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REVENUE AND RECEIPTS CYCLE - Coggle Diagram
REVENUE AND RECEIPTS CYCLE
Credit Sales
5 Functional Areas
The Invoicing Function
To notify the customer promptly of amounts due for goods supplied
Documentation:
Sales Invoice;
Price List
The Revenue Recording Function
To record the sales made and to raise the corresponding debtor promptly
Documentation:
Invoice;
Sales Journal;
Debtors ledger;
General ledger
The Dispatch Function
To fill accepted orders promptly and accurately and to ensure only authorised orders are acted on
Documentation:
Picking Slip;
Delivery Note;
Back order note;
List of deliveries
The Credit Management Function
To limit the loss from bad debts and to encourage debtors to pay promptly
Documentation:
All records kept in the cycle are relevant;
Age analysis;
Monthly statement;
Credit Bureau information
The Ordering Function
To record orders from customers and initiate action to fill them
Documentation:
Customer Order;
Internal Sales Order (ISO);
Price List;
Credit Application form;
Credit Bereau information
Receipts from Debtors
Basic Controls
Segregation of duties
Different forms of cash should be kept & recorded seperately
Proper stationery control:
Receipts, cash sales slips/invoices numerically recorded;
locked away;
recorded in a register
Money received by mail:
Opened and counted by 2 independent people;
Recorded in mail register;
Recipient/cashier should sign as proof
Safegaurding:
Locked in vault;
Banked as soon as possible
Post dated cheques recorded in register and strictly controlled
Adequate insurance against theft and fraud
Controls over Cash
Cashier:
Cashier to balance cash & compare with source docs - record it on a cash receipt summary (signed by cashier, independently reviewed by senior official, counts money in cashier's presence;
Comapre cash with supporting docs;
Every cashier responsible for own finds;
Every cashier responsible for own float - lock in cash drawer;
Supervision over cashiers;
Cash banked as soon as possible
Petty Cash:
One person responsible;
Physical safekeeping;
Limited fund amount;
Define type of expenditure;
Pre-numbered petty cash vouchers;
Payments approved;
Reimbursements;
Exact amount of voucher;
Vouchers/slips cancelled
Controls over Bank account
1. Bank should be reconciled monthly with the Cashbook:
Independent of person that writes up cashbook and reviewed by senior independent official
2. EFT's is also a valid receips method
Documentation present within receipts from debtors in terms of bank:
Cancelled cheques;
Cheque requisitions;
Deposit slips;
Bank statements;
Bank confirmation letter;
Cash book;
Bank reconciliation
Documentation present within receipts from debtors in terms of cash:
Cash register reading;
Cash advance documents;
Cash summaries;
Receipts;
Physical cash counts
Risks within the receipts from debtors
Lapping/Rolling -
Misappropriation of receipts in cash from cash sales or receipts from Accounts Receivable:
Remove cash of R500 and replace with cheque of R500 received from debtor A;
Later credit A’s account with R500, transferring the amount to B’s account.
Kiting:
Remove cash and reflect as outstanding deposit on bank reconciliation;
Later a cheque for fictitious expenses is drawn and cheque deposited in company’s bank account – clearing outstanding deposit
Procedure to detect Lapping/Rolling & Kiting:
Positive accounts receivable confirmations;
Surprise cash counts & bank reconciliations;
Cash summaries compared to entries in cash receipts and cash payment records, mail registers, deposit slips
Sale adjustments
Documentation:
Goods returned vouchers;
Credit note returns and allowances journals;
Debtors journal;
General ledger
Controls for the payments to creditors/payables function:
Goods returned - Recorder on return and debtors account debited and a goods returned voucher and credit note is issued;
Adjustments - Ensure accuracy recording and authorization, discounts, returns and corrections and writing off bad debt;
Controls - Authorization, segregation of duties, formal documentation, monitoring and supervision
CONTROL OBJECTIVES: REVENUE & RECEIPTS
Occurrence/Validity;
Authorization;
Completeness;
Accuracy;
Recording;
Classification;
Cut off
GENERAL CONTROLS:
Supervision and review;
Segregation of duties;
Rotation of duties;
Personnel take leave regularly;
Management control;
Internal Audit;
Sufficient stationary control;
Scrutinize all records and docs for extraordinary items;
Test castings and calculations on all selected items documents and ledger accounts
Weakness and Risk example:
Not having a proper credit check procedure according to company policy in place creates a weak authorization environment where anyone who's anyone can become a debtor without their creditworthiness being scrutinized. This creates a risk that the company will sell goods to a considerable amount of debtors who will not be able to settle their debt, creating a large bad debt account which can be fatal to the survival of any business.
Credit Sales
Authorization:
Credit limits are determined for all credit clients after approving the creditworthiness and an ISO is authorized by the credit sales manager
Occurrence/Validity:
All entries in the sales journal is supported by
ISO;
DN;
Invoice
Completeness:
Numerical ISO issued on receipt of client's order;
After authorization a numerical DN is prepared;
ALL DN's are recorded in register for matching purposes with invoice;
Numerical invoice issued on receipt of signed DN & marked off in register;
Unmatched DN's frequently followed up;
Numerical DN & Invoices produced and missing numbers frequently followed up by senior person;
Proper gate control
Accuracy:
Quantities on invoice obtained from DN, price obtained on invoice from official price list, calculations reviewed by independent person;
Sales journal is recorded from sales invoice
Recording:
Transactions in the sales journal is posted to the individual debtor's account in the debtors ledger and the total sales to debtors control account & sales account in the general ledger
Classification:
External & Internal sales are classified as such, distinguished by a code number, recorded on separate docs and are separately recorded
Cut off:
Invoices are made out from DN's in respect of date of delivery
Receipts from Debtors
Occurrence/Validity:
Sequentially numbered receipts;
Receipt summary;
Deposit slip
Authorization:
Settlement discounts are granted according to company policy;
Management monitors discounts granted & goods returned
Completeness:
Numeric receipts are issued i.r.o. all money received;
Daly cash receipt summary is prepared, balanced with cash & independently reviewed;
Debtor's control account is kept & regularly reconciled with debtor's edger
Accuracy:
Discounts granted and calcs of discounts independently reviewed;
Debtor's statements are sent our regularly & differences/errors immediately followed up independently
Recording & Classification:
Payments allocated to correct debtor's account & total to the debtors control account according to payment advice
Cut off
Payments allocated to the accounting period according to the payment advice