# Tuesday 2/8/2011 - PowerPoint PPT Presentation

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Tuesday 2/8/2011. Agenda: Handback Project Handback Midterm Quiz #1 Student questions Revenue Cycle. Project Results. Overall, Very good job Mean = 45.5 (91%); Median = 46 High = 49; Low = 41 Comments. Midterm Results. A lot of material covered.

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Tuesday 2/8/2011

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### Tuesday 2/8/2011

Agenda:

• Handback Project

• Handback Midterm

• Quiz #1

• Student questions

• Revenue Cycle

Foster School of Business Acctg 420

### Project Results

• Overall, Very good job

• Mean = 45.5 (91%); Median = 46

• High = 49; Low = 41

Foster School of Business Acctg 420

### Midterm Results

• A lot of material covered.

• Overall, about what I expected (good)

• Mean = 79.3 (79.3%); Median = 79

• High = 96; Low = 56

Foster School of Business Acctg 420

### Quiz #1

Due by 4:30 pm Thursday 2/10/2011

• Answer the 10 multiple-choice questions on pgs. 390 & 392 of BAS 2007 AND

• Discussion Questions (pg. 391): 1, 2, & 3 AND

3. Question 4 “What does >LL mean/do in a custom Input Mask?”

Please hand in hardcopy OR cut and paste answers into the body of an email. Quiz is worth 20 points.

I have posted the above directions on class website (Messages to Students)

Foster School of Business Acctg 420

### QUESTIONS ????

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### Revenue Cycle[Sales order entry—Shipping—Billing & A/R—Cash collections]

AIS must provide adequate controls so that the following objects are met:

(1) Transactions are properly authorized.

(2) Recorded transactions are valid.

(3) All valid, authorized transactions are accurately recorded.

(4) Assets are safeguarded from loss or theft.

(5) Business activities are performed efficiently and effectively.

Foster School of Business Acctg 420

### Achieving the objectives

The following help achieve the objectives:

• Simple, easy-to-complete documents with clear instructions.

• Appropriate application controls (e.g., validity or field checks).

• Signature space for persons responsible for completion and review of documents.

• Prenumbering of the documents.

Foster School of Business Acctg 420

### Revenue Cycle—Major threats & control

(1) Sales to customers with poor credit—(uncollectable sales and losses due to bad debts). Prevention—independent credit approval function and good customer accounting.

(2) Shipping errors—wrong quantities, items, or address: mad customers. Prevention—reconcile shipping notices and picking tickets, bar code scanners, data entry controls.

Foster School of Business Acctg 420

### Major threats & control (contin.)

(3) Theft of inventory—loss of assets ----> inaccurate records. Prevention—Secure inventory and document transfers, good accountability for picking and shipping, and frequently reconcile records with physical count.

(4) Failure to bill customers—loss of inventory, and erroneous data about: sales, inventory, and receivables. Prevention—Separate shipping and billing. Prenumber of shipping documents and reconciliation of all sales documents.

Foster School of Business Acctg 420

### Major threats & control (contin.)

(5) Billing errors—pricing mistakes, overbilling for items not shipped or back ordered—loss assets and mad customers. Prevention—reconciliation of picking tickets and bills of lading with sales orders, data entry edit controls, and price lists.

(6) Theft of cash—loss of assets and overstated A/R. Prevention—separation of duties: handling cash and posting to customer accounts; handling cash and authorizing credit memos & adjustments; issuing credit memos and maintaining customer accounts. Use lockboxes and EFT. Mail customer statements monthly. Use cash registers in retail. Deposit cash intact daily in the bank. Bank reconciliation done by noncash handler.

Foster School of Business Acctg 420

### Major threats & control (contin.)

(7) A/R incorrectly posted—mad customers, incorrect records, and poor decisions. Prevention—reconcile sub. A/R ledgers with general ledger, monthly stmts. to customers, and edit and batch totals.

(8) Loss of data—loss of confidential info., and poor decision making. Prevention—regular on-site & off-site backup, logical and physical access controls to prevent leakage to competitors.

(9) Poor performance—inefficient and ineffective operations. Prevention—sales and profitability analysis, A/R aging, and cash budgets to track operations.

Foster School of Business Acctg 420

### REVENUE CYCLE: INFORMATION NEEDS

AIS needs to provide useful information about:

• Customer inquiries about account balances and order status.

• Extension of credit to specific customers.

• Inventory availability.

• Credit terms.

• Prices

• Sales returns and warranty policies.

• Alternative merchandise delivery methods.

• Strategic and performance evaluation information.

..................this is valuable stuff. See next slide::

Foster School of Business Acctg 420

### Strategic and performance evaluation

Some useful measures (metrics) include:

• Response time to customer inquires.

• Time to fill & deliver orders.

• % of backorders.

• Customer satisfaction.

Overall revenue cycle performance measure =

Revenue Margin = GM – all selling costs

Foster School of Business Acctg 420

### REA revenue cycle data model

• Resources—cash and inventory.

• Events—orders, shipments, billing, and cash collections.

• Agents—primary external agent is the customer, various internal agents.

A/R in the data model: balance is the difference between sales and cash collections for sales. No need for an A/R account (file). But…..

Foster School of Business Acctg 420

### Benefits of the data model:

• Integration of traditional accounting data and operational data.

• Additional data such as the time of day of a sale can be collected, analyzed and used in decision making.

• Links of internal and external information (e.g., credit ratings) is possible.

• Flexible/powerful query by SQL if relational DB.

• Data mining for target marketing.

RDB allows you to slice and dice data in any way that you want. This was not possible with a non-RDB.

Foster School of Business Acctg 420

### Internal control and databases:

• Foreign key and referential integrity ensures the existence of primary key records in related tables.

• Effective access controls are very important in a database environment.

• REA diagrams highlight incompatible functions and system can be programmed to reject any attempt to perform incompatible functions by a single employee. When multiple roles are performed, auditors can check for compensating controls.

• Use of DBMS makes backup and disaster recovery procedures essential.

Foster School of Business Acctg 420