THE ANALYSIS OF INTERNAL CONTROL OVER REVENUE

CYCLE

(A CASE STUDY IN PT. ABC)

SKRIPSI

By
Lie Jimmy Buntaran
008201000110

Presented to
The Faculty of Business, President University
In partial fulfillment of the requirements
for
Bachelor Degree in Economics, Major in Accounting

PRESIDENT UNIVERSITY
Cikarang Baru – Bekasi
Indonesia

2014
THE ANALYSIS OF INTERNAL CONTROL OVER REVENUE

CYCLE

(A CASE STUDY IN PT. ABC)

SKRIPSI

By
Lie Jimmy Buntaran
008201000110

Presented to
The Faculty of Business, President University
In partial fulfillment of the requirements
for
Bachelor Degree in Economics, Major in Accounting

PRESIDENT UNIVERSITY
Cikarang Baru – Bekasi
Indonesia

2014

i
 PANEL OF EXAMINERS APPROVAL SHEET

Herewith, the Panel of Examiners declares that the skripsi entitled “The Analysis of

Internal Control Over Revenue Cycle” submitted by Lie Jimmy Buntaran, Accounting
Study Program, Faculty of Business, has been assessed and proved to pass the Oral Examination
on March 4, 2014.

Chairman, Panel of Examiner,

Mr. SUMARNO ZAIN, SE, MBA, AK

Examiner 1

DRS. H. UMAR SUBANDIJO, Ak., MBA

Examiner 2

Lecturer name with degree

ii
 RECOMMENDATION LETTER OF SKRIPSI ADVISER

The skripsi prepared and submitted by

Name : Lie Jimmy Buntaran

Student ID : 008201000110

Faculty : Business

Study Program : Accounting

Skripsi Title : THE ANALYSIS OF INTERNAL CONTROL OVER REVENUE

CYCLE (A CASE STUDY IN PT. ABC)

has been reviewed and found to have satisfied the necessities for Oral Defense as partial
fulfillment of the requirements for Bachelor Degree in Business - Major in Accounting.

Cikarang, Indonesia, January 27, 2014.

Acknowledged, Skripsi Advisor,

DR. Sumarno Zain, SE, Ak., MBA, DRS. H. Umar Subandijo, Ak., MBA
Head, Accounting Study Program Advisor

iii
 DECLARATION OF ORIGINALITY

I hereby declare that the skripsi entitled “THE ANALYSIS OF INTERNAL CONTROL

OVER REVENUE CYCLE” is originally written by myself based on my own research and has

never been used for any other purpose before. I, therefore, request for Oral Defense of the

Skripsi.

Cikarang, Indonesia, January 27, 2014

Researcher,

LIE JIMMY BUNTARAN

008201000110

iv
 ABSTRACT
The research was done in PT. ABC, located in located in Jl. Kapuk Kamal 3, North Jakarta,
Indonesia. The objective of this research was to analyze how the revenue cycle`s internal control
that implemented in PT. ABC. The type of data that will use in this research is primary and
secondary data. In order to get the primary data, the research method that researcher used is
qualitative research.

Based on the researcher investigation during the two and half months, there are several weakness
incurred in PT. ABC, first of all, the are some weaknesses relating with the documents,
weaknesses in sales order and cash receipt procedure.

There are several of effects that could happen from those weaknesses. First, inventory loss
happens because the inventory records can be manipulated since there is no formal document.
Second is shortage of cash because there is no segregation of duties for the cashier. So, it will
bring an impact on the quality of financial reporting of PT. ABC.

In order to solve the weaknesses of the company, PT. ABC needs to be more concern about its
control towards the revenue cycle. Although the performance of PT. ABC is quite good without
implementing the Accounting Information System Standards, it is better for PT ABC to
implements revenue cycle`s internal control based on Accounting Information System Standard
to prevent the risk of fraud.

Key Words: Revenue Cycle, Internal Control

v
 ACKNOWLEDGEMENT

First of all, I would like to thank God for all the blessing and strengths that He had given

me during my study and research. Secondly, I would like to express my sincere gratitude to my

advisor Drs. H. Umar Subandijo, Ak., MBA for the continuous support of my bachelor study and

research, for his patience, motivation, enthusiasm, and immense knowledge. His guidance has

helped me in all the time of research and writing of this skripsi. I could not have imagined

having a better advisor and mentor for my bachelor study.

Besides, I would like to thanks Mr. Tjun Lie, as Warehouse Manager in PT. ABC for

giving me the opportunity to do a research for two and half months in PT. ABC and also I thank

for his kindness, encouragement, insightful, comments and time discussion during my research.

I also thank to the Dean of Business Faculty of President University, Mr. Misbahul

Munir, Ak., MBA and Head of Accounting Program of President University Mr. Sumarno Zain,

SE, MBA, AK for the time and precious advice. Finally, I would like to thank to all my friends

and family who always support and encourage me during the preparation of this skripsi.

vi
 TABLE OF CONTENTS

SKRIPSI TITLE............................................................................................................................... i
PANEL OF EXAMINERS APPROVAL SHEET .......................................................................... ii

SKRIPSI ADVISER RECOMMENDATION LETTER OF ........................................................ iii

DECLARATION OF ORIGINALITY .......................................................................................... iv

ABSTRACT .....................................................................................................................................v

ACKNOWLEDGEMENT ............................................................................................................. vi

TABLE OF CONTENTS .............................................................................................................. vii

LIST OF TABLES ...........................................................................................................................x

LIST OF FIGURES ....................................................................................................................... xi

CHAPTER I - INTRODUCTION
I.1. Background ..............................................................................................................1

I.2. Problem Identification and Statement .....................................................................2

I.3. Scope and Limitation ...............................................................................................3

I.4. Research Objectives .................................................................................................3

I.5. Research Benefits.....................................................................................................3

I.6. Research Method ..................................................................................................... 4

CHAPTER II – LITERATURE REVIEW

II.1. Accounting ..............................................................................................................6

II.2. Accounting Information System ..............................................................................6

II.3 Components of Accounting Information System ...................................................7

II.4 Internal Control ........................................................................................................9

II.4.1 Terminology of Internal Control ..................................................................9

vii
 II.4.2 Objectives of Internal Control ....................................................................10

II.4.3 Components of Internal Control .................................................................12

II.6.4.1 Control Environment .................................................................12

II.6.4.2 Control Activities.......................................................................14

II.6.4.3 Risk Assessment ........................................................................15

II.6.4.4 Information and Communication ...............................................15

II.6.3.5 Monitoring .................................................................................15

II.5 Revenue Cycle .......................................................................................................16

II.5.1 Components of Revenue Cycle ..................................................................17

II.5.2 Control Over Revenue Cycle .....................................................................25

II.5.3 Best Practices of Internal Control of Revenue Cycle .................................26

II.5.4 Improvement of Revenue Cycle .................................................................27

II.5.5 Threats and Control in the Revenue Cycle.................................................28

CHAPTER III – DATA PROCESSING METHOD

III.1. Data Collecting Method ........................................................................................31

III.1.1. Inquiries of Client ....................................................................................31

III.1.2. Observation ..............................................................................................32

III.1.3. Documentation .........................................................................................32

III.1.4. Analytical Procedures ..............................................................................33

III.2. Company Existing Condition.................................................................................33

III.2.1. Company Profile ......................................................................................33

III.2.2. Company`s Vision and Mission ...............................................................33

III.2.3. Company`s Organization Structure..........................................................34

III.2.4. Job Description PT. ABC ........................................................................34

viii
 III.2.5. Revenue Cycle PT. ABC .........................................................................36

III.2.6. Sales Return Procedures ..........................................................................39

III.2.7. Cash Receipt Procedure ...........................................................................41

CHAPTER IV – Finding and Discussion .....................................................................................43

IV.2. Weakness relating with The Documents ................................................................43

IV.2. Sales Order Procedures Weakness .........................................................................44

IV.3. Cash Procedure Weakness ......................................................................................44

IV.4. Suggested Form of Internal Control .......................................................................45

IV.4.1. Sales Order (Implementing AIS Standards) ............................................45

IV.4.2. Suggested Sales Order Procedure ............................................................46

IV.4.3. Suggested Cash Receipt Procedure .........................................................49

CHAPTER V – CONCLUSION & RECOMMENDATION

V.1. Conclusion .............................................................................................................51

V.1. Recommendation ...................................................................................................51

ix
 LIST OF TABLES

TABLES II.1: Threat and Control of Revenue Cycle ...................................................................28

x
 LIST OF FIGURES

FIGURE III.1: Company`s Organization Structure .......................................................................34

FIGURE III.2: Flowchart of Sales Order Procedure in PT. ABC..................................................38

FIGURE III.3: Flowchart of Sales Return Procedure in PT. ABC ................................................40

FIGURE III.3: Flowchart of Cash Receipt Procedure in PT. ABC ...............................................42

FIGURE IV.1: Suggested Flowchart of Sales Order Procedure (Implementing AIS) ..................48

FIGURE IV.2: Suggested Flowchart of Cash Receipt Procedure (Implementing AIS) ................50

xi
 CHAPTER I

INTRODUCTION

I.1 Background
Based on H. Sajady (2008), accounting information system may have benefits that can

be evaluated through its impact on the decision making process, the quality of the accounting

information, performance evaluation, and also the internal controls facilitating the company’s

transaction. Every business from a large scale to a small scale business should have a good

internal control so as to minimize the errors or even eliminate the possible fraud that might

happen within the company. According to Shiner (2009), “Small business should care about the

internal controls to protect their Assets and reduce the risk of fraud”. The success of a company

is determined by their profitability, the profitability of a company is related to the sales made

by the company and to maintain a high profitability. At the present time, companies conduct

various approaches in raising sales, for instances, by performing discount, bonuses, permitting

credit sales and other. These approaches are made to intensify costumer`s purchasing power and

improve the company revenue. Company should make sure that there will be no errors during the

beginning of the process until the end of the process as profitability. In this case, the company’s

revenue cycle is very important in determining the success of the company as it includes

how the cash flow and the revenue being held by the company. A good internal control of

a company will ensure that the revenue cycle process is free from errors or fraud.

The process of revenue cycle includes the flow from the beginning which is from the

process of receiving the purchase order from the customer, until the payment process. The

income obtained from this process will be used by the company to finance all the expense within

1
the company. Every company should be able to maintain their financial condition and in

common, the cause of the problem to their financial condition is the lack of control to the

collection of accounts receivable. Therefore, with the development of accounting information

system, it may help the company with the internal control during the collection of any payment

methods. The revenue cycle involves two components which are the physical and financial

component. It also consist of two subsystem which are the sales order processing and the cash

receipt (Hall, 2008), these two subsystem will be discussed further by the author in chapter two.

Even though a company has implemented a good structure of revenue cycle, they should also

have a good internal control to minimize any possibility of fraud which may lead to an

improvement in the progress of the company.

It is very important for a company to maintain their good performance to remain

competitive in their business fields. Based on the information and exploration above, I as the

author choose PT. ABC because PT. ABC has not implemented Accounting Information System

yet, they still use its Accounting System. And there is several weaknesses in its revenue cycle

internal control. That is why; this thesis report is titled to be “THE ANALYSIS OF INTERNAL

CONTROL OVER REVENUE CYCLE (A CASE STUDY IN PT. ABC)”.

I.2 Problems Identification and Statement

There are several problems that the author would like to discuss in this thesis:

1. Does the company have proper segregation of duties?

2. Does the company have proper sales order process?

3. Does the company has proper documents for its operations?

2
I.3 Scope and Limitation

This thesis will observe, identify and evaluate internal control in revenue cycle at PT.

ABC.. During the research, the scope of research has limited by the company. For example, the

researcher has limited access in accounting system that the company used. The researcher also

cannot examine some documents such as contract agreement between the costumer and PT.

ABC. To support the development of this thesis, the author will collect all the needed data

directly from the company. The author will also find other supporting materials from textbook,

journals and also articles which may help in discussing the internal control for the company.

I.4 Research Objectives

Objectives:
1. To analyze the company`s internal control over revenue cycle.

2. To analyze the procedure of revenue cycle system and its implementation.

3. Identify the possible fraud and risk.

4. To give recommendation and solution in revenue cycle system of the company.

I.5 Research Benefits

The result and the study of implementing accounting information system standards on

the revenue cycle, will give benefit to the company as well as for the author.

For the company:

1. Understand the effectiveness of implementing a good internal control in revenue

cycle.

2. Improve the company’s performance.

3
3. Reduce the possibility of fraud inside the company.

For the reader:

1. This study can be used as references about internal control over revenue cycle.

2. This research can be used as comparison in revenue cycle system.

1.6 Research Method

This thesis report will be a qualitative research. The author uses primary and secondary

data collection; primary data collection includes interview and field observation while the

secondary data collection includes data from textbook, internet etc. This report will focus on the

company’s revenue cycle internal control which consists of the sales processing system and the

cash receipt system as the main point.

1. Literature Review

For the literature review, the author will collect the data about the internal control

in revenue cycle from the accounting information system textbook and auditing textbook

about the internal control and also research from the internet. This data will be used in the

theoretical foundation to develop an understanding about the theory regarding the issue

that will be discussed in this paper which might help the author to understand about the

concept and provide recommendation to the company.

2. Field Research

a. Interview

The author will go directly to the company to have an interview with the

managers from some division and also the staffs of PT. ABC regarding the internal

control and the revenue cycle of the company. The aim of this interview is to obtain

4
information about the transaction flow about the sales processing and the cash

receipts. The result of this interview will give a detail description about the

company’s structure and the responsibility of the department on the structure. The

list of the interview question will be attached on this report at the end of this thesis.

b. Observation

Besides the interview, the author will come to the company to observe the

credit sales process and the internal control of the company which include the types

of payment done by the clients. All the data collected during this field research will

be used to improve the credit sales process and the internal control of the company.

5
 Chapter II

LITERATURE REVIEW

II.1 Accounting

Arens et al (2008) stated that, “Accounting is the process of classifying, recording and

summarizing economic event in a logical way which aims in providing financial information for

the purpose of making decision.” To provide relevant or accurate accounting information, a

person should have a good understanding about the rules and the principles of accounting to

make sure that the economic events are recorded properly. It also provides information

about the performance of the company and tells the company about what is to be improved.

Scott (1986) stated that, “Almost all company’s transaction involves accounting transaction

which means that, this transaction is below the jurisdiction of the accounting department.”

II.2 Accounting Information System

Accounting information system can be defined as an integrated system within an

organization which responsible to record and employs physical resources and other components

to transform economic data into accounting information (2008). Therefore, the sole purpose of

AIS is to provide important information that will directly assist the process decision making in

the organization’s daily operations.

According to Shiraz (2006), “An accounting information system is a set of records,

procedure and equipment that deal with daily routine in a company that affect the financial

performance of a company”.

6
 Hall (2008) also stated that Accounting Information System is divided into three major

subsystems which include:

1. General Ledger/Financial Reporting System (GL/FRS)

These two subsystems are closely related due to their operational interdependency and

because of their interdependency; they are viewed as a single integrated system. This system

normally produces traditional financial statements such as balance sheet, income statement, and

statement of cash flow, tax returns and legal documents required by the law.

2. Transaction Processing System

This system is mainly the “brain” of all information system, the function of this system is

converting economic events into financial transactions, record it into journal and ledgers and

distribute the important financial information to a personnel to carry out their daily

operations. In other words, this system supports a daily business with numerous documents, and

message for users within the organization.

3. Management Reporting System

The management reporting system provides internal financial information required by

the manager of the company to carry out their daily work. The decision taken by the managers are

different according with the type of information provided. The types of decision taken usually

include the budget, variance report and cost volume profit analysis.

II.3 Components of Accounting Information System

According to Hinchcliffe (2011) business commonly use accounting information system

for collecting, storing, managing, processing, retrieving financial data to make it usable for

7
accountants, business analyst and consultants to carry out their work. Hinchcliffe also stated that

Accounting Information System normally composed of six components which are:

1. People

This people are users which include CFO, accountant, and consultant. They use this

system to analyze the data given and make the data simpler for the people outside the

organization. This system should be created conveniently and user-friendly for people to

utilize it.

2. Procedure and Instructions

This includes the method and process of collecting, storing, retrieving and processing

data. The data might come from internal or external sources.

3. Data

The data are as follows:

• The statement of the customer’s billing

• Sales order

• Sales analysis report

• Purchase requisition

• Vendor invoice

• Check register

• General ledger

• Inventory data

• Tax information

• Time keeping

• Payroll information

8
 4. Software

Include accounting software for storing and processing all financial data.

5. Information Technology Infrastructure

The types of infrastructure involve hardware such as computers, printer, and server.

The type of hardware used must support all of the intended software to be used.

6. Internal Control

Any measures to protect the data within the company. This meant that only

authorized personnel can have an access to a specific part according to their field of work.

II.4 Internal Control

II.4.1 Terminology of Internal Control

America Institute of Certified Public Accountants (AICPA) defines internal

control within the Statement on Auditing Standards No. 1 (Section 320.09) as: “Internal

control comprises the plan of organization and all of the coordinate methods and

measures adopted within a business to safeguard its assets, check the accuracy and

reliability of its accounting data, promote operational efficiency, and encourage

adherence to prescribed managerial policies”

Gay and Simnett (2003) explained in their book internal control includes

management`s philosophy and operating style as well as the policies and procedures that

management adopts to achieve the objectives of the entity. The importance of internal

control structure has developed as business entities have become larger and more complex.

Both management and auditors see the benefits of a framework within which business

activity is directed and coordinated.

9
 Based on Arens et al. (2008) explained that a system of internal control consists of

policies and procedures designed to provide management with reasonable assurance that

the company achieves its objectives and goals. These policies and procedures are often

called controls, and collectivity, they make up the entity`s internal control.

Kieso, Weygandt, and Warfield (2008) define, “Internal Control is a system of

checks and balances designed to prevent and detect fraud and error.” (p.15)

Cedelle (2007) stated, “Internal control as a company’s system which consists of

procedure, code of conduct and actions adapted by each individual in a company. It is a

control over the activities of the business to maximize the business operation.”

Tanki & Steinberg (2006) stated that, “The issuance of internal control-integrated

framework by Committee of Sponsoring Organizations of the Treadway Commission

(COSO), may help people with information that can help to improve their internal control

system.”

Robert (2006) stated that, “By using the framework, the management can improve

their internal control system by identifying the basic weakness in financial reporting and

operation and take actions to strengthen them.

II.4.2 Objectives of Internal Control

According to Arens et al (2008), there are three main objectives of internal

control which are:

1. Reliability of Financial Reporting

Reliability of financial reporting relates to the preparation of reliable published

financial statements, including interim and condensed financial statements and selected

10
financial data derived from such statement, such as earnings releases, reported publicly.

Management is responsible for preparing statements for investor, creditors, and other users.

Management has both a legal and professional responsibility to be sure that the information

is fairly presented in accordance with reporting requirements such as US GAAP.

2. Efficiency and Effectiveness of Operations

Effectiveness and efficiency of operations addresses an entity`s basic business

objectives, including performance and profitability goals and safeguarding of resources. A

good internal control in a company ensure that the usage of resources in an efficient way

so as to maximize company’s goals.

3. Compliance with Laws and Regulations

Section 404 requires all public companies to issue a report about the operating

effectiveness of internal control over financial reporting. In addition to the legal

provisions of Section 404, public, nonpublic, and not-for-profit organizations are

required to follow many laws and regulations. Some relate to accounting only

indirectly, such as environmental; protections and civil right laws. Others are closely

related to accounting, such as income tax regulations and fraud.

There are four objectives of internal control system, which are (Hall, 2008):

1. Safeguards Organization’s Assets and Resources

Internal control system perform a routine checks, which included assets and

resources verifying. With regular checks, organization’s assets and resources exposures to

risk and fraud can be reduce to minimal.

11
 2. Ensure Accuracy and Reliability of Organization’s Accounting Data

Internal control system is able to detect any error or misinterpret of data by

performing routine verification.

3. Support Efficiency (Reliability and Time) of Its Operations

With the data ensured to be accurate and reliable, errors will be very

unlikely; therefore, operations can run efficiently and reliably.

4. To Encourage Fulfillment to Organization’s Policies and Plans

Routines check and control will direct organization’s operations towards the

company’s goal.

II.4.3 Components of Internal Control

The Committee of Sponsoring Organizations of the Tread-Way Commission

(COSO) stated that internal control is comprised of five primary components: control

environment, control activities, risk assessment, information and communication, and

monitoring.

Arens et al (2008) described that there are five components of internal control, which

are:

II.4.3.1 Control Environment

The internal control environment is the first and the base foundation

for all internal controls elements. It includes all of the actions, method, and

disciplines necessary to achieve good internal control. Based on AICPA, those

actions and disciplines are:

12
 • Commitment to Competence

Commitment to competence refers “to the need for employees to have

the necessary knowledge and competence to perform their duties properly”

(Sage, 2006). It is one factor that will help inspire employees to have high

motivation and performance by creating a positive atmosphere and harmony.

• Integrity and Ethical Values

Nowadays, ethics and integrity are viewed very differently than in

the past. Integrity and values today are considered the foundation for sustainable

values, code of conducts and performance drivers; which will guide decision

making during crucial time, “when there are no rules, when rules are

unclear, or when existing rules would lead to the wrong conduct”. Moreover,

according to COSO, management integrity and ethical behavior represents the

corporate culture which can act as a strong form of control.

• Board of Director or Audit Committee Participation

Both directors and committee should be independent from

management. Sufficiency and timeliness with which information is provided to

board or committee members, to allow monitoring of management’s objectives

and strategies, the entity’s financial position and operating results, and terms of

significant agreements.

• Management’s Philosophy and Operating Style

Ways of dealing with financial report, which can also be describe as

management attitudes. Example: high risk undertaking or risk calculating.

• Organizational Structure

The appropriateness of the entity’s organizational structure, and to

13
provide the necessary information flow to manage its activities

• Human Resource Policies and Practices

Company’s standard policies in regards to hire, train, and promote

employees. For examples, prior to hiring employee, company should do a

background check to consider whether the employee is considered to be

acceptable or unacceptable based on the policies.

• Assignment of Authority and Responsibility

Assignment of responsibility and delegation of authority to deal with

organizational goals and objectives, and assigning appropriate numbers of people

with the necessary skills level for the complexity of the activities and system.

II.4.3.2 Control Activities

Policies and procedures are taken to ensure that necessary actions are

taken to address the risk in the achievement of the entity’s objectives. There are

five types of control activities, which are:

• Adequate separation of duties.

• Proper authorization of transactions and activities.

• Adequate documents and records.

• Physical control over assets and records.

• Independent checks on performance.

14
II.4.3.3 Risk Assessment

Risk may arise from the circumstance such as:

• New personnel which have different or lack of knowledge about

internal control.

• Implementing a new accounting principle which may impact on the

preparation of financial report.

• New information system that affect the transaction process.

• Introduction of new product line in which the company has little experience.

II.4.3.4 Information and Communication

This method is used to initiate, record, process, and report the

entity’s transactions and to maintain accountability for the related assets. The

quality of information generated affects the management’s ability in making

decision.

II.4.3.5 Monitoring

Monitoring is the part where quality controls of operations and

designs are done regularly. It must be done with well-timed schedule to ensure

that the controls are operated as intended. In addition, any corrective actions in

the controls that are needed for it to better serve its purpose can be done

immediately to eliminate potential risk and waste of resources.

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II.5 Revenue Cycle

Revenue cycle is the process from the beginning of customer’s order until the received of

cash by the company, or in other words, it is the process of sales and receiving cash. The revenue

cycle process involves three steps. The first step is sales, during this first step, it include the

checking of the inventory and the customer’s credit limit, the checking of inventory helps the

company to fulfill their customer’s demand and reorder the goods for future stocks while the

credit limit aims to know that their customer do not exceed the amount of credit allowed by the

company. The second step is delivering the goods to the customer which can be done by own

transport or commercial carriers, most of the company has their own transport so as to

minimize their cost of delivery. The third step is collecting the cash during the sales (2008).

The revenue cycle occurs when there is a transaction between customer and seller. The

revenue cycle is divided into two subsystems. The first system is sales order which include the

customer order, delivering the desired goods to customer and billing them in an appropriate

timing. When there is a return from the customer, a sales return procedure is taken; this system

involves the return of goods from customer which may result because of defective goods, wrong

delivery and damaged goods during the delivery process. The second system is cash receipt

which involves the collection of cash from the customer, securing the cash and deposits it into

the bank. This process should also include matching the amount of payment and using a proper

accounting method to reconcile the financial details (2008). Clark (2008) stated, “It is not easy to

improve the revenue cycle because of the complexity during the whole process. There are 4

steps to strengthen the revenue cycle of a company 1) Establish and identify the correct field of

work for each department 2) Implement a proper organizational structure 3) Hire a professional

and outstanding leaders 4) Implement an efficient process of work in each department.”

16
II.5.1 Components of Revenue Cycle

1. Sales Order Procedure

This procedure include the receiving of customer order and process it, and ship the

desired goods to the customer and billing it at the proper time and record the

transaction using a proper accounting method ( update accounts receivable if the sales

are done by credit, update the inventory, expense and sales in the financial statement).

a. Receive Order

This started with a customer order which indicates the amount and type of goods

desired by the customer. The customer order received may not be in standard form or

physical form, the order may be in the form of mail, email, telephone and fax. If the

customer is also a business entity, the order is in the form of customer’s

purchase order. The customer purchase order contains information about the

customer which is the name of the customer, the address, account number, the code

and the descriptions of the desired goods. Details about the freight cost, discount and

taxes are not included in the customer purchase order. If the customer order is not

in a standard form, every company will make the order simple by preparing a

document named sales order. After the sales order has been made, the copy of sales

order is put into customer open order file which may be used in a future time for

references. It may take a day or several weeks for the process of delivery and the

filling of order, while on this time, the customer may check their order status by

contacting the supplier.

b. Check Credit

Before the customer order is processed, the company should check their

17
customer’s creditworthiness. The process of credit checking includes the payment

history of the customer; those customers will not be able to purchase any goods

from the company once a limit is set and if their credit has exceeded the limit allowed

by the company. The customer will be only allowed to purchase once their previous

credit has been paid fully. The process of credit approval is an authorization

control and not be performed as a sales activity, from the beginning of the receipt of

customer order, this order should be send to check-credit task for approval, the

approved sales order is the only document which may continue the process of sales.

Others document needed in sales order are stock release, packing slip, shipping

notice and sales invoice.

c. Pick goods

In this part, a stock release document is needed to pick the goods in the

warehouse. This stock release document contains the items ordered by the customer

that should be picked from the warehouse. This document also contains an

authorization from the warehouse personnel to release those items. After the

process of picking the goods, the verified stock release documents are directed to

the shipping department. If suppose the amount of inventory in the warehouse are not

sufficient to meet the customer’s order, the stock release document prepared

previously should be adjusted to show the number of inventory that are actually

delivered to the customer, then the employee should prepare the back order record

which are used to back-ordered the material before the new sales order being made.

The warehouse personnel then update the stock records to show the reduction of

inventory from the warehouse, this is not a formal accounting method for recording,

18
but this process will help the warehouse personnel to know the actual inventory level

left in the warehouse.

d. Ship Goods

The shipping department receives a document named packing slip and shipping

notice before the goods and previously verified stock release document arrived. This

packing slip and the goods will be traveling together to the customer in which a

description about the order are written on the slip. A shipping notice is used as

evidence to the customer that their order has been shipped. Date of the shipping, the

name and the quantity of goods shipped, the name of the carrier, and freight charge

are written on the shipping notice. The shipping clerk should match the physical

items with the stock release, packing slip, and the shipping notice to make sure that

the order is correct. The shipping clerk has the responsibility to pack the goods,

attaching the packing slip on the goods and complete the shipping notice and prepare

a bill of lading. Bill of lading is a type of contract between the supplier and the

shipping carrier that the goods will be delivered to the customer. When the customer

has received the goods, the shipping notice is sent to the billing function which is used

to bill the customer.

e. Bill Customer

The customer is able to be billed as shipping is the last part of the economic event.

This can be started when the shipping process is complete, the supplier of the goods

will not bill the customer for a pending goods, for example in the case of back order,

the supplier will not bill the customer if the goods are out of stock, because billing for

the goods that are not shipped will create a confusion, reduce a good relationship

19
between business entity and also require additional work to adjust the accounting

records. To prevent this, before billing the customer, the shipping clerk should be

confirmed that the customer receive the goods, the bill customer function will receive

the sales order (invoice copy) from receive order task. This document is a pending file

until the shipping notice has been confirmed that the goods are already being

delivered to the customer. After the goods arrived, they are matched with the invoice

copy of sales order about the unit price, taxes and freight charge. The customer’s bill

is called as sales invoice which is normally sent to the customer to charge them for the

goods they ordered. Billing is also used to record the sales in the sales journal,

forward the ledger copy to update the accounts receivable, and send the stock

release document to update the inventory. The sales journal is used to record the

sales transaction after it completes, at the end of the process, all of the entries should

be summarized into sales journal voucher and record it into a general ledger. The

journal voucher systems prevent the unauthorized entry to the general ledger.

f. Update Inventory Records

The inventory subsidiary ledger is being updated based on the stock release

document. Every order by the customer which involves the stock release will reduce

the level of stock in the warehouse. The total reduction of inventory is updated

in the journal voucher which is then sent to general ledger.

g. Update Accounts Receivable

With the information from the sales order and ledger copy, the A/R records of the

customer can be updated. The accounts receivable subsidiary ledger

contains information about the customer’s name and address, current balance of the

20
 customer, available credit, and the date of the transaction, number of invoice, payment

credits, return and allowance. At the end, the individual account balances are

summarized into general ledger.

h. Post to General Ledger

The general ledger department received the journal voucher from the billing and

inventory control task. The general ledgers contain the summary figure and used to

prepare a financial statement, and provide useful information to verify the accuracy of

the journal voucher from the billing. By matching the general ledger with the accounts

receivable summary, it can detect errors dealing with the revenue cycle control.

2. Sales Return Procedure

There are several reasons that the company may experience a return in their sales.

Most company come to a perspective that there will be certain percentage that the

sales will be returned. The possible reasons of sales return are:

• The goods delivered to the customer is defective

• The goods delivered are not the goods desired by the customer

• There is damage during the delivery of the goods

• The customer refuse the delivery due to the timing ( certain delay in delivery

timing)

Based on Hall (2008) there are many steps that should be taken by the company if

they receive a return in their sales which are:

a. Prepare Return Slip

When the goods are returned by the customer, a return slip should be prepared.

21
The receiving departments are responsible to count, inspect and prepare the return

slip. After the return slip is prepared, the goods and the return slip will be

directed to the company’s warehouse to be restocked while a copy of the return slip

will be sent to the sales function for the preparation of the credit memo.

b. Prepare Credit Memo

When the sales employee in the sales function receive the return slip, the sales

employee is responsible to prepare credit memo. This credit memo contains the

authorization that the customer will receive a credit for their returned goods. In some

instance, the credit memo may be directed to the credit manager for approval if

authorizations are needed, but sometimes the clerk are able to approve the return as

they are given the authority to do so, then the credit memo are able to be sent directly

to the billing function where the sales transaction will be reversed.

c. Approve Credit Memo

Not all of the credit memo sent to the credit manager will be approved. The credit

manager will check the circumstance or the reason of the return and make a judgment

whether the memo will be approved or not. If according to the credit manager is

fair, then the approved credit memo will be sent back to the sales department for

further process.

d. Update Sales Journal

When the sales department received the approved credit memo, the transactions

are recorded as a contra entry in the sales journal. Then the approved credit memo is

being sent to inventory control department for the purpose of posting. While at end of

22
the process, the number of sales returns are totaled and summarized in journal voucher

and sent to general ledger department.

e. Update Inventory and AR Records

The inventory records are adjusted by the inventory control function and the

credit memo are sent to accounts receivable to adjust the customer’s accounts. The

journal voucher which contains the summarized total value of inventory returns

and AR accounts summary are sent to the general ledger task (Hall, 2008)

f. Update General Ledger

Reconciliations of the journal voucher and account summary.

3. Cash Receipt Procedure

For the sales done by credit, it requires several period of time for the customer to

complete their payment according by the regulation set by the supplier. The cash

receipt procedure involves collecting the payment from the customer, deposit it into

bank account and record this event in the accounts.

a. Open mail and Prepare Remittance Advice

The envelope containing the payment and remittance advice from the

customer is opened in the mail room by the employee. The information in the

remittance advice is payment date, account number, amount paid and customer check

number. This remittance advice is very important to a company because it process a

huge volume of cash receipt daily. The remittance advice and the check are sent to the

administrative clerk who mark the check as “For Deposit Only” and reconcile the

related check with the amount in the remittance advice. Every check received is

23
recorded in the remittance list where all cash received are recorded. In this time, a

three copies of remittance list is prepared by the clerk, the original copy are sent with

the check to the record and deposit check function, the second copy are sent with

the remittance list for updating the AR function, and the last copy is for the purpose

of reconciliation.

b. Record and deposit checks

The cash receipt employee has the responsibility of verifying the accuracy and the

completeness of the checks against the prelist. There might be a possibility of losing

the check in the mail room and the deposit check function, therefore the reconciliation

of the prelist to check must be done. After the reconciliation process has been done,

the check are recorded into cash receipt journal (all cash receipt include cash sales,

cash received on account and other cash receipt method). After all this method is

done, the clerk prepares a deposit slip which shows the day of the receipt and sends it

to the bank for the deposit (Hall, 2008).

c. Update accounts receivable

The second copy of the remittance advice prepared by the clerk is sent to this

function for the purpose of updating the AR subsidiary ledger. The updated or

adjusted account balances are summarized and used to update the general ledger.

d. Update general ledger

The general ledger is updated after the journal voucher and the account summary

is received. This general ledger function reconcile the figure, post to the cash and AR

control accounts and files the corresponding journal voucher.

e. Reconcile cash receipts and deposits

24
 The clerk from the controller’s office reconcile the cash receipt periodically by

comparing the following documents 1) copy of prelist 2) deposit slips received from

the bank and 3) related journal voucher.

II.5.2 Control Overs Revenue Cycle

1. Transaction Authorization

The main purpose of this control is to make sure that all material transaction

processed within the system are valid and not manipulated. There are three systems in

this control which are (2009):

• Credit Check

The purpose of this system is to make sure that the credit policy of the firm is

followed. The most concerned part of this system is the creditworthiness of a

customer and the policies are varying in every company.

• Return Policy

The credit department have a responsibility to process the sales return as well,

the approval of the returns are based on the circumstance of the return.

• Remittance List (Cash Prelist)

The stated cash prelist gives a proof that the remittance advice and the customer

check are match in their amount.

2. Segregation of duties

One of the most important parts in the revenue cycle control is segregation of

duties which aim in eliminating any illegal work by the employee. This control

ensures that no individual or department process a transaction in its entirety (2008).

25
II.5.3 Best Practices of Internal Control of Revenue Cycle

Business environment nowadays is unpredictable and firm should be ready for

anything that could happen, and an “enhancements in revenue cycle management can help

providers tackle new market realities” (Buysman, 2010). However, the task of deciding

what and which changes are to make can be a dilemma for a firm. To address this issue,

Loren Buysman had listed and explained five attributes that describe a good revenue cycle

management system, which are:

1. The Ability to Provide Real-Time Information

Real-time information access enables providers to make necessary interventions

within the revenue cycle in time for their actions to make a difference. Moreover,

this type of access can improve relationship with customers.

2. Expectation-Based Workflow

Exception-based workflow is an automated process that can help staff to be more

focus on specific objectives that drives the highest value to the company. The

system will prioritize tasks and direct staffs to work on the highest monetary value

first, thus allowing staff to collect money owed to the company; while on the other

hand, making it possible to effectively utilize revenue cycle staff without constantly

running reports.

3. Features that Support Financially Aware

System to help minimize credit risk and also to let customers know what would

their financial obligations will be. Revenue cycle management system will help

indicates the customer’s ability to pay. With this information, staff can create

alternate for that particular customer, such as decreasing the orders allowed for the

26
 particular customers to half or to the level where it is certain that the customers could

handle.

4. Virtual business office functionality

Virtual business office functionality can be used to organize customers’ payment,

in case of consumer good company. The revenue cycle management provides

continuous payment processing and editing, eliminating the need for subsequent

payments scrubbing down the line. The credit payment claim is submitted

immediately instead a few days after the transactions, which are the typical time lag

in the traditional systems.

5. Functionality that Supports and Enhanced Online Consumer Experience

In consumer’s good industry, easy access to integrated information can help

customers or distributors to gain information regarding prices and credit terms that

will help them to manage their finances beforehand. Examples of information that

can be offered are pricing and quality transparency, expense estimation, electronic

funds transfer, and online bill pay.

II.5.4 Improvement of Revenue Cycle

Risk and problems in revenue cycle mostly lies on the pre and post transaction

with the customer. It could be prices given, credit, delivery, and collection. Some of the

most common events are the unauthorized discounts to certain customers, additional credit

time for customers which have bad credit risk, miss record of transaction, and more

importantly incapable of credit collections from the customers. A good flow of payment

can optimize the firm’s margins, and to have a good flow, “the entire revenue cycle must

27
function at peak performance, otherwise the revenue cycle can leak revenue at various

stage of the process” (Clark, 2008). Therefore, the cycle should have a very strong

system to support it. Based on Jonathan Clark’s theory, there are four steps method to

strengthen the revenue cycle and optimize payment. Those steps are:

1. Establish and track the right key performance indicators for each department.

2. Implement the proper organizational structure for the overall revenue cycle

3. Hire outstanding and high performing leaders

4. Implement efficient processes throughout each department

II.5.5 Threats and Controls in the Revenue Cycle

(Romney, Marshall B. & Steinbart, Paul John., 2003)

Process Threat Control Procedures

Sales Order Entry 1. Incomplete / 1. Data entry checks

inaccurate customer
orders
2. Credit Sales to poor 2. Credit approval by
credit customers manager, not by
sales function
3. Legitimacy of orders
3. Signature on paper
document
4. Stock outs, carrying
4. Inventory control
costs, and markdowns
systems

28
Shipping 5. Shipping Error: 5. Reconciliation of
Wrong merchandise Wrong sales order with
quantities Wrong address packing slip

6. Theft of inventory 6. Restrict physical

access to inventory

Billing & A/R 7. Failure to bill 7. Separation of

customers shipping and billing
functions

8. Billing errors 8. Data entry edit

controls; price list

9. Posting errors in A/R 9. Reconciliation of

subsidiary A/R
ledgerwith general
ledger

29
Cash Collections 10. Theft of cash 10.Segregation of
duties, minimization
of cash handling

General Control Issues 11. Loss of data 11. Back up and

access control

12. Poor performance 12. preparation and

review of performance
report

Table II.1 Threat and Control of Revenue Cycle

30
 Chapter III

DATA PROCESSING METHOD

III.1 Data Collecting Method

During November 2013 – January 2014, the writer did an observation at PT.

ABC. In this thesis, the writer chooses to apply qualitative method to do the writing

because the writer does the evaluation as doing the audit. All data is collected and

processed through several procedures or processes, such as, inquiries of the clients,

observation, documentation, analytical procedure, re-performance, and physical

examination. The writers only uses four types of evidences, there are:

III.1.1 Inquiries of Client

In this method, the writers will do the direct interview to the employee to get the

information about the company being researched.

The respondents that being interviewed by the writer are:

1. Marketing Department

2. Accounting Department

3. Finance Department

4. Warehouse Department

5. Production Department

31
III.1.2 Observation

For observation, the author is accompany by the managers and seeing directly the

actual activity and practices in the company and compared it with the best practices that

the author get by doing library research.

III.1.3 Documentation

Documentation method is the process of tracking down evidences either internal

or external evidences of transactions or activities being evaluate. The documents that the

writer gets from the company are:

1. Job Description

Job description will give the writer information about any kind of job that need to

be done for each employee in the company.

2. Organizational Structure

To know more clearly who authorize the documents in the company. By

understanding the organizational structure, the writer will find out whether the

process has an appropriate authorization documents process.

3. Company Profile

The purpose of company profile is to give a big picture about the company`s

history. This document provides information about what kind of business that the

company runs, company`s vision and mission, and the founder of the company.

4. Sales Invoice

5. Costumer Order

6. Sales Order

7. Bill of Lading

8. Transactions policies and procedures

32
III.1.4 Analytical Procedures

After inquiries of the client, observation, and documentation the writer does the

analytical procedure. The purpose of an analytical procedure is to see whether there is a

gap between the actual practices with the evidence.

III.2 Company Existing Condition

III.2.1 Company Profile

PT. ABC located in Jl. Kapuk Kamal 3, North Jakarta. PT. ABC is a

private furniture which is active in selling and exporting sofas and tables toward

countries around the world. Their company has gain confidence and respectful

acknowledges from their buyers.

Focus on excellent service and maintain high standard quality control

starting from material selection, handling, until delivery, they provide the finest goods to

the costumers. They deliver their products to New Zealand, Australia, Kuwait, United

Arab Emirates, Saudi Arabia, etc.

III.2.2 Company`s Vision and Mission

Vision:

This company has a vision to become the leading company within their

field of business both in home and abroad countries and especially able to

compete with the international brands.

Mission:

 Deliver maximum customer value by continuously upgrading on

production facilities.

 Care for the environment.

33
  Create sustainable development by the incessant pursuit of product quality

and production efficiency.

III.2.3 Company`s Organization Structure

General
Manager

Operating
Manager Production Accounting HRD & GA
Manager & Finance Manager
Manager
Supply Marketing
HRD GA Staff
Manager Manager Production Staff
Staff
Accounting
& Finance
Supply Marketing Staff
Staff Staff Warehous
e
Figure III.1 Company`s Organization Structure

III.2.4 Job Description PT. ABC

a. General Manager

Basic function of General Manager are providing professional services on the

functions of planning and managing the business unit and as a minimum, to

achieve the revenue, profit & cash budgeted through generating and securing

opportunities from new and existing clients and also provide strategic and

leadership planning to achieve their vision and mission.

b. HRD & GA Department

Basic functions of HRD & GA Department are providing professional

supports and services on the Human Resources General Affairs and

34
Administrations. By giving training to a new employee, evaluate the employee`s

performance, and recruiting new employee.

c. Accounting & Finance Department

The functions of finance and accounting department are administers all

financial transactions; those functions to monitor, check and record both Account

Payable and Account Receivable, as well as, other documentation. It is mainly to

comply with the accounting standards and law or regulations of the governments.

d. Production Department

The functions of production departments are to check the product quality that

been produce to comply with the company standard, maintain the product

standard, reassure the production can handle are quota needed and finish within

the deadline. Checking all the machinery that used to confirm there is no defect

machine.

e. Operating Department

Operating department which include supply and sales staff has different

functions, supply staff basic functions are to check the raw materials that used

are comply with the company standard, maintain the raw material standard, and

maintain the relationship with the current supplier. Sales staff has functions to

make sure that they can reach their target sales, seeking new clients for the

company, provide an advertising strategy, and satisfy the costumers or buyers.

35
III.2.5 Revenue Cycle in PT. ABC

a. Receive Order

When the customer wants to purchase goods from this company, the

customer will send their purchase order to this company. The customer’s

purchase order consists of the customer’s name, the type of goods desired, the

quantity of the goods needed, and the price of the goods. The general manager is

the one who responsible to approve any incoming or outcoming order. The

approval takes place by signing on the purchase order which indicates that the

desired goods by the customer can be fulfilled. After the approval by the

general manager, the signed customer order is being sent back to the customer

via fax to inform them that their order will be fulfilled. The process of delivery

may take several days depending on the quantity of the goods. Customers who

wish to check the status of their order may contact this company via telephone or

by email.

b. Check Credit

In ABC, there is no credit check process, since the customer is an old

customer, so this company has trusted them and there is no need to check their

credit history.

c. Pick Goods

PT. ABC does not have a formal document to release the stock from the

warehouse. They just use a memo or phone to call the warehouse department

indicating how many goods should be delivered to a specified customer.

36
d. Ship Goods

After the process of picking up the goods, the goods are ready to be shipped,

the warehouse manager prepare a document named a packing slip. This

document contains information about the customer’s name, the date of the

shipment, the type of the products and the quantity of the products. The goods

with the packing slip and delivery order document will travel along the goods to

the customer. When the goods arrived to their destination, the customer’s

personnel will check the quantity and the type of the goods arrived, if the

order is correct, then the Delivery order should be signed by the customer’s

personnel to indicate that PTABC has shipped the goods according to the order.

A copy of the Delivery Order is given to the customer while the original copy

with a signature is taken back as a proof for the company that the goods have

been delivered, while the other copy is taken back as well to file it.

e. Bill Customer

PT. ABC has set a regulation that any payment must be completed within one

month from the sales made. The finance department is responsible to prepare an

invoice to bill their customer, preparation of the invoice need a copy of Delivery

Order document that has been signed by the customer.

f. Update Inventory Record

During the picking up of goods from the warehouse, the warehouse

personnel update the inventory level to show a reduction in their inventory.

g. Update Accounts Receivable

The accounting department in this company is responsible to update their

customer’s account receivable after the payment has been completed.

37
h. Post to General Ledger

The updated inventory level and customer’s accounts receivable is posted to

the general ledger for the preparation of the other company’s financial statement.

Figure III.2 Flowchart of Sales Order Procedure in PT. ABC

38
III.2.6 Sales Return Procedure

a. Prepare Return Slip

When there is a return from the customer, the customer prepares a return slip

describing the reason of the return and the quantity of the goods returned. After

PT. ABC receives the slip, the sales department of this company will see through

the description of the slip and decide whether they will grant the return or not

according to the company’s rules and regulation of return.

b. Prepare Credit Memo

There is no credit memo in this company; they only use an internal memo to

be sent to the warehouse department after the sales department has granted

the return and the goods can be repaired and can be sent to customer again.

c. Approve Credit Memo

Since there is no credit memo, so there is no need for the approval of the credit

memo.

d. Update sales journal

The sales journal is not updated since the returned goods will be repaired

and sent back to the customer.

e. Update Inventory and A/R Records

The inventory level should be adjusted once there is restock goods but since

the goods will be repaired and sent back to the customer, there is no need to

update the inventory level and A/R records.

39
Figure III.3 Flowchart of Sales Return Procedure in PT. ABC

40
III.2.7 Cash Receipt Procedure

a. Open Mail

There is no mail room in PT. ABC, there is only a cashier, and so if the

customer wants to pay by giro or check, they can pay it to the cashier. While the

customer are able to pay by transferring directly to this company’s bank account.

b. Record and Deposit Checks

The giro or the check received from the customer will be directed to the bank

along with the deposit slip.

c. Update Accounts Receivable

After PT. ABC receive the confirmation from the bank through a copy of

deposit slip, that copy or signed deposit slip is directed to the accounting

department to adjust the customer’s A/R records.

d. Update General Ledger

The general ledger is updated after the A/R records are adjusted.

e. Reconcile Cash Receipts and Deposits

Frequently this company does a checking through their bank account to

check the amount of cash receipt during the weeks or months.

41
Figure III.4 Flowchart of Cash Receipt Procedure in PT. ABC

42
 Chapter IV

Findings and Discussion

This chapter will discuss the whole analysis of the revenue cycle and the internal control

of PT. ABC. The discussion will include the current system of the revenue cycle of this

company, the suggested system by the author that might help this company to achieve a better

performance in the future based on the Accounting Information System standards, the

weaknesses of this company’s current system and also the benefits for this company in

implementing the new suggested system by the author for the revenue cycle and the

internal control.

IV.1 Weaknesses relating with Documents

There are several weaknesses found by the author during the process of this thesis. Some

documents are not found during the process, which may increase the possibility of fraud

happened in this company. Those weaknesses are:

• The Absence of Stock Release Document.

When the author doing observation in the company`s warehouse, this company does

not have a formal stock release document to record the inventory flow. Without the

document, PT. ABC will not have a record about the released inventory and a potential

fraud might occur.

• The Absence of Credit Check

Normally, before approving costumer`s order, a company should have a credit check

to consider whether the company can accept the order or not, but when the author doing

43
 the interview the author find that PT. ABC doesn’t check their costumer`s credit data. By

not doing the credit check, PT. ABC will not know their costumer`s credit history

payment, even if the company has trusted their costumer, they should always check their

credit status before approving the order to minimize the risk of bad debt.

IV.2 Sales Order Procedure Weaknesses

The weaknesses in the sales order procedure was found in two categories which are the

transaction authorization and the segregation of duties. The rest of the control categories are

quite good as the control needed are found in this company.

• Segregation of Duties

Based on the internal control standards, the one who has the authority about the

inventory level must be separated with the one holding the inventory records. To

prevent this, all records should be done by one person, say the accounting department.

The possibility of fraud also increases if it is not separated. But the author finds that PT.

ABC the warehouse personnel also hold a record of the inventory level in the warehouse

when the author does observation in the warehouse.

IV.3 Cash Receipt Procedure Weaknesses

The weaknesses in the cash receipt procedure was also found in the two categories of

control which are the same as the sales order procedure, the control weaknesses are also in the

transaction authorization and segregation of duties.

• Segregation of Duties

When the author doing observation for the cash receipt procedure, the author find out

that PT. ABC has a cashier which is responsible to handle the payment from the customer
44
 by Giro/Check/Cash and send to bank for approval and deposit also.

IV.4 Suggested Form of Internal Control

IV.4.1 Sales Order (Implementing AIS Standards)

• Credit Check Should be Done Before Approving Customer’s Order

As mentioned previously, PT. ABC does not perform a credit check during the sales

order due to the trusted customer. A credit check is important to any company as it tells

us about the payment history of certain company. Even though credit worthiness is

given to every customer, a credit check task must be done before approving the

customer’s order. By having a credit check task before approving the customer’s order,

this company will notice their customer’s credit history and make sure that their

customer does not exceed their credit limit given by the company. This is also done to

reduce the possibility of bad debt by the customer, by not knowing their customer’s

credit history and enable them to purchase as much as they demand will increase the

business risk, if suddenly their customer goes bankrupt, it will cause the company to

suffer from loss as well because their customer might not be able to pay their credit

owed.

• Stock Release Document should be Present

Instead of using a non-formal memo to pick up goods from the warehouse,

PT. ABC should adapt the use of stock release document to minimize the risk of fraud

to happen. A stock release document which is used to release stock from the warehouse

provides a better documentation and more formal business process than a memo. This

formal document indicates the quantity of goods that is actually release from the

warehouse and sent to their customer, with this type of control, the company will be
45
 having a formal records and the possible fraud might be reduced (type of fraud:

quantity of goods released do not match with the request).

• Inventory Level Records should not be Done by the Warehouse Personnel

Warehouse personnel must not have the authority to update the inventory level

in the warehouse, their work is only to maintain or keep the inventory in the warehouse.

The purpose of separating the person in charge to hold the inventory records will reduce

the possible fraud that might happen and according to Turner & Weickgenannt in 2009,

the most risky physical asset in a company is the inventory and cash, the rule is that one

which has custody to physical assets should be separated from the record keeping.

IV.4.2 Suggested Sales Order Procedure

The author suggests this type of sales order procedure:

• When PT. ABC received an order through the purchase order, this company should

check their customer’s credit records. This could be done by sending the order to

the credit department to perform the task. If the credit clerk has approved the order,

this indicates that the customer has not exceeded their credit limit set by this

company.

• After the credit has been approved by the credit department, then the order must be

given to the vice director for the approval and sending the document back to the

customer which indicates that the order will be fulfilled.

• The sales department should prepare a formal document called the Delivery

Order and stock release document, this stock release document is to be sent to the

warehouse for the release of goods. This document will contain the type of goods

46
 and the quantity of goods to be released from the warehouse and this document

should be sent to the accounting department for updating the inventory records.

Then the sales department will then prepare a delivery order to be sent along with

the goods to the customer.

• After the goods are picked from the warehouse, the goods can be sent to the

customer. The delivery order document is carried by the truck driver and when the

goods reached the customer, the delivery order should be signed by the receiving

personnel of the customer. The signing on the delivery order indicates that the driver

has safely ship the goods and the customer has received the goods, one copy of the

delivery order is given to the customer as a proof.

• The original signed delivery order is taken back by the truck driver, and be given to

the finance department of this company for the preparation of invoice to bill the

customer for the goods shipped.

• Should the payment is done by the customer, and the company has checked the

account balance in the bank, the proof from the bank is used by the accounting

department as well to update the customer’s AR records and the general ledger.

47
Figure IV.1 Suggested Flowchart of Sales Order Procedure (Implementing AIS)

48
IV.4.3 Suggested Cash Receipt Procedure

As mentioned previously, the weaknesses identified by the author in the cash receipt

procedure is the lack of segregation of duties since the customer of this company is also able to

pay by cash, there is a potential fraud that might happen in the procedure. The person in charge

of holding the cash in the cashier might use the cash before depositing it to the bank, as

nobody will know that the payment has been made by the customer before it is deposited to the

bank. Differently if the payment made by Giro/Check, there will be less risky than the payment

made by cash as the company’s name receiving the payment is written on the Giro/Check and

therefore other people could not have the amount except the company.

To make sure that this potential fraud does not happen, person who receive the

payment and deposit it to the bank should be separated. The finance department can be the one

who deposit the payment to the bank, so the cashier is only responsible in receiving the payment

from the customer and the payment will be directed to the finance department for the

reconciliation with the invoice before it is deposited to the company’s bank account and after the

payment has been deposited, the signed deposit slip from the bank is taken back and given to the

accounting department for updating their customer`s A/R record and the general ledger for the

preparation of other financial statement.

49
Figure IV.2 Suggested Flowchart of Cash Receipt Procedure (Implementing

AIS)

50
 Chapter V

Conclusion and Recommendation

V.1 Conclusion

This section will discuss the answer of the problems that presented in chapter

one. The conclusion will be taken from the result of data analysis in chapter IV which

already answering all the problems statement in chapter I. Based on the result in chapter

IV the researcher concludes:

1. Based on the researcher investigation, the company doesn`t have proper

segregation of duties. Because the warehouse personnel also hold a record of

the inventory level which is should be separated and also the cashier which is

responsible to handle the payment from the customer by Giro/Check/Cash and

send to bank for approval and deposit also which also should be separated as

well.

2. The company also doesn’t have proper sales order process because there is no

credit check since the company trusts its costumer.

3. The company doesn’t have proper formal documentation for release good

from the warehouse. When PT. ABC needs the good from its warehouse, PT.

ABC just use non-formal memo or phone to the warehouse to send the goods.

V.2 Recommendation

It is better for PT. ABC to implement Accounting Information System Standards

for Cash Procedure and Sales Order Procedure. Even though the performance of PT. ABC

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is quite good without implementing those standards, as it will also help this company to

increase its effectiveness and efficiency of the performance of PT. ABC and might also

increase the annual sales growth in the future. Especially it will reduce the potential

errors or fraud that might happen as well as in the sales order procedure area where the

researcher believed as the main problem area. Implementing those standards also can

minimize the possible business risk and maximize the company`s performance both

externally and internally to compete with other competitors of the same industry

(furniture) and to achieve PT. ABC mission and vision in the future.

52
 REFERENCES

Arens, Elder & Beasley. (2008). Auditing and Assurance Services an Integrated Approach
(12th edition). Pearson International Edition.

Clark, J. (2008). Strengthening the Revenue Cycle: 4 Step Method for Optimizing
Payment. Journal of Healthcare Financial Management. Vol 62. Pg 44-50.

Gay & Simnet (2003). Auditing and Assurance Services (2nd edition). Me graw Hill.

Hall, J.A, (2008). Accounting Information System (6th edition). Canada: Thomson South-
Western Cengage Learning.

Hinchcliffe, G. (2011). Accounting Information System – Introduction and Components,

International. Journal of Accounting Information System Vol 3. Virginia: Collins
Publishers.

Horngren and Harrison. (2007). Accounting (7th edition). Pearson International Edition.

Lin, P. (2006). System Security Threats over Accounting Information System. The CPA
Journal. Pg 30-32. A Publication of the New York Society of CPAs.

Melville, M. (2002). Fraud: Ways to Reduce the Risk of Management Fraud. A Journal of
Theory and Practice. Vol 2. Pg 57-60.

Romney, M.B., & Steinbart, P.J. (2006). Accounting Information System. Prentice Hall.

Weygant, Keiso, & Kimmel. (2008). Intermediate Accounting (12th edition), John Willet &
Sons Inc

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 APPENDICES

1. Interview Result – Finance Department

2. Interview Result – Marketing Department

3. Interview Result – Accounting Department

4. Interview Result – Warehouse Department

5. Interview Result – Production Department

6. PT. ABC`s Confirmation Letter

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Finance Department:

1. Is the owner of the company also involved in the daily management?

Yes, the owner is also the General Manager of the company.

2. What other documents being produce to be sent to the customer besides

invoice?

Besides the invoice, tax invoice and also the proof of payment (Kwitansi)

are also sent to the customer.

3. What happen after customer is billed?

Once the invoice has been sent to the customer, a copy of the invoice is

sent to the accounting department for updating the accounting records.

4. What happen when the Giro check is due?

Once the Giro check is due, the check is taken out of the locked

drawer and passes on to the cashier to be deposited.

5. Who prepare the deposit slip and deposit the giro check to the bank?

We have a cashier that handle the payment from the customer by

Giro/Check/Cash and send to bank for approval and deposit also.

6. Are there remittance advice and remittance list?

No, the use of remittance advice and remittance list is not necessary.

7. Who updated the accounting records after the Giro/Check is deposited?

The accounting department

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Marketing Department:

1. What are the steps upon receiving the customer order?

The customer order is copied and fax to the accounting department.

2. Is there customer credit checking?

No. All customer orders are put on hold until they passed the credit checking.

3. What are the documents prepared from the customer order?

By using the information in the customer order, internal memo is

being prepared.

4. Who prepare the internal memo?

Marketing manager

5. Where the internal memo being sent?

The internal memo is fax to the warehouse department.

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Accounting Department:

1. What are the criteria for credit checking in this company?

There is no credit checking in this company, since our customer is an old

customer, so this company has trusted them and there is no need to check

their credit history.

3. Who prepare and authorize the sales invoice?

The finance manager prepares and authorizes the invoice.

4. What happen after receiving the invoice from the finance department?

Together with the sales order file, accounting records are being updated.

5. What are accounting records being updated?

Sales journal file, inventory subsidiary ledger file, accounts receivable

subsidiary ledger file, and the general ledger file are being updated.

6. Where the accounting records are kept?

Accounting records are kept on the computer using the accounting software.

8. Is there any security access into the accounting software?

Yes, the access into the accounting software is guarded by password.

Only person involved are given the password to access the accounting

software.

9. What are the functions of the password?

The password of the finance person will only give access to the finance

record (cash receipts journal file). For the accountant, only accounting

records are accessible.

10. Is the password enabling the accessor to access all the accounting records?

No, all password gave the holder different access into the accounting software.
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Warehouse Department:

1. After receiving order from costumers, what happen next?

Internal Memo is being prepared.

1. After receiving internal memo, what happen next?

Inventory requested is being picked from the warehouse.

2. When the inventory being taken out of the warehouse, is there

any documentation?

No, there is no other documentation for release goods except internal

memo.

3. Is the person updating the inventory level also holding the inventory

records?

Yes.

4. Who have the authorization for updating the inventory level and holding the

inventory record?

Warehouse Manager

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Production Department:

1. What happen after receiving the order from costumer?

Packing slip and internal memo is being prepared.

2. Who prepare the packing slip?

The manager of production and warehouse

3. Who authorize the packing slip?

The manager of production and warehouse

4. Who prepare and authorize the bill of lading?

The manager of production and warehouse

5. What happen to all the documents prepare?

The packing slip and the bill of lading is passed to the carrier together with

the goods to be shipped to the customer. One copy of the blind packing slip

is faxed to the marketing manager to be reconciled with the customer order

document.

6. Is there shipping notice document?

No, there isn’t.

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 PT ABC

COMPANY’S CONFIRMATION LETTER

Here with, I am :

Name : Tjun Lie

Function : Warehouse Manager
Company : PT. ABC
Address : Jl. Kapuk Kamal No. 3, North Jakarta, Indonesia

confirms that:

Name : Lie Jimmy Buntaran

Student ID : 008201000110
Faculty/Major : Economics / Accountancy
Universitas : President University

has done his/her research in our company in order to write the skripsi, title :

”THE ANALYSIS OF INTERNAL CONTROL OVER REVENUE CYCLE (A CASE

STUDY IN PT. ABC)”

since November 5, 2013 until January 17, 2014 and has discussed with us the content of
his/her skripsi, including the findings and recommendations.

Jakarta, January 17, 2014

PT ABC

(_______Tjun Lie_______)
Warehouse Manager

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