includes accounts receivable processing through the collection of customer payments on account. We include a brief discussion of the cash-sales business process because it is often integrated with the process for the collection of customer payments on account.

18. Accounts Receivable Accounts receivable represents the money owed by customers for merchandise sold or services rendered on account. Two basic approaches to an account receivable: • open-item processing - a separate record is maintained in the accounts receivable system for each of the customer’s unpaid invoices. As customer remittances are received, they are matched to the unpaid invoices. • balance-forward processing- a customer’s remittances are applied against the customer’s total outstanding balance rather than against the customer’s individual invoices.

19. Figure 8.9 illustrates a document flowchart of an accounts receivable business process. The main feature in the illustration is the separation of the following functions within the business process.

20. Cash Receipts - Customer remittance slips are forwarded to accounts receivable for posting from cash receipts. Accounts receivable does not have access to the cash or checks that accompany customer remittances. Billing - Invoices, credit memos, and other invoice adjustments are routed to accounts receivable for posting to the customer accounts. This maintains a separation of functions. Billing does not have direct access to the accounts receivable records. Credit - Credit department functions include the approval of sales returns and allowances and other adjustments to customer accounts, the review and approval of the aged trial balance to ascertain the credit worthiness of customers, and the initiation of write-off memos (documents) to charge accounts to bad-debt expense. These functions are discussed in what follows.

21. Sales Returns and Allowances - Sales returns and allowances require careful control. Allowances occur when, because of damaged merchandise, shortages in shipments, clerical errors, or the like, the customer and the seller agree to reduce the amount owed by the customer. Write-Off of Accounts Receivable A separation of functions is essential in a business process to write off accounts receivable. The central feature in a write-off process is an analysis of past-due accounts. This is usually done with an aged trial balance report. A number of techniques are available to attempt to collect past-due accounts. These include dunning procedures such as sending the customer a series of follow-up letters and the use of collection agencies to approach the customer for payment. However, some accounts ultimately are worthless and have to be written off.

22. Cash-Received-on-Account Business Process- is used when there is an existing customer account balance. Cash received on account typically comes into a business through the mail or is paid in person to a central cashier or cash window.

23. Cash-Sales Business Process The significant difference between a cash-sales business process and a cash-received-on-account business process is that there is no previous asset record (customer account balance) in a cash sales business process. The generation of initial documentation of cash sales is thus the focal point of the control system. Once a record has been prepared, cash sales are subject to accounting control. Cash sales are recorded in a cash register or other secure device to provide documentation. Sales receipts are prepared and issued to customers.

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