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Revenue and receipts cycle (3 distinct functions) - Coggle Diagram
Revenue and receipts cycle
(3 distinct functions)
1.) Credit sales
1.3) Invoicing function
-
objective
= "notify the customer promptly of amounts due for goods supplied."
2 documents:
sales invoice and price lists
1.4) Revenue recording function
-
objective
= "record the sales made and to raise the corresponding debtor promptly."
4 documents:
invoices, sales journal, debtors ledger and general ledger
1.2) Dispatch function
-
objective
= "fill accepted orders promptly and accurately and to ensure only authorised orders are acted on."
4 documents:
picking slip, delivery note, back order note, list of deliveries
1.1) Ordering function
-
objective
= "record orders from customers and initiate action to fill them"
5 documents:
customer order, internal sales order(ISO), price list, credit application form and credit bureau information
1.5) Credit management function
-
objective
= "limit the loss from bad debts and to encourage debtors to pay promptly."
4 documents:
all records kept in cycle=relevant, age analysis, monthly statements and credit bureau information
2.) Receipts from debtors
2.1) Basic controls
2.2) Controls over cash
5 documents:
cash register reading, cash advance documents, cash summaries, receipts and physical cash counts
2.3) Controls over bank account
7 documents:
cancelled cheques, cheque requisitions, deposit slips, bank statements, bank confirmation letter, cash book and bank reconciliation.
Risks:
Lapping/rolling
- "Misappropriation of receipts in cash from cash sales or receipts from Accounts Receivable." Example = "• Remove cash of R500 and replace with cheque of R500 received from debtor A;
• Later credit A’s account with R500, transferring the amount to B’s account."
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."
3.) Sales adjustments
Control the goods customers return
4 documents:
goods return voucher, credit note returns and allowance journals, debtors journals and general ledger.
Other important information
Internal controls =
Validity, authorisation, completeness, accuracy, recording, classification and cut off
Substantive testing
For credit sales
= occurrence, accuracy, cut-off, classification, completeness and presentation.
For trade receivables
= rights, existence, accuracy, valuation
and allocation, completeness and presentation
Weaknesses, risks and internal controls to prevent