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Unit 4: Revenue and Receipts Cycle - Coggle Diagram
Unit 4: Revenue and Receipts Cycle
1. Credit sales
Ordering Function
Objective: to record orders from customers and initiate action to fill them.
Key Supporting documents: Customer Order; Internal Sales Order; Price list; Credit application form; Credit bureau information.
Internal controls: ISO generated by the responsible personnel.
New customers should go through the credit application process.
Existing customers should present either the ID no. or Acc no, and their credit limit should be checked.
Dispatch Function
Objective: to fill accepted orders promptly and accurately and to ensure only authorised orders are acted on.
Key supporting documents: Picking slip; Delivery note; Back order note (customer note that can't be filled); List of deliveries.
Invoicing Function
Objective: Notify the customer promptly of amounts due for goods supplied.
Key supporting documents: Sales invoice; Price lists
On the return of a signed delivery note from the customer an invoice is generated.
DN should be matched with ISO before the invoice is generated.
Quantities on invoice - obtained from delivery note.
Price on invoice - obtained from the pricel list.
Calculations are reviewed by independent person.
Recording Function
Objective: to record the sales made and to raise the corresponding debtor promptly.
Key supporting documents: Invoice; Sales Journal; Debtors Ledger; General Ledger.
Invoices must be recorded accurately and entered against correct debtor.
Compare Invoice to DN, checking the following: Quantity; Description; Prices.
Sequence checks on invoices - duplicates or missing numbers should be followed up.
Trace posting
Monthly statements sent out by independent person.
Credit Management Function
Objective: to limit the loss from bad debts and to encourage debtors to pay promptly.
Key documentation: All records kept in the cycle; Age analysis; Monthly statement; Credit bureau information
Internal controls: There should be a credit application process in place.
Identification of debtors to be handed over to lawyers.
2. Receipts from debtors and risks related to the receipts
Key documentation:
(in terms of bank) Cancelled cheques; Cheque requisitions; Deposit slips; Bank statements; Bank confirmation letter; Cash book; and Bank reconciliation.
(in terms of cash) Cash register reading; Cash advance documents; Cash summaries; Receipts; Physical cash counts.
Controls to be implemented
Basic controls:
Segregation of duties;
Diiferent forms of cash kept separately and recorded separately;
Proper stationery controls;
Safeguarding of money: Locked in a vault and banked the next day; Adequate insurance should be taken against theft and fraud
Controls over cash
Controls over bank account
3. Sales adjustmment
Objective: to control goods returned by customers.
Key documentation:
Goods returned vouchers; Credit note returns; Allowances journals; Debtors journal; General ledger.
Controls to be implemented; Authorisation; Segregation of duties; Formal documentation; Monitoring and supervision
Control objectives, Internal controls, and test of controls
Control objectives:
Validity/Occurence
Authorisation
Completeness
Accuracy
Recording
Classification
Cut off
Test of controls
Inspect a selected sample of source documents
Observe a person performing a task or function.
Enquire about policies and procedures
Re-perform calculations
Internal controls
refer to the control activities that the organisation should implement to ensure they achieve the desired objectives
Substantive Procedures
Substantive testing is an audit procedure that examines the financial statements and supporting documentation to see if they contain errors. These tests are needed as evidence to support the assertion that the financial records of an entity are complete, valid, and accurate.
Assertions attested to by a company's preparer of such statements:
Existence
Completeness
Rights and obligations
Accuracy and violations
Presentation disclosure