Mary the Queen College (Pampanga), Inc.
JASA, San Matias, Guagua, Pampanga
College of Accountancy
Subject Code: AIS Module No.10/Title: 4/ The Revenue Cycle
Subject Description: ACCOUNTING INFORMATION SYSTEM Period of Coverage: Week 11
Introduction: Economic enterprises both for profit and not for profit generates revenue through business
processes that constitute the revenue cycle. This chapter we will be discussing the two phase of this
transaction process the a) the physical phase involving the transfer of goods and services from the seller
to the buyer, and b. the receipt of cash by the seller as payment of accounts receivable.
It this cycle is broadly divided into sales order processing and cash receipts subsystems.
Objectives:
Be aware of operational and control implications of technology used to automate and reengineer the
revenue cycle.
Content:
PHYSICAL SYSTEMS
Physical accounting information systems are a combination of a computer technology and human activity.
This technology/human mix creates a continuum of alternative design options. At one end of the
continuum ae systems that employ minimal technology and rely heavily on human involvement and
manual procedures. At the other end are advanced technology systems, which, to a great extent, replace
human activity with automated process. As a general rule, smaller business tends to rely less on technology
and more on manual procedures, whereas larger companies tend to employ advanced technologies
BASIC TECHNOLOGY REVENUE CYCLE. The computers used in these systems are independent
(nonnetworked) personal computers. Therefore, information flows between departments are
communicated via hard-copy documents. In addition, in such systems, maintaining physical files of source
documents is critical to the audit trail. As we walk through the various flowcharts notice that in many
departments, after an individual completes his or her assigned task, documents are filed as evidence that
the task is performed.
Advance Technology Revenue Cycle. Advance technologies allow systems designer to integrate accounting
and other business functions through a common information system. The objective of integration is to
improve operational performance and reduce costs by identifying and eliminating nonvalue-added tasks.
This involves replacing traditional procedures that are very different. In this section, we see how advanced
technologies can significantly alter and simplify the revenue cycle, compared to the basic technology
system presented in the previous section. We begin by reviewing the operational features of an integrated
sales order system, and then we examine an integrated cash receipts system.
Integrated Sales Order Processing System. The flowchart in Figure 4-15 illustrates an integrated sales order
system. Notice that the function of credit checking, accounts receivable updating, customer billing,
inventory updating and posting to the general ledger are performed automatically by the central computer
system illustrated in figure 4-15.
INTEGRATED CASH RECEIPTS SYSTEM
Mail Room. The mail room clerks open the envelopes containing the checks and remittance advices and
endorses the checks for deposit only. The clerk then reconciles the check and remittances advices and
prepares a remittance list. The checks, remittance advices, and a copy of remittance list are sent to the cash
receipts department.
Cash Receipts Department. The cash receipts clerk reconciles the checks and the remittance advices with
the remittance list and prepare deposit slips. Via terminal, the clerk accesses the cash receipts system and
creates a record in the remittance file for each remittance advice received. The clerk files the remittance
list, remittance advices, and one copy of the deposit slip. At the end of the day, a member of a security
deposits the checks in the bank.
Automatic Data Processing Procedures. When the cash receipts data entry is complete, the system
automatically performs the following tasks:
Closes the sales invoice that are covered by the customer checks by placing the customer check
number and payment date in the invoice record.
Post to the GL account.
Prepares and distributes various management reports, including transaction listings, discrepancy
(out of balance) reports, and general ledger change reports.
Controller’s Office. Finally, a clerk in the controller’s office periodically performs a reconciliation of
remittance lists, bank deposit slips, cash receipts journal, and the GL cash accounts.
Evaluation: Class discussions and activity
References: Accounting Information System Book By James A. Hall
Next Lesson: Continuation of The Revenue Cycle (IT Controls)
Prepared by: Ma Socorro M Sunglao, CPA MBA Checked by: William I. Approved by: Lanie M.
Asenci, CPA MBA, Dean, Galvan, PhD (VPAA)
College of Accountancy