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Revenue and receipts cycle - Coggle Diagram
Revenue and receipts cycle
Three distinct functions
Credit sales
Five functional areas
The invoicing function
The documentation present
• Sales invoice
• Price lists
The objective of this function is to notify the customer promptly of amounts due for goods supplied.
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
The revenue recording function
The objective of this function is to record the sales made and to raise the corresponding debtor
promptly.
The documentation present
• Invoice
• Sales journal
• Debtors ledger
• General ledger
Invoices must be recorded accurately and entered against correct debtor
Compare the invoice to DN check for the following:
a. Quantity
b. Description
c. 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
The dispatch function
The objective of this function is to fill accepted orders promptly and accurately and to ensure only
authorised orders are acted on.
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
Transferred to dispatch:
a. 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.
Delivery of goods:
a. A delivery note is 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 (Builders warehouse vs. SPAR)
Gate control:
a. Guards should count goods and agree the goods with the delivery note and sign.
b. Guards should check the quantity on the delivery note versus the quantity being delivered.
Controls must be sound because, by this stage, the goods have left the custody of the
warehouse and are thus susceptible to theft.
Segregation of duties is very important.
The documentation present
• Picking slip
• Delivery note
• Back order note (a customer order that cannot be filled when presented)
• List of deliveries
The credit management function
The documentation present
• All records kept in the cycle are relevant
• Age analysis
• Monthly statement
• Credit bureau information
Credit application process
Identification of debtor to be handed over to lawyers
The objective of this function is to limit the loss from bad debts and to encourage debtors to pay
promptly.
The ordering function
1. When an order is received from a customer, the person responsible for ordering will
generate an ISO.
2. 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
3. This function identifies two types of customers, namely new customers and existing
customers:
New customers have to go through a credit application process:
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
. Existing customers
i. If it’s a valid customer (already has an account) the 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.
Receipts from debtors
3 categories
2. Controls over cash;
1. Cashiers
:
a. Cashier must balance cash on a daily basis and must compare it with the source documents (receipt, cash invoices, cash register totals) and record it on a cash receipt summary:
i. Signed by the cashier;
ii. Independently reviewed by a senior official;
iii. Counts the money in the cashier's presence (cashier signs for receipt back of money)
b. Compare cash with supporting documentation.
i. Shortages should be paid-in by the cashier.
c. Every cashier should only be responsible for his own funds:
i. During lunch, etc. cash/cash register should be locked and proper key control exercised.
d. Every cashier should be responsible for his own float - lock in cash drawer/cashbox.
e. Supervision over cashiers - senior/camera's, etc.
f. Cash must be banked as soon as possible (next day/twice a day)
2. 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
3. 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;
1. Basic controls;
Segregation of duties for receipt and recording of money.
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: (not so relevant anymore)
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.
Safeguarding of money:
a. Locked in vault, etc. (key control);
b. Banked as soon as possible (next day/2x per day, etc.).
Post-dated cheques received should be recorded in register and strictly controlled.
Adequate insurance should be taken out against theft and fraud.
The 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.
The documentation present within receipts from debtors in terms of cash
• Cash register reading;
• Cash advance documents;
• Cash summaries;
• Receipts;
• Physical cash counts.
Risks
Definition of 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; and
Later credit A’s account with R500, transferring the amount to B’s account.
Definition of Kiting
Remove cash and reflect as outstanding deposit on bank reconciliation; and
Later a cheque for fictitious expenses is drawn and cheque deposited in company’s bank account – clearing outstanding deposit.
Procedure to detect Lapping/Rolling and Kiting
Positive accounts receivable confirmations;
Surprise cash counts & bank reconciliations; and
Cash summaries compared to entries in cash receipts and cash payment records, mail registers, deposit slips.
Sales adjustments
The objective of this function is to control goods returned by customers.
The documentation present
Goods returned vouchers;
• Credit note returns and allowances journals;
• Debtors journal;
• General ledger.
THE ACTIVITES AND CONTROLS
1.Good returned
a. Recorded on return and debtors account debited and
b. A goods returned voucher and credit note is issued.
Adjustments:
a. Ensure accuracy recording and authorisation;
b. Discounts;
c. Returns and corrections;
d. Writing off bad debt
Controls:
a. Authorisation;
b. Segregation of duties;
c. Formal documentation;
d. Monitoring & supervision.