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UNIT 4: Revenue and Receipts Cycle - Coggle Diagram
UNIT 4: Revenue and Receipts Cycle
Functions in the cycle
Receipts from debtors
Controls over cash
Controls over bank account
Basic controls
Sales adjustments
Adjustments
Controls
Good returned
Credit sales
Invoicing function
Revenue recording function
Dispatch function
Credit management function
Ordering function
Documents in the cycle
Receipts from debtors
General
Cancelled cheques
Cheque requisitions
Deposit slips
Bank statements
Bank confirmation letter
Cash book
Bank reconciliation
Cash
Cash register reading
Cash advance documents
Cash summaries
Receipts
Physical cash counts
Sales adjustments
General ledger
Debtors journal
Credit note returns and allowances journals
Goods returned vouchers
Credit Sales
Invoicing
Sales invoice
Price lists
Dispatch
Picking slip
Delivery note
Back order note
List of deliveries
Recording
Invoice
Sales journal
Debtors ledger
General ledger
Ordering
Customer Order
Internal sales order
Price list
Credit application form
Credit bureau information
Credit Management
All records kept in the cycle are relevant
Age analysis
Monthly statement
Credit bureau information
Control objectives and Internal controls
Accuracy
Revenue
1) The quantities on the invoices are obtained from the delivery notes.
2) The price on the invoice is obtained from the official price list (master file).
3) Calculations are reviewed by an independent person
Receipts
1) Discounts granted are independently reviewed
2) Calculations are independently reviewed
Recording
Revenue
2) Sales journal are posted to:
a. the individual debtor's account in the debtors ledger;
b. the total sales to the debtors control account and the sales account in the
general ledger
3) The debtors control account is reconciled monthly with the debtor’s ledger
1) The sales journal is recorded from the sales invoices
Completeness
Revenue
1) An internal sales order is made out on receipt of the client's order which:
a. is numerical;
b. specifies the quantity ordered;
c. contain the prices of goods per official price list;
2) After the sale has been authorized, a delivery note is prepared, which is:
a. sequentially numbered;
b. describes the quantity and the goods;
c. signed by the client as acknowledgement of receipt of the goods
d. recorded in a register for purposes of matching with the invoice at later stage
3) On receipt of a signed delivery note a numerical invoice is made out, and marked off in
the register
4) All unmatched delivery notes (in the register) are frequently followed up
5) A numerical list of delivery notes and invoices is frequently produced and missing
numbers are frequently followed up by a senior person
6) Gate control: guard counts goods and agrees it with the delivery note.
Receipts
1) Numeric receipts are issued in respect of all money received.
2) A daily cash receipt summary is prepared, balanced with cash and independently
reviewed
3) A debtors' control account is kept and is regularly reconciled with the debtors' ledger
Classification
Revenue
1) External and internal sales (intercompany) are classified as such, clearly distinguished
by a code number, recorded on separate documentation and are separately recorded.
Authorisation
Revenue
1) Credit limits are determined for all credit clients after approving their creditworthiness.
2) No credit granted for non-creditworthy clients.
3) An internal sales order is made out on receipt of the client's order which is authorised by
the credit manager.
4) The sales manager authorises credit sales on a daily basis – he signs the orders as proof
of authorisation.
Receipts
1) Settlement discounts are granted according to fixed company policy
2) Management monitors discounts granted and goods returned
Cut off
Revenue
1) Invoices are made out from the delivery notes in respect of the date of delivery
Receipts
1) Payments and discounts are recorded on the date of receipt.
Occurrence/Validity
Receipts
1) Payments on debtors' accounts are supported by:
a. a sequentially numbered receipt;
b. cash receipt summary
c. deposit slip
Revenue
1) All entries in the sales journal are supported by:
a. an internal sales order,
b. delivery note and
c. invoice
Recording & Classification
Receipts
1) Payments allocated to debtor's account and accounting period according to the
payment advice.
2) Debtors' statements are sent out regularly and differences and errors on statements
are immediately independently followed up
Weaknesses and Risks
Weakness: giving customers credit immediately without performing any background tests.
Risk: Prospective revenue being written off as bad debts due to a customer's inability to repay the credit given
Weakness: Delivery notes not used or compared to the invoice within the dispatch function of a business.
Risk: theft of goods due to the lack of comprehensive tracking of goods during critical points of dispatch.