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REVENUE & RECEIPTS CYCLE - Coggle Diagram
REVENUE & RECEIPTS CYCLE
RECEIPTS FROM DEBTORS
1. Basic Controls:
- Segregation of duties (receipts & recording).
- Different types of cash = Kept separate & recorded separate.
- Proper stationery controls:
= Numerically recorded.
= Locked away.
= Recorded in register (sign for issuing & on receipt).
- Money received via mail:
= Open & count by 2 independent persons.
= Recorded in MAIL register i.e. Recorded separately.
= Person who received it should sign as proof of receipt.
- SAFEGUARDING:
= Locked in vault, etc (key controlled).
= Banked ASAP (Next day/ 2X per day).
- Post-dated cheques received should be recorded in register & strictly controlled.
- Adequate insurance taken out against theft & fraud.
2. Controls over Cash:
- CASHIERS:
- Balance cash daily & compare with source doc. (receipts, inv., cash register totals) & record it on cash receipts summary:
= Signed by cashier,
=Indep. reviewed by senior official,
= Senior counts money in cashier's presence (cashier signs for receipt back of cash).
- Compare cash with supporting doc.
= Shortages should be paid-in by cashier.
- Every cashier responsible for own funds:
= cash/cash register - locked & proper key control exercised.
- Every cashier responsible for own float:
= Locked in cash drawer/cashbox.
- Supervision over cashiers (senior/cameras).
- Cash must be banked ASAP (next day/ 2X per day)
- PETTY CASH:
= 1 Person responsible.
= Physical safekeeping.
= Ltd fund amount.
= Define type of expenditure.
= Pre-numbered petty cash voucher.
= Pmt approved.
= Reimbursements
= Exact amount of voucher.
= Vouchers/slips cancelled.
3. Controls over bank account:
- Bank account reconciled monthly with cashbook:
= Indep. from person that writes up the cashbook.
= Reviewed by senior indep. official.
- EFT's = Valid receipts method:
- When making an EFT payment:
- Multilevel passwords, by 2 senior employees should be used.
- Access should be limited to 1 computer.
- Proper access controls over terminal used to make payment.
- The terminal should shutdown after 3 unsuccessful attempts of logging in.
- Completeness test should be performed.
- 2 passwords of 2 different senior employees should be entered to effect the payment.
- Reconciliations should be done by a person independent of the person who made the EFT transaction.
After EFT payments are made there should be an:
- Audit trial.
- Payment should reflect on organizations bank statement.
- Bank reconciliation should be performed.
CREDIT SALES.
- Consists of 5 functional areas
1. Ordering Function:
- Objectives = Record orders from customers & initiate action to fill them.
- Doc. present:
- Controls:
- The person responsible for ordering - generates an ISO when customer order is received.
- ISO is:
- Numerical,
- Contains cust. details,
- Specifies Quantity ordered,
- Contains Price per official price list,
- Authorised by credit manager/sales manager.
- New customer vs old customer:
- New customer - Go through credit app. process:
= Application form to be completed.
= Background check to determine if a customer is creditworthy.
= If cust. creditworthy, credit depart. will establish credit limit.
= Capture info on permanent master file.
= Change to details must be authorised by credit controller.
- Old customer
= Valid customers = present their identity number or account number.
= Credit limit should be checked & if credit limit has been exceeded orders cannot :red_cross: be accepted.
4. Recording Function:
- Objective = Record sales made & raise the corresponding debtor promptly.
- Doc. present:
Invoice,
Sales Journal,
Debtors ledger,
General ledger.
- Controls:
- Invoice = recorded accurately and entered against correct debtor.
- Compare Inv. - DN, checking for:
= Quantity,
=Description,
=Prices.
- Sequence checks on invoices - missing/duplicate nrs followed up.
- Trace posting = sales journal:arrow_right:debtors ledger:arrow_right:general ledger.
- Monthly statements sent out by independent person.
5. Credit man. Function:
- Objective = Limit the loss from bad debts & encourage debtors to pay promptly.
- Doc. present:
- Controls:
- Credit application process NB!!!!
- Identification of debtor to be handed over to lawyers
2. Dispatch Function:
4. Counter Sales:
= Cust. signs DN or Invoice
= Checking of items to the invoice
5. Gate Control:
= Guards should count goods & agree goods with DN & sign
= Guards should check quantity on DN vs quantity being deliverd.
6. Controls must be sound = goods have left custody of the warehouse & are susceptible to theft.
7. NB!!!! Segregation of duties.
3. Invoicing Function:
- Objective = Notify customers promptly of amounts due for goods supplied.
- Doc. present:
Sales invoice,
Price lists.
- Controls:
- On the return of signed DN from cust.:
= DN matched with ISO & invoice should be generated.
= Numerical list of DN's & invoices is freq. produced & missing numbers are followed up by SENIOR person.
= Quantities on invoice = obtained from DN
= Price on invoice = obtained from price list.
= Calc = reviewed by independent person.
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WEAKNESSES & RECOMMENDATIONS
- When an organization has a weak internal control environment this leads to risks.
- Weaknesses: Where was the internal control environment not implemented correctly?
E.g. Do not have a credit application process in place.
- Risk: What could go wrong if the internal control environment is not implemented correctly:
- Grant credit to uncreditworthy customers.
- Grant credit to customers that cannot afford to purchase on credit.
- These customers will not be able to pay back for goods they have purchased.
- :arrow_up: Increase in bad debt that will need to be written off.
Internal control/ Recommendation:
- NB to have credit application process (policy).
= Customer fill in application form.
= You run a background check to determine customer creditworthiness.
= If customer is creditworthy determine credit limit.
SALE ADJUSTMENTS
- Objective = Control goods returned by cust.
- Doc. present:
= Goods Returned Voucher (GRV),
= Credit note returns & allowances journal,
= Debtors journal,
= General Ledger.
- Controls:
- Goods returned:
- Recorded on return & debtors account debited, &
- A goods returned voucher & credit note issued.
- Adjustments:
- Ensure accuracy (Recording & Authorisation),
- Discounts,
- Returns & corrections,
- Writing of bad debt.
- Controls:
- Authorisation,
- Segregation of duties,
- Formal doc.,
- Monitoring & supervision.