Accounting Cycle
b The accounting cycle is a process that is collective and identifies,
analyzes, and records the accounting activities of a company. The
process consists of 8 steps that begins when a transaction is created
and ends when the transaction forms a part of the financial
statements' information (Hayes Adam, 2022). A company's
Accounting Information System (AIS) consists of various cycles which
includes the revenue cycle.
Article Summary on Revenue Cycle
b The Revenue Cycle is a recurring set of business activities that
involves the processing of information from the sale of goods and
services by a company to its customers (Romney et al, 2021).
According to the article titled "Revenue Cycle", the revenue cycle
works differently based on the industry a company operates in
(Srivastav K Ashish, 2022). In the manufacturing industry, a company
manufactures goods, customer places orders, order is then filled and
shipped to customer. When the customer receives his/her shipment
payment is made to the company. In this scenario the revenue cycle
begins when the customer places the order and ends when the
company receives payment and records the transaction (Srivastav K
Ashish, 2022). In a Service Industry the revenue cycle begins when
the customer places a service order, and the company enters into an
agreement with the customer by accepting the order. When the
service is provided by the company it then receives payment. For
services that are recurring the company is receive recurring payment
(Srivastav K Ashish, 2022).
b One important purpose for the revenue cycle is that it helps to
reduce the credit period and lowers the occurrence of bad debt.
Managing the revenue cycle provides a company with the benefit of
reduce time in the delivery process of goods or services to
customers, which then results in shortening the timeline in which the
company gets payment. It also helps to reduce time and cost of
management through automation of a repeated process. This
provides for more accuracy in the billing of goods and services. It also
provides for a better categorizing and recording of accounting
transactions (Srivastav K Ashish, 2022).
b One of the cons of the revenue cycle is that in order to create a
proper revenue cycle management system manage, company
employees must be trained, and training can be costly and time-
consuming. Even so training is important because mistakes made in
any area of the revenue cycle could impact the entire cycle and
ultimately other aspects of the accounting process. To properly
implement a revenue cycle management system expertise in the
accounting field is required which will add to the cost associated with
maintaining the revenue cycle (Srivastav K Ashish, 2022). The
revenue cycle being a part of a company's AIS function can impact
other cycles, such as the profit cycle, when data is captured
incorrectly. That is why there is the need for proper controls of the
cycle. By training employees, a company is providing the knowledge
and skills needed to properly manage the revenue cycle (Srivastav K
Ashish, 2022).
References
Hayes Adam, (2022), Accounting Cycle Definition: Times & How It
Works - Accounting Cycle Definition: Timing and How It Works
(investopedia.com)
Romney B.M, Steinbart J.P, Summers L.S, Wood A.D, (2021),
Accounting Information Sytems - 15th Edition VitalSource Bookshelf:
Accounting Information Systems
Srivastav K Ashish, (2022), Revenue Cycle - Revenue Cycle
(Definition, Process) | Flowchart of How it Works
(wallstreetmojo.com)
