This document summarizes the revenue and receipts cycle of a business. It describes the three main transaction types of this cycle as sales of goods/services, receipt of cash from customers, and returns. It then outlines the key processes in the cycle including sales order entry, credit approval, shipping, billing, inventory accounting, general accounting, accounts receivable, cash collection, sales returns and allowances, and uncollected accounts. Finally, it discusses control objectives around transaction authorization, execution and recording and assessing control risk.

1. AUDIT OF
THE
REVENUE
AND
RECEIPT

2. NATURE:
REVENUE –
exchange of
goods and
services with
customers
RECEIPT –
collection of
Financing Revenue
revenue in cash
and
and
Conversion
Receipt
Cycle
Cycle
Expenditu
re and
Disbursem
ent Cycle

3. 3 types of transactions
associated with Revenue
and Receipt Cycle:
1.Sale of goods or rendering
of a service (cash/credit)
2.Receipt of cash from
customers
3.Return of goods

4. Types of
documents used
and accounting
records:
1.Customer order
2.Sales order
3.Credit approval
order
4.Open-order
report
5.Shipping
8. Customer
statement
9. Accounts
receivable
subsidiary ledger
10. Customer
remittance advice
11. Cash receipts
journal

5. Business Function of Revenue and Receipt
Cycle:
1.Sales order entry
Goods ordered, catalog or stock
numbers, quantities and payment terms
Sent to customers and distributed to
Credit, Shipping, and Billing Departments.
2. Credit Approval
Received and approved by Credit
Department personnel
Approved sales orders are forwarded to
warehousing

6. 3. Shipping
Comparing of goods received and sales
order
Obtain a receipt for the goods from the
4. Bcoilmlinmgon carrier
Comparing of shipping documents and
sales order
Prepare sales invoices (remittance
advice)

7. 4. Inventory Accounting, General
Accounting, Accounts Receivable
IA - sales invoices (w/ cost information);
sales order; shipping documents
GA – sales are recorded in sales journal
and posted to general ledger; comparing
daily totals of sales journal entries and
daily sales summaries of Billing
AR – sales are posted to individual
customer accounts in subsidiary ledger.
5. Cash collection

8. 7. Sales return and Allowances
Reviewed and approved by personnel
independent of cash collection and
recording
Credit memorandum
8. Uncollected Accounts
Review customer accounts periodically
If proved uncollectible, written
authorization is sent to Accounts
Receivable and General Accounting

9. Control Objectives and Fraud:
1.Transaction Authorization
Customer credit approval
Unit prices/sales terms consistent w/
company’s revenue objectives and cash
flow requirements
Written policies and practices for sales
2. Trraenlasatecdti odne dEuxcetciountiso nand adjustments
Match items taken from inventory with
items on approved sales order
Ship good on a timely basis
Bill customers promptly (for actual
shipments and at authorized prices

10. 3. Transaction Recording
Establishing written procedures
Reconciling control totals
Comparing actual results w/ budgets
periodically, if available
2. Access to assets
Authorized personnel
Establish procedures to pre-number and
control remittance advice
Prepare separate list of incoming mail
receipts
Reconcile periodically cash receipts
records o deposit slips and bank
statements

11. CONTROL RISK ASSESSMENT
Obtain an understanding
1.Preliminary review
2.System documentation
3.Transaction walk-through
4.Identification of control procedures

12. Test of Controls
1.Shipping
2.Billing
3.Recording
4.Cash Collection
5.Sales Returns and Allowances
6.Uncollectible Accounts
Reassess control risk and design
substantive tests