You are on page 1of 37

Accounting, Information Technology,

and Business Solutions, 2nd Edition


By Hollander, Denna, Cherrington

Chapter 6

PowerPoint slides by:


Bruce W. MacLean,
Faculty of Management,
Dalhousie University

The Sales/Collection Business Process

Irwin/McGraw-Hill The McGraw-Hill Companies, Inc., 2000


Chapter Objectives
 Identify the characteristics of the traditional
sales/collection process and related IT applications.
 Describe weaknesses in the traditional sales/collection
process and IT application architecture.
 Develop a REAL model of the
sales/collection process.
 Suggest ways to improve the
sales/collection process and
its IT application.

Irwin/McGraw-Hill The McGraw-Hill Companies, Inc., 2000


The Purpose of the Sales/Collection
Process
 The sales/collection  The process should:
process is a series of  Minimize the amount of time
operating events that: between the selection of
products and services and the
 collectively serve to
collection of cash.
attract customers,
 Minimize the amount of cash
 help customers select that is not collected from
goods and services, customers for goods and
 deliver the goods and services provided.
services requested, and  Structure product quality and
 collect payments for the price to balance customer value
goods and services. and organization profitability.

Irwin/McGraw-Hill The McGraw-Hill Companies, Inc., 2000


An Overview of the Traditional
Sales/collection Process
 In a manual sales/collection  to communicate authorizations
process, paper is used between departments and to
external parties.
 as the primary means to capture and
store business data and  Files of source documents and
communicate information to journals are often called
information customers transaction files while master
 as the audit trail for documenting the files include the subsidiary
process.
ledgers, general ledger, and
 to store duplicate data as data is
processed across various
control accounts used by units
departments (e.g., the Sales Order within the Accounting
Department, the Shipping Department (e.g., accounts
Department, the Billing Department, receivable, inventory control,
and the Warehousing Department). and general ledger).

Irwin/McGraw-Hill The McGraw-Hill Companies, Inc., 2000


Take Order
 The customer order typically includes data about the customer,
where to ship the goods, the items the customer wants to order,
and payment terms.
 The company receives the order and checks the customer files to
see if the customer is a new or existing customer.
 Usually, this customer order is recopied onto a company’s own
sales order document.
 A copy of the sales order may eventually be used as a sales
invoice. Having order data on a pre-numbered internal
document helps a company locate order data and avoid losing
orders. This is important, because missing documents can signal
unfilled or unauthorized transactions.

Irwin/McGraw-Hill The McGraw-Hill Companies, Inc., 2000


Sales Order
 The Sales Order has many of  Two copies of the sales order are sent to
copies: the Billing Department to inform them of
the sale and for use in invoicing the
 A copy of the sales order is sent to customer after the goods are shipped.
the Credit Department for approval.
 A copy of the sales order (the copy with
 A picking slip or stock request Credit Department approval) is filed in
document, to the Warehousing the Sales Order Department with the
Department authorizing customer's order document to create a
warehousing to pull the goods and customer order activity file. The file of
move them to the shipping area. customer orders is organized
 The packing slip is sent to the alphabetically (for ease in locating
Shipping Department to information by customer name).
communicate that goods are  Finally, a copy of the sales order may be
forthcoming from the Warehousing sent to the customer to acknowledge
Department. acceptance of their order.

Irwin/McGraw-Hill The McGraw-Hill Companies, Inc., 2000


Fill Order
 The Warehousing  (If necessary, a back order
Department cannot act document is created for
without authorization from stock-out items.)
the Sales Order Department.  A warehouse inventory
in the form of the picking subsidiary ledger may be
slip or stock request updated to reflect the goods
document. taken out of inventory.
 Warehousing personnel pick  In a traditional accounting
the goods (noting any stock- system, each department may
outs or other problems on the keep its own inventory records.
These separate inventory
picking slip) and transfer records are not included on
them to the shipping area. Exhibits 6-1 and 6-2.

Irwin/McGraw-Hill The McGraw-Hill Companies, Inc., 2000


Ship Product
 The Shipping Department  Shipping personnel prepare a
compares the packing slip (from shipping notice to
the Sales Order Department) with communicate that the goods
the picking slip and the goods to have been shipped.
be shipped.  The packing slip is included with
 They pack the goods and select a the packaged goods.
carrier; they prepare a bill of
 A copy of a shipping notice is
sent to the Billing Department as
lading (that describes the notification of the need to bill the
packages they accept for customer.
shipment, the carrier, the route,  Documents in the shipping
and customer information), keep activity file are typically ordered
a copy in the Shipping numerically to allow a
Department, and send a copy to completeness check to identify
missing documents or documents
the customer. used out of order.

Irwin/McGraw-Hill The McGraw-Hill Companies, Inc., 2000


Bill Customer
 Upon notification of shipment, the  A copy of the sales invoice serves

Billing Department pulls and as the source document for


reviews the sales order from the recording the transaction in the
temporary file to make sure the sales journal.
 The total amount of the group of
products Ashould have been shipped.
copy of the sales invoice is sent to the
They alsocustomer
review the(as
shipping sales invoices for a period of time
their bill). A copy of the sales
is summed to calculate a batch
notice to invoice
verify that the goods have
is sent to the Accountscontrol
Receivable
total.
been shipped and that the
Department to record in the accounts
The batch control total is used to
transaction meets the definition of a
receivable subsidiary ledger, prepare
and theapicking
journal voucher
sale for accounting purposes. document control
slip or packing slip is sent to inventory
 The Billing Department prepares a  The journal voucher document is
to update the inventory subsidiary ledger.
sales invoice by adding prices to the sent to the General Ledger
data found on the sales order Department for posting to the
document. general ledger

Irwin/McGraw-Hill The McGraw-Hill Companies, Inc., 2000


Information Processes
 The Accounts Receivable  The General Ledger
Department uses a copy of the Department uses the journal
sales invoice to record invoice voucher to record the total
amounts in the customer’s sale as a debit to Accounts
account in the accounts Receivable and as a credit to
receivable subsidiary ledger. Sales in the general ledger.
 The Inventory Control
Department reduces inventory
balances in the inventory
subsidiary ledger (for companies
that use a perpetual inventory
system) and assigns the goods
sold to cost of goods sold.
Irwin/McGraw-Hill The McGraw-Hill Companies, Inc., 2000
Receive Payment
 At this point, the company waits  The employees document the
for the customer to return payments by completing a batch
payment. remittance list that lists the
source of each check and its
 Often the sales invoice includes
amount.
an additional page to be
returned wit the payment, called
a remittance advice, lists the
customer’s name, account  The amount of the check is
number, and balance due.
compared with the amount on
 Generally, two people are the remittance advice to verify
assigned to open the mail to their equality and the check is
reduce employee fraud or theft. restrictively endorsed “for
deposit only”.

Irwin/McGraw-Hill The McGraw-Hill Companies, Inc., 2000


Information Processes
 A copy of the batch remittance list is  The batch of remittance advices
sent, along with the checks, to personnel is sent to the Accounts
in the Cash Receipts Department. Receivable Department where
 A deposit slip is prepared to deposit the the customer's subsidiary ledger
checks in the bank. The batch is updated to reflect the payment.
remittance list is used as a source The remittance advices are
document to record the cash received in placed in customer files to
the cash receipts journal. The totals are document the customer payment.
used to prepare a journal voucher that is A copy of the batch remittance
sent to the General Ledger Department list is also sent to the controller
to update (increase) the General Ledger to reconcile total remittances for
Cash account and (decrease) the General the day to the bank deposit
Ledger Accounts Receivable control amount (recorded on a validated
account. deposit slip obtained from the
bank).

Irwin/McGraw-Hill The McGraw-Hill Companies, Inc., 2000


Sample Data Flows Commonly Associated with
the Sales/Collection Process
 Customer Order
 Sales Order
 Picking Slip
 Packing Slip
 Bill of Lading/Shipping Notice
 Sales Invoice (Bill)
 Remittance Advice
 Deposit Slip
 Customer Check
 Open Sales Order
 Open Sales Invoice

Irwin/McGraw-Hill The McGraw-Hill Companies, Inc., 2000


Traditional, Manual Sales/Collection Process - Part 1
Sales Credit
Customer Order Manager Billing

Customer Customer Sales C E


Order Order Order
Hold Until Shipping
S/O Shipped
/O copy
S 6 Prepare Approve
Notice
copies
acknowledge- Sales Credit
ment Orders
Match
Prepare Copies /
Approved Invoice
Extend
D Prices
S/O
Sales
Goods, Pkg Order Sales F I G
slip 3, Bill of Journal
lading 1&2 C
Release all S/O A= Alphabetic
Invoice Dr/Cr to
B copies after G/L C= Chronological
credit approval N= Numerical
A

A Sales Order #2
. & Customer Order H
Irwin/McGraw-Hill The McGraw-Hill Companies, Inc., 2000
Traditional, Manual Sales/Collection Process - Part 1
Inventory Accounts General
Control Warehouse Shipping Receivable Ledger
I H
F A B
Accts Rec Dr/Cr to G/L
Packing Invoice copy
Shipping Picking Slip S/O
Slip S/O Copy
Notice Post to Post to
A/R sub General
Prepare ledger Ledger
Shipping
Post to Release Docu- General
A/R sub
inv. Goods ments Ledger
ledger
records

Bill of Goods,
Picking Lading Pkg slip 3,
Inventory Slip S/O Bill of Shipping Bill of
Sub. Lading 3 Notice lading 1&2
Ledger
Ship
documents D
N
& goods E
.

Irwin/McGraw-Hill The McGraw-Hill Companies, Inc., 2000


Traditional, Manual Sales/Collection Process - Part 2
Mail Cash Accounts General
Customer Room Receipts Receivable Ledger Controller Bank
Remittance In
Mail Check C
D
and RA Advice Batches B

Cheques Deposit
Remittance Slip &
Advices Dr/Cr to
Checks
G/L

Remittance A
List Post to Bank
Created Post to Validates
A/R sub
General Remittance Deposit
Remittance ledger
Ledger List 1
A List 2
Remittance
List 1 A/R Validated
sub Gener Compare Deposit
Batch of
Remittance
ledger al Slip
List 2 Checks
Ledger

A
Batch of
Checks Remittance
Prepare Post to C
Cash Rec. Advices Remittance Lists
deposit and Deposit Slips
Journal
slip
Remittance Remittance
Advice Lists
Checks and A= Alphabetic
Cash
Deposit C= Chronological
Receipts N
Slip N= Numerical
Journal
B
Dr/Cr to
. D C
G/L
General
Ledger

Irwin/McGraw-Hill The McGraw-Hill Companies, Inc., 2000


An Overview Of The Traditional
Automated Sales/collection Process
 Authorizations and data access can be provided through
computer screens there is potential for decrease in the
amount of paper
 The paper sales and cash receipts journals in a manual
system have been physically changed to disk or tape
transaction files. The paper inventory and accounts
receivable subsidiary ledgers and the paper general
ledger have been upgraded to disk or tape master files.
 Input typically comes from a hard copy document (the
document symbols) and goes through one or more
processes. Processes (represented by rectangles) store
data in files (the tape or disk symbols) or prepare data in
the form of a report (also a document symbol).
Irwin/McGraw-Hill The McGraw-Hill Companies, Inc., 2000
An Overview Of The Traditional
Automated Sales/collection Process
 Each program can include screens for collecting data,
edit checks on the data entered, instructions for
processing and storing the data, security procedures
(e.g., limiting access via passwords or user IDs), and
steps for generating and displaying output.
 To understand the files and their use, it is important
to consider their contents (their record layouts).
 Notice the relationship between the documents and
files used for input and the files and documents
generated as output. The input documents and the
files must contain the data necessary to generate the
desired output.

Irwin/McGraw-Hill The McGraw-Hill Companies, Inc., 2000


Traditional Automated Sales/Collection
Process Flowchart - Order Entry
From customer Customer’s order
or salesperson
Exception
and error
Performed by Enter order via display
sales order clerk terminal

Edit order, preform Merchandise inventory


Customer credit check & check master file
master file inventory
Customer’s
order
Open sales order file

Order
Print order documents s

Sales
Picking list Acknowledgement Order
Order
To s
To warehouse
customer
Irwin/McGraw-Hill The McGraw-Hill Companies, Inc., 2000
Traditional Automated Sales/Collection
Process Flowchart - Shipping
From Picking list
(amended) Exception
warehouse
and error
display
Performed by Enter data concerning goods
shipping clerk delivered to shipping
Picking list
(amended)
Edit data concerning picked goods

Shipping file

Shipping Print shipping documents


reference file

Packing slip Bill of Shipping


lading notice
Pack goods
Performed by with Shippin
shipping clerk packing slip g file
enclosed & To carrier and
ship To billing
customer

Irwin/McGraw-Hill The McGraw-Hill Companies, Inc., 2000


Traditional Automated Sales/Collection
Process Flowchart - Billing
From shipping

Shipping notices

Prepare batch total Batch total


Performed by billing
clerk
Shipping notices

Exception
Enter batch total & select prices and error
display
Customer
Customer Customer Shipping notices order
billing data
Edit billing data 1
master file

Pricing ref. Billing file Open sales Merch. Inv.


file order file master file
Prepare
A/R master invoices & General
file update files ledger file
Sales history
file

Printed at end Invoice register Invoice batch


Open sales A/R summary
of day Sales invoice totals
invoice file

Compare
To billing To customers
to batch Performed by accounts
totals of receivable clerk
1 invoices

File
Irwin/McGraw-Hill The McGraw-Hill Companies, Inc., 2000
Traditional Automated Sales/Collection
Process Flowchart - Mail Room
From customer

Checks
Remittance advices

Performed by mail Endorse checks & Batch total


room clerk prepare batch total

Checks
Remittance advices

Enter cash receipts Error &


& batch total exception
display

Separate checks Edit receipts data, list errors &


& remittance write to receipts file Customer A/R file
advices
Exception & Open sales invoice file
Cash receipts file
summary report
Program compares
Remittance advices Checks Compare batch totals & computed totals from
To accounts
print remittance list processed batch with
receivable
precomputed batch totals

To cashier Remittance list


To accounts
receivable

Irwin/McGraw-Hill The McGraw-Hill Companies, Inc., 2000


Traditional Automated Sales/Collection
Process Flowchart - Cashier
From mail room

Remittance list
Checks

Performed by cashier Compare Remittance list

Checks Fromother
sources

Checks Enter data from


checks

Add new check data to


file & print outputs Cash receipts file

Deposit slip Cash receipts


listing

C/R file

To accounting To accounts
To bank
manager receivable

Irwin/McGraw-Hill The McGraw-Hill Companies, Inc., 2000


Traditional Automated Sales/Collection
Process Flowchart - Accounts Receivable
From mail room From cashier

Remittance list Batch total


Remittance advices
Exception & summary report Customer
reference files
Compare &
Performed by accounts make
receivable clerk corrections &
reconciliations
Error &
Remittance list Enter changes exception
Remittance advices display
Edit change data
Exception & summary report

Open sales Cash receipts file


invoice file

GL trans. Update files & Customer


summary print analyses A/R file
file

Customer A/R summary Updating errors


A/R file report

File Compare,
reconcile,
adjust To managers (and
summary files)

Irwin/McGraw-Hill The McGraw-Hill Companies, Inc., 2000


Criticisms of Traditional IT
Applications
 Multiple systems
 the sales/collection process has helped you notice the large
number of IT applications and which exist in each functional
area, including production, marketing, and finance.
 Subset of the process
 each of the traditional IT applications capture, store, and
process data about a subset of the events. None of the
applications provide an organization-wide view of this process.
 Untimely processing
 system does not capture data in real time, significant amount of
processing delays results

Irwin/McGraw-Hill The McGraw-Hill Companies, Inc., 2000


Criticisms of Traditional IT
Applications
 Limited characteristics
 The traditional accounting system captures only limited
characteristics about the events (e.g., date, account, and
amount). Capturing only limited characteristics restricts the
types of information accountants can provide to information
customers.
 Level of aggregation
 Data stored in the traditional accounting system is typically
very summarized.
 One view
 the traditional accounting system restricts users to only one
view of the businessthe financial view

Irwin/McGraw-Hill The McGraw-Hill Companies, Inc., 2000


Opportunities to Improve the Process
 3 opportunities for accounting and IT professionals to
enhance their value:
 Define rules to shape the business processes.
 Embed IT applications in business processes to control the
process and to capyure and store detailed data in real time.
 Provide useful information for decision makers to plan,
execute, control, or evaluate the organization.
 Understanding and defining a business process includes:
 Describing each event, what triggers the event, and the business
rules associated with the event.
 Identifying business risks associated with each event

Irwin/McGraw-Hill The McGraw-Hill Companies, Inc., 2000


New Architectures to Support the
Sales/Collection Process
 Organizations can significantly improve processes by
following just one simple principle:
 Embed IT into the business process so business event data are
recorded and event/process rules are executed as each event
occurs.
 The REAL analysis framework aids in analyzing
business events by highlighting what (the resources
involved in the event), who (the internal and external
agents), and where (the location) of each event. The
events, agents, and resources involved in the
sales/collection process will vary somewhat from
organization to organization.
Irwin/McGraw-Hill The McGraw-Hill Companies, Inc., 2000
Providing Useful Measures About the
Sales/Collection Business Process
 Top Management
 Top managers are primarily interested in summary
information for the sales efforts of the entire enterprise:
– Market share of company products compared to the market share of
competitors.
– Trends in sales this year compared to prior years.
– Changes over time in key economic indicators compared to changes
in the organization’s sales, sales returns and allowances, and
uncollectibe accounts.

Irwin/McGraw-Hill The McGraw-Hill Companies, Inc., 2000


Providing Useful Measures About the
Sales/Collection Business Process
 Marketing
 Information relevant to marketing includes:
– Amount and location of inventory in stock.
– Customer preferences and changes in those preferences.
– Cost to produce each product and to provide each service.
– Activity and success of each salesperson.
– Quantity and price of each product sold
by salesperson, by customer type, and
by geographic area.
– Detailed information on competitor’s
products, services, pricing strategy,
and advertising campaigns.

Irwin/McGraw-Hill The McGraw-Hill Companies, Inc., 2000


Providing Useful Measures About the
Sales/Collection Business Process
 Human Resource
 requires labor information to determine workforce needs,
oversee employee scheduling, initiate employee
compensation, and conduct employee performance
evaluation.
 Production
 to maintain adequate stores of
inventory on hand and produce
a quality product.

Irwin/McGraw-Hill The McGraw-Hill Companies, Inc., 2000


Providing Useful Measures About the
Sales/Collection Business Process
 Finance & Accounting
 Finance people must provide:
– Strategic management and analysis.
– Management control measures that tie actions to
corporate strategy.
– Cost management that is forward focused.
– Effective & efficient management
of financial processes.
– Support for the core
business processes.

Irwin/McGraw-Hill The McGraw-Hill Companies, Inc., 2000


Christopher, Inc. Sales/Collection ) Customer
(1,1)

(1,1 (1,1)
REAL Model (0,*
)
(0,*) (1,1)
Call on (1,1)
Customer (0,*) (1,1)

)
,*
(1,1) Salesperson

(0
(0,*)
Customer (0,*)
Places (0,*)
) Order (1,1)
* Order Clerk
(0,
,*)
(0 (1,1)
) (0,*)
(1,*
Inventory Pick/Pack Warehouse
(1,*) (0,*) (0,*) (1,1)
Inventory Clerk
(1,
*) (1,1)
(0,*) (1,1) Shipping
(0 )
,*) (0,* Clerk
Ship Order (0,*)
(0,*
)
(1,*) (1,1
) Carrier
(0,*)

Bank (1,1) (0,*) (1,1) (0,*) Collect


Cash (0,*)
Payment (0,*)
(1,1)
Cashier

Irwin/McGraw-Hill The McGraw-Hill Companies, Inc., 2000


Sales/Collection Process
Sample Events
 Marketing event
 Customer Order event
 Move the Goods from Warehousing to Shipping event
 Ship Goods and/or Provide Services event
 Receive Customer Payment event
 Accept Returns and Approve Allowance event
 Write Off Uncollectible Accounts event

Irwin/McGraw-Hill The McGraw-Hill Companies, Inc., 2000


Sales/Collection Process
Sample Information Customers

Top
Top Management
Management
Marketing
Marketing
Accounting
Accounting
Finance
Finance
Production
Production
Customers
Customers

Irwin/McGraw-Hill The McGraw-Hill Companies, Inc., 2000


Event Logical Structures: (used to store documentation data about events) Christopher, Inc. Sales/Collection Process
SALES-CALL Sales call #, [Salesperson Employee #], [Customer #], Date, Starting
time, Ending time, Meeting location, Meeting expense, Notes about
the meeting (e.g. products discussed and other comments)

CUSTOMER ORDER Sales order #, [Salesperson Employee #], [Customer #], [Customer
Service Representative Employee #], Date, Time, Shipping
instructions, Cancel by date, Location of order (e.g., phone, during
sales call, fax, or mail),

MOVE INVENTORY Picking #, [Sales Order #], [Warehouse Clerk Employee #], Date,
Time started, Time completed, Time released to shipping area

SHIP MERCHANDISE Bill of Lading #, Invoice #, [Picking #], [Shipping Clerk Employee #],
[Customer #], [Carrier ID #], Date, Time, Shipment tracking #,
Packaging information, Shipping cost, Sales tax, Salesperson
commission

COLLECT PAYMENT Cash receipt #, [Cash account #], [Cashier Employee #], [Customer #],
Date, Time, Amount received, Electronic funds transfer #

ORDER/INVENTORY [Sales order #], [Inventory Item #], Quantity ordered

MOVE/INVENTORY [Picking #], [Inventory Item #], Quantity picked

SHIP/INVENTORY [Bill of Lading #], [Invoice #], [Inventory Item #], Quantity shipped,
Price each

SHIP/COLLECT PAYMENT [Cash receipt #], [Invoice #], Amount applied to this invoice

Irwin/McGraw-Hill The McGraw-Hill Companies, Inc., 2000


Christopher, Inc. Sales/Collection Process
Resource Logical Structures: (used to store reference data about resources)
INVENTORY Inventory item #, Description, Product specification, Reorder point,
Current Price, Beginning Quantity, Beginning Quantity date

CASH Cash Account #, [Bank #], Type of account (e.g., checking, savings,
CD, etc.), Beginning Balance, Beginning Balance date

Agent Logical Structures: (used to store reference data about agents)


EMPLOYEE Employee #, Name, Street address, City, State, Zip, Telephone #, Birth
date, Marital Status, Job code (e.g., salesperson, shipping clerk,
cashier, etc.), Start date, Salary, Comments

CUSTOMER Customer #, [Salesperson Employee #], Name, Street address, City,


State, Zip, Telephone #, Credit rating, Credit limit

CARRIER Carrier Id #, Carrier Name, Street address, City, State, Zip, Telephone
#, Contact Person, Rate information

BANK Bank #, Bank name, Contact person, Bank street address, City, State,
Zip, Bank phone #

Irwin/McGraw-Hill The McGraw-Hill Companies, Inc., 2000

You might also like