Chapter 6:

THE REVENUE CYCLE

(Subject code: 201085)

Prepared by: Accounting department 3

 Target of Chapter 6

 The objectives and strategic implications of

the revenue cycle were established

 Technologies that underpin the revenue

cycle activities were identified

 Both strategic and operational business

decisions were outlined

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 Target of Chapter 6 (Cont)

 The primary activities in the revenue cycle

were identified and discussed

 Risks and ways of mitigating these risks were

considered

 The importance of establishing KPIs was

emphasised

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 Contents

6.1 Revenue Cycle Overview and Key Objectives

6.2 Technologies Underpinning the RC

6.3 Data & Revenue Cycle

6.4 Revenue Cycle Business Decisions

6.5 Internal Control & Revenue Cycle

6.6 measure the effectiveness of RC

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 6.1 Revenue Cycle Overview and Key
Objectives

 The revenue cycle consists of all events that

are involved in the exchange of goods and
services with customers, including the collection
of payment for
those goods and services

 Excellent customer service must be

provided at all times

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 Source Documents

1. Customer order

2. Order acknowledgement

3. Credit application

4. Sales order

5. Goods packing slip

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 Source Documents (Cont)

6. Bill of lading

7. Shipping notice

8. Sales invoice

9. Remittance advice

10.Customer service log

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 Strategic Implications of the
Revenue Cycle

 The level of sales drives all other activity

levels within the organisation
 In order to survive and prosper an
organisation must not only remain profitable, it
also must be able to achieve positive cash
flows
 A well controlled revenue cycle can provide a
competitive advantage by providing superior
customer service

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 Technologies Underpinning the
Revenue Cycle

 ERP (Enterprise Resource Planning)

o Improves the integration of enterprise - wide data

 EDI (Electronic Data Interchange)

o Enables the exchange of data between two separate
computer systems

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 Technologies Underpinning the
Revenue Cycle (Cont)

 XML (eXtensible Markup Language)

o Used for online sales sites to provide efficient data
exchange

 CRM (Customer Relationship

Management)
o Improves understanding of customers and their
interaction with the organisation

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 Data & the Revenue Cycle

 Revenue cycle activities require

access to:

o Customer data
o Inventory data
o Accounts receivable data

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 Revenue Cycle Business Decisions

Strategic Level: Operational Level:

o Price setting o Responding to customer
o Sales return & warranty inquiries
o Provision of credit o Credit extension
o Cash collection o Inventory availability
o Delivery method
o Cash receipt allocations

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 Revenue Cycle Documentation

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 Revenue Cycle Context

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 Revenue Cycle Logical Data Flows

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 Revenue Process Activities

1.
• Process Customer Order

2.
• Ship Goods

3.
• Bill the Customer

4.
• Receive & Record Payment

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 Process the Sales Order

 Key activities:
o Check inventory levels
o Credit check
o Create sales order
 Backorder for goods not available

 Table 9.3, p416 summarises these

activities

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 Pick, Pack and Ship the Goods

 Key activities:
o Pick the goods
o Prepare for shipping
o Deliver the goods

 Table 9.4, p421 summarises these

activities

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 Bill the Customer

 Key activities:
o Check sales completion
o Create invoice

 Table 9.5, p426 summarises these

activities

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 Receive and Record Payment

 Key activities:
o Receive payment
o Record payment

 Table 9.6, p428 summarises these

activities

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 Measuring Revenue Cycle
Performance

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 Key Terms

o Back order o Exception report

o CRM o XML
o EDI o Post - billing system
o ERP o Pre - billing system

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