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Revenue and Receipts Cycle - Coggle Diagram
Revenue and Receipts Cycle
Credit sales
The ordering function
-
Objective of this function is to record orders from customers and initiate action to fill them
Documents used
• Customer Order
• Internal sales order (hereafter known as ISO)
• Price list
• Credit application form
• Credit bureau information
The dispatch function
-
Objective of this function is to fill accepted orders promptly and accurately and to ensure only that only authorised orders are acted on.
Documents used
• Picking slip
• Delivery note
• Back order note (a customer order that cannot be filled when presented)
• List of deliveries
The invoicing function
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objective of this function is to notify the customer promptly of amounts due for goods supplied;
Documents used
• Sales invoice
Price list
The revenue recording function
-
objective of this function is to record the sales made and to raise the corresponding debtor promptly; and
Documents used
• Invoice
• Sales journal
• Debtors ledger
• General ledger
The credit management function
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objective of this function is to limit the loss from bad debts and to encourage debtors to pay promptly.
Documents used
• Age analysis
• Monthly statement
• Credit bureau information
Receipts from debtors
Documents used
Bank
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
Basic controls
Controls over cash
Controls over bank account.
Sales adjustments
Documents used
• Goods returned vouchers
• Credit note returns and allowances journals
• Debtors journal
• General ledger
Control objectives, Internal controls and Test of controls
CREDIT SALES
Occurrence/Validity
Internal control:
All entries in the sales journal should be supported by a an internal sales order (ISO) delivery note and invoice
Authorisation;
Internal controls
After approving their creditworthiness, credit limits are determined for all credit clients.
Non-creditworthy clients should not be granted credit.
An internal sales order is made out on receipt of the client's order which is authorised by the credit manager.
The sales manager authorises credit sales on a daily basis by signing the orders as proof of authorisation
Completeness
An internal sales order should
:
Be numerical
specify the quantity ordered
contain the prices of goods per official price list
A delivery note should be prepared after the sale has been authorised and should
be sequentially numbered
.describes the quantity and the goods
be signed by the client as acknowledgement of receipt of the goods
A numerical invoice should be made out and marked off in the register on receipt of a signed delivery note
All unmatched delivery notes in the register are frequently followed up.
Accuracy;
Internal control
The quantities on the invoices should be obtained from the delivery notes.
The price on the invoice should be obtained from the official price list (master file).
Calculations should be reviewed by an independent person
Recording
Internal control
The sales journal is recorded from the sales invoices
Sales journal are posted to:
the individual debtor's account in the debtors ledger and the total sales to the debtors control account and the sales account in the general legder
The debtors control account should be reconciled monthly with the debtor’s ledger.
Classification
Internal control
External and internal sales (intercompany) should be classified as such, clearly distinguished by a code number, recorded on separate documentation and should be separately recorded.
Cut off
Internal control
Invoices should be made out from the delivery notes in respect of the date of delivery
RECEIPTS CYCLE
Occurrence/Validity;
Internal controls
Payments on debtors' accounts should be supported by:
a sequentially numbered receipt
cash receipt summary
deposit slip
Authorisation
Settlement discounts should be granted according to fixed company policy
Discounts granted and goods returned should be monitored by management
Completeness;
Internal Control
Numeric receipts are issued in respect of all money received.
A daily cash receipt summary should be prepared, balanced with cash and independently reviewed
A debtors' control account should be kept and regularly reconciled with the debtors' ledger.
Accuracy;
internal control
Discounts granted and calculations should be independently reviewed
Recording and Classification
Internal control
Payments allocated to debtor's account and accounting period according to the payment advice.
Debtors' statements should be sent out regularly and differences and errors on statements should be independently followed up immediately
Cut off
Internal Control
Payments and discounts should be recorded on the date of receipt.
Risks within the receipts from debtors
Lapping/Rolling
Misappropriation of receipts in cash from cash sales or receipts from accounts Receivable:
Kiting
Removing of cash and reflecting it as an outstanding deposit on bank reconciliation and later a cheque for fictitious expenses will be drawn and deposited in company’s bank account to clear outstanding deposit
Example:
If internal controls are not implemented properly in the cycle, it might lead to risk of fraudulent activities by employees in the company
For example: if authorisation of documents is only done by one person, it will be easy to manipulate information and do fraudulent activities, such as theft without being caught.
Substantive testing of sales
Occurrence
– recorded transactions have occurred and they pertain to the company
Classification
– all sales have been recorded in the proper accounts
Cut-off
– the sales transactions have been accounted for in the correct accounting
period
Completeness
– all sales should have been recorded, have been recorded
Accuracy
– the amounts of sales have been recorded appropriately
Presentation
- make sure
that sales are presented according to the accounting framework
Substantive procedures: trade receivables
Rights
– the company controls or holds the rights to the trade receivables
Classification
-you want to make sure that your trade receivables havebeen classified correctly.
Existence
– trade receivables included in the balance actually exists, they are not
fictitious
Debtors circulation
this means that the auditor will take control of all the debtors statement immediately after they have been printed and test from the statement to the debtor's ledger and vice versa to ensure that a statement has been produced for each debtor and that there is a debtor recorded for each statement.
Subsequent receipts testing
auditor will select a sample of debtors on the year end debtors list and will look at payment received
after year end from the selected debtors that are identified
Presentation-
want to make sure that the presentation of trade and
other receivables are exactly in terms of accounting framework
Accuracy, valuation and allocation
– trade receivables are included in the financial
statements at appropriate amounts and related disclosures have been appropriately
measured as described
All general
- these are comparisons of
receivables to prior years , receivables in relation to created sales compared to prior year and the
number and number of receivables by division, branch and product.