PBL SESSION 1 : REVENUE CYCLE

PART I : CASH RECEIPT SYSTEM EASTERN INDUSTRIES COMPANY

Required: a) Flowchart TREASURER.docx

b) i. Deposit slip A deposit slip is a printed from which accompanies bank deposits. The depositor fills out the deposit slip to indicate what types of funds are being deposited and which accounts they should be deposited into.

ii.

Remittance slip Remittance slip is a tear-off sheet attached to the bottom of an invoice. Its purpose is to clarify exactly what is being pay for and how much is being pay to the customer.

iii.

Cash receipt report Cash receipt report is a recapitulation by client / matter of cash received within a specific date range. It is a snapshot utilized for a quick reference in which client has remitted money to the firm. On the other hand, cash receipt report assists the firm in knowing where cash has come from within the date range report.

iv.

Aging customer report Aging Customer Report is used to produce an aging of open accounts receivable invoices in customer sequence. It can be used to verify the balance in the accounts receivable sub-ledger and to substantiate the accounts receivable balances in general ledger. The aging customer report can also be used for collections purposes.

c) Two (2) possible threats under cash collection activities

Theft of cash Because cash and checks are highly vulnerable, controls should be in place to discourage theft.

Invalid cash receipt, incorrect amounts, omitted transaction There is no separation of custody of cash from accounts receivables record keeping.

PART II : CASH RECEIPT SYSTEM AND SALES ORDER PROCESSING

a) Two (2) strength of the existing revenue system The accounts receivable clerk posts the daily sales summary to the cash receipts and sales journal and files the sales summaries by date. All the transaction must be update accurately to make sure all the record are sufficient. On the other hand it is also to prevent omitted transactions.

Prepares the invoice in triplicate. All records and transactions should be provided in a number of copies to be used as evidence of a transaction. It is also important as a reference for further transactions.

Two (2) potential risks / exposures that can be avoided The one and only employed sales clerk will performed a relevant edit checks. Maintenance of the accounts receivable subsidiary records by persons other than those who (1) prepare, check or approve accounts receivable documentation, (2) maintain the control account or (3) deal with the cash receipts function.

The accounting department supervisor is the only person responsible to take the deposit to the bank. A transaction involving cash and check should be involves two or more employees. If only one person responsible for this will result in a fraud because there is no surveillance of the work done.

b) Three (3) weaknesses inherent The accounts receivable clerk prepares the daily deposit after receiving cash from the preceding day cash sales. Account receivables should not be involved in anything that consists of cash. This because their jobs just record all transactions so that to avoid any misappropriation

Cashier recaps the sales and cash received and forward the cash to the account receivable clerk. There is no separation between custody of cash from account receivables record keeping.

Account receivable clerk balances the cash received with cash sales invoices. Misuse of funds would occur if someone who works in the recording also involved in custody the money.

Three (3) internal control procedures Authorization of transactions Appropriate individuals should be assigned responsibility for opening and closing all bank accounts and approving bank deposits transfers of funds. This ensures that records are updated only for authorized transactions.

Segregation of duties The authorization duties need to be kept separate from recording and custody duties. Those who handle cash should not have authority to access the companys cash or accounting records or reconcile the bank account. On the other hand, those responsibilities for maintaining detailed records for daily cash receipts or accounts receivable subsidiary accounts should not also have access to the general ledger.

Security of assets and documents Access to cash collections needs to be limited to those who are expressly authorized to handle cash. Controls over cash collections are likely the most important control procedure, because cash is the asset most susceptible to theft or misappropriation. Because of the universal appeal of cash and the difficulty of proving ownership, a company must take extra precautions to protect this asset. Cash collection should be deposited in the bank in a timely manner to prevent the risk of theft.