CH 6: SALES/COLLECTION CYCLEBUILT AROUND THREE MASTER OR QUASI MASTER FILES1. CUSTOMER (ACCOUNTS RECEIVABLE) MASTER FILE.each record corresponds to one customer.account balance, biographical data, credit info.ordered on customer number2. OPEN SALES ORDER FILE.records of all unfilled orders.hard copy back-up copies of sales order documents.record is written when the order is taken and remains open until shipped or services provided.primary retrieval key is sales order number3. OPEN SALES INVOICE FILE (BILLING FILE).all invoices that are outstanding, not yet paid in full.copies of paper invoices hard copy back up1.record is added when the invoice is issued and remains open until final payment is received.ordered on invoice numberSUPPORTING TRANSACTION FILES1. SHIPMENT TRANSACTION FILE.accumulates sales or shipment transactions for posting to the open sales order file, the open invoice file, and the customer master file2. CASH RECEIPTS TRANSACTION FILE.considerable redundancy with sales transaction file, the open sales order file, theopen invoice file.eliminated by data base structure3. GENERAL LEDGER TRANSACTION FILEBACKUP FILES1. SALES HISTORY FILE2REFERENCE FILES1. PRICING REFERENCE FILE2. SHIPPING/CARRIER REFERENCE FILEINPUT DOCUMENTS1. CUSTOMER PURCHASE ORDER.output document for the purchasing cycle2. SALES ORDER.initiate sales transactions calling for future shipment of goods or services.prenumbered if paper.multiple copies, 1 to accounting, 1 to shipping.if using EDI , in machine readable form when received 3. RETURN TICKETS AND ALLOWANCE CLAIMS.sales returns relate to return of goods.allowances to customers who keep the goods but believe their value has been impaired .source documents for management review and later processing4. REMITTANCE ADVICES3.provided to customers to accompany payments.provide source documents for recording receipt of cash and credit to customer's accountsOUTPUT DOCUMENTS1. ACKNOWLEDGEMENT.used when delay in providing services or shipment.notifies the customer as to when to expect shipment2. PICKING TICKET.used to help locate and retrieve goods from the stockroom or warehouse.prepared from info on sales orders (inputdocument)3. SHIPPING DOCUMENT.packing slips.accompany goods shipped to customers.omit price data.variance between quantity ordered and shipped identified44. BILL OF LADING.used if goods shipped by common carrier.contract between carrier and shipper5. CUSTOMER INVOICE.sent to customer to initiate collection process.prenumbered.prepared from info on sales order.mutiple copies - 2 to customer, 1 or 2 to accounting6. DELINQUENCY NOTICE7. CREDIT MEMO.issued when the customer has overpaid or returned merchandise or submitted an approved allowance claim.initiates a reduction in customer's account balanceREPORTS1. CUSTOMER STATEMENTS.usually prepared monthly .developed from info in open invoice file.invoices issued and cash collected.states the balance owed52. SCHEDULE OF AGED ACCOUNTS RECEIVABLE(ACCOUNTS RECEIVABLE SUMMARY).prepared from open invoice file.total balance due from each customer is shown with breakdown of balance by age category3. SHIPMENT REPORT.prepared from shipment transaction file.customer names and products descriptions shipped4. SALES JOURNAL5. OPEN SALES ORDER REPORT.prepared from open sales order file.may be sorted chronologically or by salesorder number or customer number6. OPEN INVOICE REPORT (INVOICE REGISTER).developed from info in open invoice fileCRITICISMS OF TRADITIONAL APPROACH1. DUPLICATION OF PROCESSES AND DATA62. ONLY A SUBSET OF ALL BUSINESS EVENTS UNDERLYING THE TRANSACTION IS REPRESENTED--ONLY THOSE THOSE EVENTS DEEMED ACCOUNTING TRANSACTIONS ARE INCLUDED3. PROCESSING MAY BE UNTIMELY4. CAPTURING ONLY LIMITED INFORMATION--LIMITED CHARACTERISTICS ABOUT THE EVENTS5. LEVEL OF AGGREGATION OR SUMMARIZATION6. ONLY ONE VIEW OF DATA IS PRESENTED TO ANSWER THESE CRITICISMS WE MUST:REDEFINE EVENTSIDENTIFY BUSINESS RISK ASSOCIATED WITH EACH EVENTREDESIGN THE INFORMATION SYSTEMMAJOR RISKS IN THE REVENUE CYCLE71. Risks concerning sales and billing.extending credit to poor risks - overstating AR.excessive discount policy, unwarranted allowances.unwarranted credit terms, allowances, discounts .failure to bill customers properly - revenues understated,AR understated.failure to record outflow of inventory - overstated inventory, understated cost of goods sold.deliberate failure to record a sale.use of unauthorized prices .improper recording of sales - amounts and posting.sale recorded at less than amount billed - overage pocketed.recording of sales in proper period.misclassified or omitted allowances or returns - overstated AR and revenues.credit memo issued but not sent to customer- over payment pocketed2. Risks concerning handling of cash .cash receipts from customers lost or stolen.collections and deposits recorded incorrectly8or in wrong period.mismatch between amount of cash deposited and collected.conceal misappropriation of cash by debitingother accounts (expenses) or issuing fictitious credit memos.cash receipts posted but to wrong customer's account.write offs without proper authorization - misappropriate remittance.delay postings to conceal misappropriation of float of cash - lappingCONTROLS1. ORGANIZATIONAL CONTROLSsegregation of duties.segregate review of creditworthiness from acceptance of sales orders.separate credit department.update credit limits only by credit manager.credit policies in writing.segregation of duties between shipment of goods, granting credit for returns and 9allowances, receiving cash, and related accounting.opening mail separate from treasury and AR functions.prelist.reconciled with cash receipts journal.bank reconciliation by someone other than person making the deposit.customer billing separate from shipping and inventory control.writing off uncollectible accounts separate from ARservice.levels of passwords.designated terminal access2. Program and Data Access Controls.protect sales order processing, shipping, and AR files from unauthorized access or modificationuser identification codespasswords - levels of accessfile and record locksdesignated terminal access10data read-write privilege3. Authorization Controlsto ensure that input data are authorizedproper authorization for approval of credit termsfor setting pricesfor shipment of goods or servicesfor granting returns and allowancesfor determination of discountsfor writing off uncollectible