Revenue Cycle

Transaction Cycle
Transaction Cycles
1. Expenditure Cycle
2. Conversion Cycle
3. Revenue Cycle
Revenue Cycle
Sales Order Procedures
- include the tasks involved in receiving and
processing a customer order, filling the order
and shipping products to the customer,
billing the customer at the proper time, and
correctly accounting for the transaction.
processing a customer order, filling the
order and shipping products to the
customer, billing the customer at the proper
time, and correctly accounting for the
transaction.
RECEIVE
ORDER/FILLING
FORM
The sales process begins with the receipt of a
customer order indicating the type and
quantity of merchandise desired.
Because the customer order is not in the
standard format that the seller’s order
processing system needs, the first task is to
transcribe it into a formal sales order.
After creating the sales order, a copy of it is
placed in the customer open order file for
future reference.
CHECK CREDIT
Before processing the order further, the
customer’s creditworthiness needs to be
established.
The circumstances of the sale will
determine the nature and degree of the
credit check.
processing a customer order, filling the order
and shipping products to the customer,
billing the customer at the proper time, and
correctly accounting for the transaction.
PICK GOODS
The receive order activity forwards the stock release document (also called
the picking ticket) to the pick goods function, in the warehouse.
After picking the stock, the order is verified for accuracy and the goods and
verified stock release document are sent to the ship goods task.
Finally, the warehouse employee adjusts the stock records to reflect the
reduction in inventory.
SHIP GOODS
Before theslip
Packing arrival of the goods and the
verified stock
contains the release document, the shipping
department
description of receives
the the packing slip and
shipping
contentsnotice
of the from the receive order
function.
order.
SHIP GOODS
Before the arrival of the goods and the
verified stock release document, the shipping
department receives the packing slip and
shipping notice from the receive order
function.
Upon receiving the goods from the
warehouse, the shipping clerk reconciles the
physical items with the stock release, the
packing slip, and the shipping notice to verify
that the order is correct.
BILL CUSTOMER
The billing function performs the following
record keeping–related tasks:
 Records the sale in the sales journal.
 Forwards the ledger copy of the sales order
to the update accounts receivable task.
 Sends the stock release document to the
update inventory records task.
UPDATE INVENTORY RECORDS. The inventory control function
updates inventory subsidiary ledger accounts from information
contained in the stock release document.
UPDATE ACCOUNTS RECEIVABLE. Customer records in the accounts
receivable (AR) subsidiary ledger are updated from information the
sales order (ledger copy) provides. Every customer has an account
record in the AR subsidiary ledger containing, at minimum, the
following data: customer name; customer address; current balance;
available credit; transaction dates; invoice numbers; and credits for
payments, returns, and allowances.
POST TO GENERAL LEDGER.
Sales Return Procedures
The company shipped the customer the
wrong merchandise.
 The goods were defective.
 The product was damaged in shipment.
 The buyer refused delivery because the
seller shipped the goods too late or they
were delayed in transit.
PREPARE RETURN SLIP. When items are returned,
the receiving department employee counts,
inspects, and prepares a return slip describing the
items. The goods, along with a copy of the return
slip, go to the warehouse to be restocked. The
employee then sends the second copy of the return
slip to the sales function to prepare a credit memo.
PREPARE CREDIT MEMO. Upon receipt of the return

slip, the sales employee prepares a credit memo.
This document is the authorization for the customer
to receive credit for the merchandise returned.
APPROVE CREDIT MEMO. The credit
manager evaluates the circumstances of
the return and makes a judgment to grant
(or disapprove) credit. The manager then
returns the approved credit memo to the
sales department.
UPDATE SALES JOURNAL. Upon receipt of
the approved credit memo, the transaction
is recorded in the sales journal as a contra
entry. The credit memo is then forwarded
to the inventory control function for
posting. At the end of the period, total
sales returns are summarized in a journal
voucher and sent to the general ledger
department.
UPDATE INVENTORY AND AR RECORDS. The inventory control function adjusts
the inventory records and forwards the credit memo to accounts receivable,
where the customer’s account is also adjusted. Periodically, inventory control
sends a journal voucher summarizing the total value of inventory returns to the
general ledger update task. Similarly, accounts receivable submits an AR account
summary to the general ledger function.
UPDATE GENERAL LEDGER. Upon receipt of the journal voucher and account
summary information, the general ledger function reconciles the figures and
posts to the following control accounts:
DR CR
Inventory—Control XXX.XX
Sales Returns and Allowances XXXX.XX
Cost of Goods Sold XXX.XX
Accounts Receivable—Control XXXX.XX
CASH RECEIPTS
PROCEDURES
They involve receiving and securing the cash;
depositing the cash in the bank; matching the
payment with the customer and adjusting the
correct account; and properly accounting for
and reconciling the financial details of the
transaction.
OPEN MAIL AND
PREPARE
REMITTANCE ADVICE
A mail room employee opens envelopes
containing customers’ payments and
remittance advices. Remittance advices
contain information needed to service
individual customers’ accounts. This
includes payment date, account number,
amount paid, and customer check number.
RECORD AND DEPOSIT CHECKS
A cash receipts employee verifies the accuracy and completeness of
the checks against the prelist. Any checks possibly lost or misdirected
between the mail room and this function are thus identified.
After reconciling the prelist to the checks, the employee records the
check in the cash receipts journal. All cash receipts transactions,
including cash sales, miscellaneous cash receipts, and cash received
on account, are recorded in the cash receipts journal.
UPDATE ACCOUNTS RECEIVABLE. The remittance advices are used to post
to the customers’ accounts in the AR subsidiary ledger. Periodically, the
changes in account balances are summarized and forwarded to the
general ledger function.
UPDATE GENERAL LEDGER. Upon receipt of the journal voucher and the
account summary, the general ledger function reconciles the figures,
posts to the cash and AR control accounts, and files the journal voucher.
RECONCILE CASH RECEIPTS AND DEPOSITS. Periodically (weekly or
monthly), a clerk from the controller’s office (or an employee not involved
with the cash receipts procedures) reconciles cash receipts by comparing
the following documents: (1) a copy of the prelist, (2) deposit slips
received from the bank, and (3) related journal vouchers.

Revenue Cycle

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Transaction Cycle

PREPARE CREDIT MEMO. Upon receipt of the return

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