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UNIT 4: REVENUE AND RECEIPTS CYCLE, Credit Sales function - Coggle Diagram
UNIT 4: REVENUE AND RECEIPTS CYCLE
2. Dispatch Function
The objective of this function is to fill accepted orders promptly and accurately and to ensure only
authorised orders are acted on.
Documents present
Picking slip
• Delivery note
• Back order note (a customer order that cannot be filled when presented)
• List of deliveries
Activities and controls
Transferred to dispatch:
Once goods have been pick and a delivery note has been made out, the goods are transferred to dispatch to be packed, labeled and delivered
The dispatch function is a manual function:
a. There will be a person responsible for picking the goods from the store using a signed copy of the picking slip
b. After the goods has been picked using a picking slip a delivery note is created
c. Goods which cannot be picked because they are “out of stock” will be identified and a back order note will be created
Delivery of goods:
A delivery note should be
i. Sequentially numbered
ii. Described the quantity and the goods
iii. Signed by client as acknowledgement of receipt of goods
iv. Recorded in a register to be matched with invoice
v. Issued in duplicate copy
Counter sales:
a. Customer should sign the deliver note or invoice
b. Checking of items to the invoice
Gate control:
Guards should:
count goods and agree the goods with the delivery note and sign
check the quantity on the delivery note versus the quantity being
delivered
Segregation of duties is very important.
Good internal controls
4. Recording Function
The objective of this function is to record the sales made and to raise the corresponding debtor
promptly.
Activities and control
Invoices must be recorded accurately and entered against correct debtor
Compare the invoice to DN check for the following:
Quantity
Description
prices
Sequence checks on invoices if there are missing or duplicate numbers followed up
Trace posting: Sales journal – debtors ledger – general ledger
Monthly statements sent out by independent person
Documents present
• Invoice
• Sales journal
• Debtors ledger
• General ledger
3. Invoicing Function
:
The objective of this function is to notify the customer promptly of amounts due for goods supplied.
Documents present
Sales invoice
Price lists
Activities and controls
On the return of a signed delivery note from the customer
a. The delivery note should be matched with the ISO and the invoice should be generated
b. Numerical list of delivery notes and invoices is frequently produced and missing numbers followed up by senior person
c. Quantities on invoice are obtained from delivery note
d. Price on invoice is obtained from price list
e. Calculations are reviewed by independent person
1. Ordering Function:
The objective of this function is to record orders from customers and initiate action to fill them.
Documents present:
Customer Order
• Internal sales order (hereafter known as ISO)
• Price list
• Credit application form
• Credit bureau information
Activities and controls
When an order is received from a customer, the person responsible for ordering will generate an ISO.
Internal sales order should:
a. Be numerical
b. Contains the customer details
c. Specifies quantity ordered
d. Contains prices per official price list
e. Authorised by credit manager/sales manager
This function identifies two types of customers, namely new customers and existing
customers:
a. New customers have to go through a credit application process:
i. Credit application process is as follows:
Application form to be completed;
Background checks to determine if the customer is creditworthy;
If customer is creditworthy credit department will establish credit limits;
Capture information on permanent master file; and
Changes to details must be authorised by credit controller
b. Existing customers:
i. If it’s a valid customer (already has an account) client should present either identity number or account number
ii. The credit limit should be checked and if the credit limit has been exceeded the order cannot be accepted
5. Credit Management Function
The objective of this function is to limit the loss from bad debts and to encourage debtors to pay
promptly.
Documents Present
• All records kept in the cycle are relevant
• Age analysis
• Monthly statement
• Credit bureau information
Activities and controls
Credit application process
Identification of debtor to be handed over to lawyer
The receipts from debtors
Doccumentation present
In terms of
Bank
Cancelled cheques;
• Cheque requisitions;
• Deposit slips;
• Bank statements;
• Bank confirmation letter;
• Cash book;
• Bank reconciliation.
In terms of
Cash
Cash register reading;
• Cash advance documents;
• Cash summaries;
• Receipts;
• Physical cash counts.
Activities and controls
Controls over cash
1.Cashiers
a. Cashier must balance cash on a daily basis and must compare it with the source documents and record it on a cash receipt summary: Signed by the cashier; Independently reviewed by a senior official; Counts the money in the cashier's presence (cashier signs for receipt back of money).
c. Every cashier should only be responsible for his own funds: During lunch, etc. cash/cash register should be locked and proper key control exercised.
b. Compare cash with supporting documentation. Shortages should be paid-in by the cashier
d. Every cashier should be responsible for his own float - lock in cash drawer/cash box.
f. Cash must be banked as soon as possible (next day/twice a day)
e. Supervision over cashiers - senior/camera's
Petty Cash
a. One person responsible
b. Physical safekeeping
c. Limit fund amount
d. Define type of expenditure
e. Pre-numbered petty cash vouchers
f. Payments approved
g. Reimbursements
h. Exact amount of voucher
i. Vouchers/slips cancelled
Controls over bank account
The bank account should be reconciled monthly with the Cashbook:
a. Independent of the person that writes up the cashbook
b. Reviewed by senior independent official.
EFT’s is also a valid receipt method
Basic controls
Different forms of cash (sales, petty cash, and cash loans) should be kept separately and recorded separately.
Proper stationery control:
a. Receipts, cash sales slips/invoices etc., are numerically recorded
b. Locked away
c. Recorded in a register (sign for issuing and on receipt).
Money received by mail:
a. Opened and counted by two independent persons;
b. Recorded in a mail register;
c. The person/cashier to whom it is handed over should sign as proof of receipt.
Segregation of duties for receipt and recording of money.
Safeguarding of money:
Locked in a vault
Banked as soon as possible
Post-dated cheques received should be recorded in register and strictly controlled.
Adequate insurance should be taken out against theft and fraud.
RISKS WITHIN THE RECEIPTS FROM DEBTORS
Definition of 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
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
Defnition of Lapping/Rolling:
Misappropriation of receipts in cash from cash sales or receipts from Accounts Receivable
Sales adjustments
Documentation present:
Goods returned vouchers;
Credit note returns and allowances journals;
Debtors journal;
General ledger
Activities and controls
Adjustments
Ensure accuracy recording and authorisation;
Discounts;
Returns and corrections;
Writing off bad debt.
controls
Authorisation;
Segregation of duties;
Formal documentation;
Monitoring & supervision.
Goods returned
Recorded on return and debtors account debited
A goods returned voucher and credit note is issued.
Internal Controls, control objectives and test of controls in the cycle For
credit sales
Validity:
All recorded credit sales are valid and supported by proper documentation
Authorisation
: All credit sales are authorised according to company policy.
Completeness
: All valid credit sales are recorded and nothing is left out
Accuracy
: All credit sales are recorded on sales invoices at the correct quantity, price
and are arithmetically correct.
Recording
: All credit sales invoices are recorded correctly.
Classification
: All credit sales are correctly classified according to the nature thereof.
Cut off
: All credit sales transactions are recorded in the correct reporting period
INTERNAL CONTROLS, CONTROL OBJECTIVES AND TEST OF CONTROLS IN THE
REVENUE CYCLE FOR RECEIPTS FROM
DEBTORS
Completeness
: All valid payments received from debtors are recorded.
Accuracy:
All payments and discounts accounted for at the correct amount and discounts are accurately calculated.
Authorisation:
All credit adjustments, e.g. credit notes, discounts, etc., are authorised according to company policy.
Recording & Classification
: All payments and discounts are correctly classified and recorded
Validity
: All payments and discount on debtors' accounts are valid and are supported by appropriate documentation
Cut off:
Payments and discounts are recorded in the correct period to which it relates
Substantive procedures:
Timing
@ OR after year end
Extent of testing
Nature
Substantive testing of sales
Cut-off
– the sales transactions have been accounted for in the correct accounting period
Classification
– all sales have been recorded in the proper accounts
Accuracy
– the amounts of sales have been recorded appropriately
Completeness
– all sales should have been recorded, have been recorded
Occurrence
– recorded transactions have occurred and they pertain to the company
Presentation
Credit Sales function