 Sales Order Processing

Begins with a customer placing an order

The sales department captures the essential details on
a sales order form.

The transaction is authorized by obtaining credit

approval by the credit department.

Sales information is released to:

Billing
Warehouse (stock release or picking ticket)
Shipping (packing slip and shipping notice)

Each Cycle has Two Subsystems  A/R records the information in the customer’s
account in the
 Revenue Cycle: time lag between the accounts receivable subsidiary ledger.
two due to credit relations with
customers :  Inventory Control adjusts the inventory subsidiary
ledger.
- physical component (sales order
processing)  Billing, A/R, and Inventory Control submits
summary information to the General Ledger dept.,
- financial component (cash which then reconciles this data and posts to the
receipts) control accounts in the

Journal Vouchers/Entries
How do we get them?

Billing Department prepares a journal voucher:

Accounts Receivable
Sales

Inventory Control Dept. prepares a journal

voucher:

Cost of Goods Sold #

Inventory
 Cash Receipts Processes
- Customer checks and remittance advices are
Cash Receipts prepares a journal voucher: received in the Mail Room.
Cash - A mail room clerk prepares a cash prelist and sends
Accounts Receivable the prelist and the checks to Cash Receipts.
 Sales Order Processing - The cash prelist is also sent to A/R and the Controller.
- The merchandise is picked from the Warehouse and
sent to Shipping.  Cash Receipts:
- Stock records are adjusted. verifies the accuracy and completeness of the checks
updates the cash receipts journal
The merchandise, packing slip, and bill of lading are prepares a deposit slip
prepared by Shipping and sent to the customer. prepares a journal voucher to send to G/L
Shipping reconciles the merchandise received from Cash Receipts Processes
the Warehouse with the sales information on the
packing slip. A/R posts from the remittance advices to the
accounts receivable subsidiary ledger.
Shipping information is sent to Billing. Billing compiles
and reconciles the relevant facts and issues an invoice Periodically, a summary of the postings is sent to G/L.
to
the customer and updates the sales journal. Information G/L department:
is transferred to:
reconciles the journal voucher from Cash Receipts with
Accounts Receivable (A/R) the summaries from A/R
- updates the general ledger control accounts
Inventory Control
 Controller - reconciles the bank accounts.
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 #

 Accounting Records
- With a properly maintained audit trail, it is
possible to track transactions through the
systems and to find where and when errors were
made:

pre-numbered source documents

special journals
subsidiary ledgers
general ledger
files

Access Controls
 Authorization Controls
Access to assets and information (accounting
records) should be limited.
Proper authorization of transactions (documentation)
should occur so that only valid transactions get
Within the revenue cycle, the assets to protect
processed.
are cash and inventories and access to records
such as the accounts receivable subsidiary
Within the revenue cycle, authorization should take
ledger and cash journal should be restricted.
place
when:
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a sale is made on credit (authorization)
Independent Verification
a cash refund is requested (authorization)
Physical procedures as well as record-keeping should
be independently reviewed at various points in the
posting a cash payment received to a customer’s
system to check for accuracy and completeness:
account (cash pre-list)
- shipping verifies the goods sent from the warehouse
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are correct in type and quantity
Segregation of Functions
- warehouse reconciles the stock release document
Three Rules
(picking slip) and packing slip
1. Transaction authorization should be separate
- billing reconciles the shipping notice with the sales
from transaction processing.
invoice
2. Asset custody should be separate from asset
general ledger reconciles journal vouchers from billing,
record-keeping.
inventory control, cash receipts, and accounts
receivable
3. The organization should be so structured that
the perpetration of a fraud requires collusion
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between two or more individuals.
Automating the Revenue Cycle
Segregation of Functions
Authorizations and data access can be performed
 Sales Order Processing
through computer screens.
- credit authorization separate from SO processing
- inventory control separate from warehouse
There is a decrease in the amount of paper.
- accounts receivable sub-ledger separate from
general ledger control account
The manual journals and ledgers are changed to disk
or tape transaction and master files.
 Cash Receipts Processing
- cash receipts separate from accounting records
Input is still typically from a hard copy document and
- accounts receivable sub-ledger separate from
goes
general ledger
through one or more computerized processes.
 Supervision - Often used when unable to enact
Processes store data in electronic files (the tape or
appropriate segregation of duties.
disk)
or prepare data in the form of a hardcopy report.
- Supervision of employees serves as a deterrent
to dishonest acts and is particularly important in
the mailroom.
 Computer-Based Accounting Systems
CBAS technology can be viewed as a continuum The system computes the amount due. Payment is
with two extremes: either
 automation - use technology to improve cash, check, ATM or credit card in most cases.
efficiency and effectiveness
No accounts receivables
 reengineering – use technology to
restructure business processes and firm  Reengineering Using EDI
organization - EDI helps to expedite transactions.

# The customer’s computer: determines that inventory is

needed selects a supplier with whom the business has
Reengineering Sales Order Processing Using a formal business agreement
Real-Time Technology
dials the supplier’s computer and places the order
Manual procedures and physical documents are The exchange is completely automated.
replaced by interactive computer terminals. No human intervention or management

Real time input and output occurs, with some master

files still being updated using batches.

Real-time - entry of customer order, printout of stock

release, packing slip and bill of lading; update of credit
file, inventory file, and open sales orders file

Batch - printout of invoice, update of closed sales order

(journal), accounts receivable and general ledger
control
account

 Advantages of Real-Time Processing

- Shortens the cash cycle of the firm by reducing the

time between the order date and billing date

- Better inventory management which can lead to a

competitive advantage CBAS Control Considerations

- Fewer clerical errors, reducing incorrect items being  Authorization - in real-time systems,
shipped and bill discrepancies authorizations are automated

- Reduces the amount of expensive paper Programmed decision rules must be closely
documents and their storage costs monitored.

 Reengineered Cash Receipts  Segregation of Functions - consolidation of

- The mail room is a frequent target for reengineering. tasks by the computer is common
- Companies send their customers preprinted
envelopes and remittance advices. Protect the computer programs
- Upon receipt, these envelopes are scanned to
provides a control procedure against theft. Coding, processing, and maintenance should be
- Machines are open the envelopes, scan remittance separated.
advices and checks, and separate the checks.
- Artificial intelligence may be used to read handwriting, #
such as remittance amounts and signatures.
CBAS Control Considerations
 Point-of-Sale Systems
- Point of sale systems are used extensively in retail  Supervision - in POS systems, the cash register’s
establishments. internal tape or database is an added form of
supervision
- Customers pick the inventory from the shelves and
take them to a cashier.  Access Control - magnetic records are vulnerable
to both authorized and unauthorized exposure and
- The clerk scans the universal product code (UPC). should be protected
The POS system is connected to an inventory file,
where the price and description are retrieved. Must have limited file accessibility
Must safeguard and monitor computer programs
- The inventory levels are updated and reorder
needs can immediately be detected.  Accounting Records - rest on reliability and
security of stored digitalized data
Point-of-Sale Systems
Accountants should be skeptical about the accuracy of
hard-copy printouts.
Backups - the system needs to ensure that backups #
of all files are continuously kept
Distinguish between a packing slip, shipping
Independent Verification – consolidating notice, and a bill of lading
accounting tasks under one computer program
can remove traditional independent verification  packing slip - travels with the goods to the
controls. customer, and it describes the contents on the
To counter this problem: perform batch control order.
balancing after each run
Upon filling the order, the shipping department sends
 How is independent verification carried out the shipping notice to the billing department to notify
in a manual revenue system? them that the order has been filled and shipped.

Independent verification occurs in several  shipping notice contains additional information that
departments as part of the sales order processing the packing slip may not contain, such as shipment
system. date, carrier and freight charges.

The shipping department verifies that the goods  bill of lading - is a formal contract between the
released by the warehouse for shipment, as shown on seller and the transportation carrier; it shows legal
the stock release document, match the packing slip. ownership and responsibility for assets in transit.

Billing compares the shipping notice with the invoice to

be sure customers are billed only for goods shipped.

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general ledger reconciles the journal
vouchers prepared by billing, inventory control,
cash receipts, and accounts receivable.

This reconciliation focuses on a match between

what was ordered, what was removed from the
stockroom, what was shipped, what was billed,
cash received, and credit to the customer
account.

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PC-Based Accounting Systems

- Used by small firms and some large decentralized

firms

- Allow one or few individuals to perform entire

accounting function

- Most systems are divided into modules controlled by a

menu-driven program:

general ledger
inventory control
payroll
cash disbursements
purchases and accounts payable
cash receipts
sales order

PC Control Issues

Segregation of Duties - tend to be inadequate and

should be compensated for with increased supervision,
detailed management reports, and frequent
independent
verification

Access Control - access controls to the data stored on

the computer tends to be weak; methods such as
encryption and disk locking devices should be used

Accounting Records - computer disk failures cause

data losses; external backup methods need to be
implemented to allow data recovery