Revenue Cycle
The revenue cycle may be the most important function of the accounting department. Without
sales and revenues, there is no option for a company to continue as a going concern and they
could end up bankrupt. It is imperative that the sales department enters sales transactions
properly and consistently, as this is the first step to ensure accurate transactions. Every step of
the accounting cycle has a purpose, and the revenue cycle’s purpose is to pay for labor, goods
and services, company maintenance and production.
According to Chron (2020), “The revenue and collection cycle in a company is a repeating set of
business activities and processing operations associated with providing goods and services to
customers and the collection of payments for those sales. An efficient revenue and collection
cycle is essential to ensure steady cash flow for a company” (Chron, 2020). It is important to
have separation of duties to reduce the opportunity for fraud.
1. The sales department takes the order & either collects the payment and gives it to the
accounting department to deposit or the accounting department performs the credit
check and extends terms to the customer
2. The manufacturing department makes the goods, and
3. The shipping department ships the goods to the customer.
4. Finally, the auditor will test the internal controls for strengths and weaknesses
The revenue cycle will help the company maintain consistency in processes and procedures,
which are part of the internal controls of the company. A major goal of processes and
procedures is making sure they are followed so that fraud risk is minimized and the prevalence
of bad debts is reduced.
The relevance of the article to the AIS is that the AIS streamlines processes, and automates
many of the procedures that could otherwise be compromised by human error when entering
manual transactions.
Chron, . (2020, November 24). Examples of a revenue cycle of a company. Small business chron.
https://smallbusiness.chron.com/examples-revenue-cycle-company-14333.html
Srivastav, A. K. (n.d.). Revenue cycle. Wallstreetmojo.
https://www.wallstreetmojo.com/revenue-cycle/
