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CHAPT E R 4 The Revenue Cycle 187

(float) for the next clerk. The supervisor and the clerk whose shift has ended take the cash drawer to the
cash room (treasury), where the contents are reconciled against the internal tape. The cash drawer should
contain cash and credit card vouchers equal to the amount recorded on the tape.
Often, small discrepancies will exist because of errors in making change for customers. Organizational
policy will specify how cash discrepancies are handled. Some organizations require sales clerks to cover
all cash shortages via payroll deductions. Other organizations establish a materiality threshold. Cash
shortages within the threshold are recorded but not deducted from the employee’s pay. Excess shortages,
however, should be reviewed for possible disciplinary action.
When the contents of the cash drawer have been reconciled, the cash receipts clerk prepares a cash rec-
onciliation form and gives one copy to the sales clerk as a receipt for cash remitted and records cash
received and cash short/over in the cash receipts journal. The clerk files the credit card vouchers and
secures the cash in the safe for deposit in the bank at the end of the day.

END-OF-DAY PROCEDURES
At the end of the day, the cash receipts clerk prepares a three-part deposit slip for the total amount of the
cash received. One copy is filed and the other two accompany the cash to the bank. Because cash is
involved, armed guards are often used to escort the funds to the bank repository.
Finally, a batch program summarizes the sales and cash receipts journals, prepares a journal voucher,
and posts to the general ledger accounts as follows:

DR CR
Cash XXXX.XX
Cash Over/Short XX.XX
Accounts Receivable (credit card) XXX.XX
Cost of Goods Sold XXX.XX
Sales XXXX.XX
Inventory XXX.XX

The accounting entry in the table may vary among businesses. Some companies will treat credit
card sales as cash. Others will maintain an AR until the credit card issuer transfers the funds into their
account.

REENGINEERING USING EDI
Doing Business via EDI
Many organizations have reengineered their sales order process through electronic data interchange
(EDI). EDI technology was devised to expedite routine transactions between manufacturers and whole-
salers and between wholesalers and retailers. The customer’s computer is connected directly to the sell-
er’s computer via telephone lines. When the customer’s computer detects the need to order inventory, it
automatically transmits an order to the seller. The seller’s system receives the order and processes it auto-
matically. This system requires little or no human involvement.
EDI is more than just a technology. It represents a business arrangement between the buyer and seller
in which they agree, in advance, to the terms of their relationship. For example, they agree to the selling
price, the quantities to be sold, guaranteed delivery times, payment terms, and methods of handling dis-
putes. These terms are specified in a trading partner agreement and are legally binding. Once the agree-
ment is in place, no individual in either the buying or selling company actually authorizes or approves a
particular EDI transaction. In its purest form, the exchange is completely automated.
EDI poses unique control problems for an organization. One problem is ensuring that, in the absence
of explicit authorization, only valid transactions are processed. Another risk is that a trading partner, or
someone masquerading as a trading partner, will access the firm’s accounting records in a way that is
unauthorized by the trading partner agreement. Chapter 12 presents the key features of EDI and its impli-
cations for business. EDI control issues are discussed in Chapter 16.