Page 198 - Accounting Information Systems

CHAPT E R 4 The Revenue Cycle 169

important operational feature of well-designed accounting systems. Sometimes transactions get lost in the
system. By following the audit trail, management can discover where an error occurred. Several specific
control techniques contribute to the audit trail.

PRENUMBERED DOCUMENTS. Prenumbered documents (sales orders, shipping notices, remit-
tance advices, and so on) are sequentially numbered by the printer and allow every transaction to be iden-
tified uniquely. This permits the isolation and tracking of a single event (among many thousands)
through the accounting system. Without a unique tag, one transaction looks very much like another. Veri-
fying financial data and tracing transactions would be difficult or even impossible without prenumbered
source documents.

SPECIAL JOURNALS. By grouping similar transactions together into special journals, the system pro-
vides a concise record of an entire class of events. For this purpose, revenue cycle systems use the sales
journal and the cash receipts journal.

SUBSIDIARY LEDGERS. Two subsidiary ledgers are used for capturing transaction event details in
the revenue cycle: the inventory and AR subsidiary ledgers. The sale of products reduces quantities on
hand in the inventory subsidiary records and increases the customers’ balances in the AR subsidiary
records. The receipt of cash reduces customers’ balances in the AR subsidiary records. These subsidiary
records provide links back to journal entries and to the source documents that captured the events.
GENERAL LEDGERS. The general ledger control accounts are the basis for financial statement prepara-
tion. Revenue cycle transactions affect the following general ledger accounts: sales, inventory, cost of goods
sold, AR, and cash. Journal vouchers that summarize activity captured in journals and subsidiary ledgers
flow into the general ledger to update these accounts. Thus we have a complete audit trail from the financial
statements to the source documents via the general ledger, subsidiary ledgers, and special journals.

FILES. The revenue cycle employs several temporary and permanent files that contribute to the audit
trail. The following are typical examples:
Open sales order file shows the status of customer orders.
Shipping log specifies orders shipped during the period.
Credit records file provides customer credit data.
Sales order pending file contains open orders not yet shipped or billed.
Back-order file contains customer orders for out-of-stock items.
Journal voucher file is a compilation of all journal vouchers posted to the general ledger.
Access Controls
Access controls prevent and detect unauthorized and illegal access to the firm’s assets. The physical
assets at risk in the revenue cycle are inventories and cash. Limiting access to these items includes:
Warehouse security, such as fences, alarms, and guards.
Depositing cash daily in the bank.
Using a safe or night deposit box for cash.
Locking cash drawers and safes in the cash receipts department.
Information is also an important asset at risk. Access control over information involves restricting
access to documents that control physical assets including source documents, journals, and ledgers. An
individual with unrestricted access to records can effectively manipulate the physical assets of the firm.
The following are examples of access risks in the revenue cycle:
1. An individual with access to the AR subsidiary ledger could remove his or her account (or someone
else’s) from the books. With no record of the account, the firm would not send the customer monthly
statements.