chapter

The revenue cycle

12
Learning objectives
To learn about the revenue cycle business
activities.
To learn to flow chart the revenue cycle
business activities.
To understand the processing of the revenue
cycle transactions using a computer.
To know what the control practices and
procedures are in the revenue cycle.

2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Accounting Information &
Reporting Systems by A. Aseervatham and D. Anandarajah. Slides prepared by 12-1
Kaye Watson.
 key terms
balance forward method open invoice method
bill of lading picking slip
billing post-invoicing
cash on delivery pre-invoicing
credit limit remittance advice
cycle billing statement of accounts
delivery note tax invoice
Goods and Services Tax terms of payment

2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Accounting Information &
Reporting Systems by A. Aseervatham and D. Anandarajah. Slides prepared by 12-2
Kaye Watson.
 Revenue cycle
Deals with transaction processing involved in
selling goods or services
Sales can be made for cash or on credit

2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Accounting Information &
Reporting Systems by A. Aseervatham and D. Anandarajah. Slides prepared by 12-3
Kaye Watson.
 Revenue cycle business activities
Main functions (cash sale):
accepting customer requests for goods or services
delivery of goods or services
invoicing
dealing with returned goods
receiving and recording customer payments

2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Accounting Information &
Reporting Systems by A. Aseervatham and D. Anandarajah. Slides prepared by 12-4
Kaye Watson.
 Revenue cycle business activities
Additional functions (credit sale):
approving credit and credit limits
recording accounts receivable
sending periodical statements to customers
dealing with bad debts

2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Accounting Information &
Reporting Systems by A. Aseervatham and D. Anandarajah. Slides prepared by 12-5
Kaye Watson.
 Revenue cycle business activities
Categories of activities in revenue cycle:
1. processing customer orders
2. delivery/shipping
3. invoicing
4. accounts receivable ledger

2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Accounting Information &
Reporting Systems by A. Aseervatham and D. Anandarajah. Slides prepared by 12-6
Kaye Watson.
 Processing customer orders
Customer orders:
accepting requests from customers
preparing sales order
Approving credit and credit limits:
screening new customers
setting maximum limit
processing requests to increase limit
periodic checks on existing customers

2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Accounting Information &
Reporting Systems by A. Aseervatham and D. Anandarajah. Slides prepared by 12-7
Kaye Watson.
 Delivery/shipping of goods or
providing a service
Delivery/shipping of goods:
receiving sales order
preparing the dispatch order and delivery notes

Providing a service:
recording labour and materials used (job card)

2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Accounting Information &
Reporting Systems by A. Aseervatham and D. Anandarajah. Slides prepared by 12-8
Kaye Watson.
 Invoicing
and recording accounts receivable
Details on sales invoice:
invoice number
name of supplier
ABN
date of invoice
description of goods
quantity of goods
GST inclusive price
discount allowed
2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Accounting Information &
Reporting Systems by A. Aseervatham and D. Anandarajah. Slides prepared by 12-9
Kaye Watson.
 Terms
2/7 - 2% discount if account is paid within 7 days

n/30 - net amount payable within 30 days

10/eom - payment required within 10 days after the end

of the month

net cash 30 days - payment required within 30 days of

the end of the month in which delivery is made

2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Accounting Information &
Reporting Systems by A. Aseervatham and D. Anandarajah. Slides prepared by 12-10
Kaye Watson.
 Types of invoicing
Pre-invoicing:
invoice prepared when sales order is approved

Post-invoicing:
invoice prepared and dispatched after delivery of
goods or services

2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Accounting Information &
Reporting Systems by A. Aseervatham and D. Anandarajah. Slides prepared by 12-11
Kaye Watson.
 Accounts receivable ledger
Customers referred to as debtors
Accounts receivable is an asset
Subsidiary ledger maintains asset details
Source document for this ledger is sales invoice
issued
Statement of accounts sent to customers at end of
each period showing details of account transactions
and outstanding balance

2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Accounting Information &
Reporting Systems by A. Aseervatham and D. Anandarajah. Slides prepared by 12-12
Kaye Watson.
 Accounts receivable ledger
Credit or adjustment notes:
prepared when goods are returned
recorded in sales returns journals

Bad debts:
amounts owing by debtors that are unable to be
collected

2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Accounting Information &
Reporting Systems by A. Aseervatham and D. Anandarajah. Slides prepared by 12-13
Kaye Watson.
 Accounts receivable ledger
Revenue cycle ends with customer payments
that may take the form of:
cash from cash sales
cheques most common form of payment
bank transfers
direct deposits or EFT
Details of all payments are recorded in the
cash receipts journal

2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Accounting Information &
Reporting Systems by A. Aseervatham and D. Anandarajah. Slides prepared by 12-14
Kaye Watson.
 Sales function

2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Accounting Information &
Reporting Systems by A. Aseervatham and D. Anandarajah. Slides prepared by 12-15
Kaye Watson.
 Sales returns function

2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Accounting Information &
Reporting Systems by A. Aseervatham and D. Anandarajah. Slides prepared by 12-16
Kaye Watson.
 Internal controls procedures for the
revenue cycle
Prompt transfer of customer orders to sales orders
Strict procedures for granting credit
Set policy on credit amounts and terms and discounts
Prompt invoicing in separate department
Segregation of duties on
dispatch
invoice preparation
Proper authorisation procedures for discounts, returns and
allowances and bad debt write offs
Sequentially pre-numbered invoices, receipts etc.
Cash registers with sealed till roles

2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Accounting Information &
Reporting Systems by A. Aseervatham and D. Anandarajah. Slides prepared by 12-17
Kaye Watson.
 Computer application systems for
the revenue cycle
Computers play an important role where large numbers
of transactions are processed:
record the information in the same categories as a
manual system
quickly produce the documentation required
record reservation of goods and services ordered
easily generate detailed reports for management use
reduce labour costs
reduce errors in pricing etc.

2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Accounting Information &
Reporting Systems by A. Aseervatham and D. Anandarajah. Slides prepared by 12-18
Kaye Watson.
 Controls in the computer
environment
Application controls required:
Input controls
detect and prevent errors when data is input
Processing controls
detect and prevent errors while processing is in progress
Output controls
detect and prevent errors in outputs from processing

2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Accounting Information &
Reporting Systems by A. Aseervatham and D. Anandarajah. Slides prepared by 12-19
Kaye Watson.