Lecture 4 - Chapter 4 - On Campus PDF

Chapter4 For Remembering 1. More Study, More Return 2. More Effort, More Gain 3. More Honesty, More Credit Chapter Outline Learning Objectives After studying this chapter, you should be able to: 1. Describe the basic business activities and related data processing operations performed in the...

Chapter4 For Remembering 1. More Study, More Return 2. More Effort, More Gain 3. More Honesty, More Credit Chapter Outline Learning Objectives After studying this chapter, you should be able to: 1. Describe the basic business activities and related data processing operations performed in the revenue cycle. 2. Discuss the key decisions that need to be made in the revenue cycle, and identify the information needed to make those decisions. The Basic Revenue Cycle Business Activities Application  AMAN Group (AG) selling a variety of office equipment products, including digital copiers, Fax and printers, and small office appliances.  Like most importers in Egypt, AG does not sell its products directly to final users or consumers, but only to retailers. The Basic Revenue Cycle Business Activities  AG takes orders from customers via the Internet.  Sales representatives enter orders when calling on customers.  The sales department enters the received orders of customers, and then the system quickly verifies the following; 1- customer creditworthiness 2- checks available units of inventory 3- notifies the shipping and warehouse departments about the approved sale. The Basic Revenue Cycle Business Activities 4- Shipping and Warehouse departments enter data about performed activities, update inventory status information, and generate paper or electronic invoices for customers. 5- Customers will pay cash or by checks or by the bank’s online bill-paying service. 6- The cashier updates the company’s cash account balances and the accounts clerk updates customer accounts. The Basic Revenue Cycle Business Activities Sales Order Entry  Sales order is the document created during sales order entry listing the item numbers, quantities, prices, and terms of the sale.  The revenue cycle starts to move on with the receipt of orders from customers.  Sales order entry data are entered by customers themselves through forms on a company’s website page. The Basic Revenue Cycle Business Activities The sales order entry process requires three main phases: 1. Taking customer orders. 2. Credit approval 3. Checking available units of inventory  Sales order entry also includes responding to customer inquiries which is very important besides sales order processing.  These inquiries occur precede an order or after it. The Basic Revenue Cycle Business Activities The Basic Revenue Cycle Business Activities The Basic Revenue Cycle Business Activities 1- TAKING CUSTOMER ORDERS  Nowadays, customers do the sales orders data entry by themselves on the company’s website by complete a form.  This process improve efficiency and reduces costs and wasted time where, in the past, sales department employees were entered customer orders into the system.  Recently, IT tools such as QR codes can further provide the efficiency and effectiveness of interacting with customers and increase sales. The Basic Revenue Cycle Business Activities  QR codes are two-dimensional bar codes that can be scanned with a smartphone used to access to multimedia anywhere at any time.  QR codes could be printed on anything like posters, screens. Once the code is scanned, the user will be directed to relevant link or website where he can make the process via his smartphone. The Basic Revenue Cycle Business Activities  Mostly, the effectiveness of a website depends on its design. Therefore, companies should regularly review feedback from customers’ records on their websites to identify potential problems.  A well-designed website can be useful for sales but a hard-to-use website may disappoint customers. The Basic Revenue Cycle Business Activities  Information technology can improve sales efficiency and effectiveness. (how) 1. Uploading promotional information online is cheaper than printing those materials to sales staff. 2. E-mail and instant messaging reduce the costs and wasted time that it takes to inform sales staff of pricing changes and sales promotions. The Basic Revenue Cycle Business Activities  In addition, technology tools and appliances such as laptop computers and tablets that are used by sales staff will be improve their ability to explain and show products features. The Basic Revenue Cycle Business Activities 2- Credit Approval  Almost a company's sales are made on credit so one of the revenue cycle threats is the possibility of making sales that later turn out to be uncollectible.  A credit check for each transaction is usually unnecessary for customers with a history of well- committed payments.  Therefore, the management gives the authority to sales staff to approve orders from those customers without past due transactions under the condition that such sales do not increase the customer’s total account beyond their credit limit. The Basic Revenue Cycle Business Activities  The credit limit: is the maximum allowable limit of the existing customer account balance that management gives to him based on his past credit history and payment ability.  This facilitates the credit approval process and the system can do this automatically by checking the customer profile at the system to verify the account exists, identifying the customer’s credit limit, and confirming that the sale order does not exceed his credit limit. The Basic Revenue Cycle Business Activities  One of motivations of sales staff is the quantity of sales and the number of sales orders and not focuses on credit ability or on collectability because the sales man paid on commission of sales and this is another threat of revenue cycle.  This threat can be controlled by the system that flags order that require specific authorization because it exceeds a customer’s preapproved credit limit. Therefore, someone other than the sales man should accept or refuse the credit extension. The Basic Revenue Cycle Business Activities  The credit manager is a person who has the authorities of setup credit policies and the approval of credit extension.  The system gives the authority to the credit manager of modification the credit limit and this requires accurate and updated information about account balances, sales, and customer remittances. The Basic Revenue Cycle Business Activities  This accurate and updated information is useful for 1. Forecasting the timing of future cash inflows 2. Deciding whether to increase the credit limit for specific customers 3. Estimating bad debts and this help management decide whether changes are needed in credit policies.  Accounts receivable aging report is one of the most famous and useful tool for keeping information updated and accurate to help credit manager. The Basic Revenue Cycle Business Activities The Basic Revenue Cycle Business Activities 3- CHECKING INVENTORY AVAILABILITY  Once approving customer’s credit, the sales representative needs confirmation about whether the inventory of the product is sufficient to fill the sales order then, the customer will informed of the expected delivery date.  The main information available to the sales staff: quantity on hand, quantity already committed to other customers, and quantity available.  If available inventory is sufficient to fill the order, the sales order is completed. The Basic Revenue Cycle Business Activities  Once the sales order is filled, the field of the available quantity in the inventory page is reduced by the ordered amount.  After that, a message is sent to the customer, and a notification is sent to the shipping, inventory control, and billing departments.  The system then generates a picking ticket in a hard document or in electronic form, which lists the items and quantities of each item of the ordered sale. The Basic Revenue Cycle Business Activities  In case of insufficient inventory of the ordered product/s, a backorder will established which will be order the purchase in retail companies and the purchasing department would be notified or production of those items in manufacturing companies and the production department would be notified. The Basic Revenue Cycle Business Activities Quick Check 1- What are the Sales Order Entry’s main phases? a. The pick and pack process. b. Shipping. c. Taking customer orders. d. none of these 2- QR code technology reduces the time lag needed to be the funds available to the company by the bank. 3-Information technology can improve sales efficiency and effectiveness by uploading promotional information online. Quick Check 4- Which activity is part of the sales order entry process? a. checking customer credit. b. setting customer credit limits. c. preparing a bill of lading. d. approving sales returns. 5- The salesman has the authority to exceed a customer’s preapproved credit limit. Quick Check 6- once the sales order is filled, a message is sent to the customer, and a notification is sent to -----------, inventory control, and billing departments. a- a credit manager b- salesman c- warehouse employees d- The shipping clerk The Basic Revenue Cycle Business Activities Shipping  The second basic activity in the revenue cycle after that sales order entry processing is shipping the desired products.  The main two steps of the shipping activity which are: 1- Order pick and pack (warehouse employees) 2- Order shipping (shipment department) The Basic Revenue Cycle Business Activities  Both two functions include custodial responsibilities of inventory and, introduce reports to the manufacturing manager.  Shipping departments and the warehouse (inventory) are responsible for the shipping activities The Basic Revenue Cycle Business Activities The Basic Revenue Cycle Business Activities 1- ORDER PICK AND PACK (warehouse employees)  Filling the customer order includes removing the desired quantities of merchandise from the inventory list and packaging them for delivery.  The pick and pack process starts from the picking ticket generated by the sales order entry process.  Warehouse employees use this picking ticket to determine quantities of each desired product to remove from the inventory list. The Basic Revenue Cycle Business Activities  Warehouse employees record the quantities of each desired product actually picked, either on the picking ticket itself if the picking ticket is in a hard document form or by entering the data into the system if the picking ticket is in electronic form.  Lately, the shipment will be transferred to the shipping department. The Basic Revenue Cycle Business Activities  Now, many companies, has made valuable investments to reduce time and cost of inventory movement either into the warehouse or from the warehouse to the customer and improving the accuracy of inventory system.  These investments are in computerized and automated warehouse systems consisting of computers, tablets, bar-code scanners, and communications technology The Basic Revenue Cycle Business Activities  Using this modern technology in warehouse systems increases shipping process productivity by reducing number of workers needs frequently return to receive printed instructions. The Basic Revenue Cycle Business Activities  Some threats or potential problems may be occur such as picking the wrong items or in the wrong quantity but the previous mentioned modern techniques of picking and packing processes of automated systems can minimize the chance of such errors.  Another threat raise from the theft of inventory and the loss of assets that will result in making inventory records inaccurate, and this can lead to problems in filling customer orders The Basic Revenue Cycle Business Activities  Several control procedures can reduce the risk of inventory theft such as: 1. Inventory should be kept in a secure location with restrictions to access. 2. Inventory should be reported for shipment based only on approved sales orders. The Basic Revenue Cycle Business Activities 2- ORDER SHIPPING (shipping department)  After picking and packing the desired product from the warehouse, it is shipped to the customer in two ways either by the company itself or by outsourcing such as DHL.  The shipping department should compare the count of inventory with the quantities of ordered items listed on the picking ticket and with the quantities of listed items on the sales order. The Basic Revenue Cycle Business Activities  If the inventory records are inaccurate, the shipping department needs to issue the back ordering of the missing items shipped on the packing slip.  The shipping clerk performs the online shipping recording process by entering the sales order number, item number, and quantities using online terminals.  This process is very important because it updates the quantity-on-hand field in the inventory file and produces a packing slip document. The Basic Revenue Cycle Business Activities  A packing slip is a document that includes the ordered quantity and description of each item listed in the shipment.  The online shipping recording process produces the bill of lading which is a legal contract that defines responsibility for the customer details, shipped goods, identifying the carrier, source, destination, and any shipping instructions. The Basic Revenue Cycle Business Activities The Basic Revenue Cycle Business Activities The Basic Revenue Cycle Business Activities  Outsourcing deliveries reduces shipping costs and allows manufacturers to concentrate more on their other business activities.  Therefore, the selection of a carrier that has a good reputation is mandatory because customers will blame the company, not the carrier, for delivery problems. Quick Check 1- A picking ticket is used by the shipment department to determine quantities of each desired product to remove from the inventory list. 2- A packing slip is a document that includes the ordered quantity and description of each item listed in the inventory list. 3-The pick and pack process starts from the bill of lading generated by the sales order entry process. Quick Check 4- The shipping department should compare the count of inventory with the quantities of ordered items listed on the picking ticket and with the quantities of listed items on--------- A- a packing slip b- the bill of lading c- sales order d- a and c