The Expenditure Cycle

CHAPTER 10 THE REVENUE CYCLE SALES AND CASH COLLECTIONS SUGGESTED ANSWERS TO DISCUSSION QUESTIONS 10. 1This should generate a great deal of discussion. The basic issue concerns the willingness of consumers to divulge the kind of tuition that would in allow companies to soulalize the sales inter bodily process versus concerns that such in wee-weeation would be mis using up or sold to other parties. In addition, with the growing enigma of identity theft, consumers ar becoming increasingly concerned near the asylum and aegis of their personal nurture.Companies that wish to collect this info will close likely have to demonstrate the need for this information to the consumer and in any case the clubs ability to keep this information secure. 10. 2Digitized products force little fiat on the four business activities of the revenue cycle. For all products, whether digitized or not, an swan must be taken, the product shipped, an invoice delivered, and currency collected. Th e only thing that digitized products do is change the way these four activities be carried out.Digitized products actually drive on the four activities by incorporating electronic sales prepares, merchant vessels, kick, and funds collections. 10. 3Employees need to be adept to use the POS properly. Such training should include understanding how the POS works, stressing that . In that errors on the employees part will directly affect the inventory defeat file crooks. If an item does not scan, then it must be rescanned or dealt with so that the integrity of the records is upheld.Similarly, employees should be trained not to pretermit sales. If an item does not scan, the employee should be trained to accurately direct in in the bar code of the item. Entering a generic or erroneous code not only creates an inventory error, but it in like manner frustrates the node who may take their business elsewhere. In addition, employees should be trained to name and/or fix errors in bar codes as they are encountered and in a timely manner. 10. The report al claimy provides dollar amounts corking by number of eld preceding(a) due by customer and by invoice. However, the percentage of total accounts receivable categorized by days past due would dish to alert forethought of categories that are increasing. This could excessively be reported by customer and by invoice. This way if a particular invoice was not be paid, the company could more pronto identify the invoice, contact the customer, and say-soly resolve any problems or disputes about the particular invoice.In addition, reporting by customer can help to identify chronic slow stipendiary customers so that corrective action could be taken such as offering discounts for quick payment, changes in term, and notifying the cr cut manager to restrict impute for this particular customer. Furthermore, the company may have a certain threshold for each category of past due accounts either in percentages or absolute dollars. A calculated could be calculated and presented that highlights the categories exceeding that threshold. 10. This is a good question to oerhear students to explore and compare the role of technology in dynamic target setting policies. You may want to preface the discussion by relating the following scenario You have graduated from collage and started your own consulting firm. A client has an pressing need that requires you to travel to his location. Since this is a last minute trip, you pay dependable price for an air cablegram book. Since this client is on a fixed contract, you cannot charge the cost of the ticket back to the client.While riding on the carpenters plane you find yourself sitting next to a college student who is majoring in accounting. During the human body of the conversation with this accounting student, you find that he purchased his airline ticket from a discount reseller and paid less than half of what you paid for the same flight. How d o you feel about this arrangement? Do think this type of price arrangement could transfer to other products? Would the companies that sell these other products be put at a competitive disadvantage when customers find that they are paying different prices for the same goods or services? 0. 6The instructor can ease discussion of invoiceless pricing in a B2C environment by ask students how they would feel about not receiving a phone or short letter bill. What are the problems the phone or cable company and phone or cable consumers encounter without a paper bill? What about billing problems and disputes. What about payment deadlines or consumers that want to pay in person or pay in notes? 10. 7Any form of electronic or digital capital has the same audit risks as physical cash susceptibility to theft and loss of an audit trail.In addition, digital cash also has risks associated with the durability of the store of value to what extent can the cash be recovered if the storage media b ecomes defective? Another issue concerns the potential loss of privacy, because the digital currency can be marked in a manner that enables tracing its path through the economy. 10. 8 wherefore not indeed? Copies of the sales rules of ordering can be utilise by inventory force-out as a picking ticket to select inventory items ship to the customer. In similar fashion, the sales order converted into a picking ticket can also be used as a pugilism slip.Just make certainly a copy is sent with the package and not the original so that in case there is a problem the original form can be reviewed for any errors or discrepancy. If sales orders are created electronically, the information contained on the electronic sales order can be used to create paper (or electronic) picking tickets, packing slips, or invoices. SUGGESTED ANSWERS TO THE PROBLEMS 10. 1Types of controls used at various steps in the revenue cycle. Process/ Activity ThreatApplicable Controls (P = Preventive, D = Detectiv e, C = Corrective) Sales order entry1.Incomplete or inaccurate customer orders 2. Credit sales to customers with poor credit 3. Legitimacy of order 4. disconnected sales due to stockouts, excessive carrying costs, and lost revenue due to markdownsVarious information entry edit controls P Proper credit approval, prior to bringing of goods or services P accurate, occurrent customer data P Authorized customer purchase order P digital signatures D Inventory control systems P daily physical inventory counts D improved sales forecasts P better supply chain management P and C Shipping5. Shipping errors incorrectly merchandise Wrong quantities Wrong address 6. stealing of inventory Compare sales order with packing list and shipping documents D bar coding P tangible access controls P documentation of all inventory movements D periodic physical inventory counts D bursting charge and accounts receivable7. Failure to bill 8. Billing errors 9. Errors in maintaining customer accountsSegr egation of shipping and billing functions P one-for-one matching of invoices (or EDI acknowledgments) against shipping documents D and C Comparison of sales orders, shipping documents, and invoices P and C various edit checks D and CData entry edit checks D and C use of remittance advices P monthly statements to customers D and C Process/ Activity ThreatApplicable Controls (P = Preventive, D = Detective, C = Corrective) hard currency collections10. Theft of cash Segregation of cash handling and accounts receivable functions P use of lockboxes or EFT P bank account reconciliation by someone not involved in cash receipts touch on D and C segregation of bad debt/credit memo authorization from cash handling and accounts receivable functions P General11. Loss of data 12. Poor execution of instrumentBackup procedures C disaster recovery plans P physical and sensible access controls P Development and periodic review of appropriate exercise metrics D and C 10. 2 Information Technology to evoke the restriction of physical access to inventory 1. Electronic locks on all entrances and get offs to the inventory area. 2. Smart beak technology where employees must scan their ID card prior to entering/exiting the inventory area. 3. Install motion detectors. 4. Attach security tags to inventory items and install security tag scanners at each exit of the inventory area. . Attach RFID tags to inventory items to track the movement of inventory. 6. Install and admonisher surveillance cameras in the inventory area. 7. Install an infrared alarm system. 8. realise a close in around the inventory area and equip the fence with cameras and sensors. 10. 3a. Shipping personnel should be required to document (on paper or by computer) receipt of goods from the finished goods storeroom. This procedure acknowledges responsibility for custody of the goods transferred. b. any a otiose data check or closed loop topology verification could be used.If the transactions are being enter ed in batches, redundant data such as the first five characters of the customers name could be included in each input record after conclusion a match on customer account number, the system would also verify that the name characters match before posting the transaction. If the transactions are being entered online, the system could respond to operator entry of the account number by retrieving and displaying the customers name for the operator to review. c. Up-to-date credit records should be maintained, and credit checks should be made prior to approval of sales orders. . A receiving report should be required to support the authorization of credits for sales returns. e. crack the function of authorizing write-offs of uncollectible accounts from the function of handling of collections on account, in order to prevent any single individual from perpetrating this type of fraud. f. Shipping personnel should be required to record the actual beat shipped on the order document and/or ente r the quantity shipped into the sales order processing system, in order that bills can be prepared based upon the quantity shipped rather than the quantity ordered. . Supervision of mailroom operations, limitation of authority to endorse checks to the sunder only, and instructions to the bank to accept only those checks endorsed for deposit in the companys account. h. Cash receipts should be listed and totaled in the mailroom before the cashier receives the checks. A third person compares the amount deposited as shown by a authorise deposit slip to the batch total prepared in the mailroom. i. whole sales tickets should be prenumbered and accounted for. This would quickly spot a missing ticket. j. discriminate shipping and billing functions. k. Implement accurate inventory control and sales forecasting systems including periodic physical inventory counts and frequent review and revision of sales forecasts. l. A system of user IDs and passwords is the first line of plea followed b y allowing read only access to customer data for sales staff, implement access controls over individual terminals, and maintaining activity logs. m. Regular concomitants with copies being stored off-site. n. Backup generators as well as cold and/or loosen up site contracted backup facilities. o.Encrypting sensitive data prior to transmission, creating practical(prenominal) private networks, and transmitting data over secure socket layer (SSL) networks. p. A system of user IDs and passwords is the first line of defense followed by allowing read only access to price lists for sales staff, implement access controls over individual terminals, and maintaining activity logs. q. A system of user IDs and passwords is the first line of defense followed by allowing read only access to customer data for sales staff, implement access controls over individual terminals, and maintaining activity logs.In addition, formal non-compete agreement could be used when hiring personnel. r. A nightly ba ckup with copies being stored off-site. s. Periodically testing backup data for access and compatibility with current company hardware and software. 10. 4 Formulas Sales (1% Growth Rate) E5 and Row 5=D5*101%, =E5*101%, =F5*101%, Cash CollectionsD7=D5*40% E7=E5*40%+D5*30% F7=F5*40%+E5*30%+D5*20% G7=G5*40%+F5*30%+E5*20%+D5*8% Copy and paste G7 traffic pattern to rest cells Beginning BalanceE2=D9 (same formula for remaining cells in Row 2) Ending BalanceD9=D3+D7 (same formula for remaining cells in Row 9) Spinner and Scroll Bar