Auditing in CIS Environment

Module 3: Revenue Cycle

MODULE III

TRANSACTION CYCLES
– REVENUE CYCLE

Module Author
JUDE CAPONPON, CPA, MBA, CTT

Accountancy Department
De La Salle College of St. Benilde - Antipolo

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TABLE OF CONTENTS

Contents
LEARNING OBJECTIVES:................................................................................................................................. 3
TODAY’S GOSPEL ........................................................................................................................................... 3
TODAY’S GOSPEL ........................................................................................................................................... 5
LESSON 2 SALES OR REVENUE CYCLE ............................................................................................................ 6
Objectives ................................................................................................................................................. 6
Introduction .............................................................................................................................................. 6
Activating Prior Knowledge....................................................................................................................... 7
Acquiring New Knowledge ........................................................................................................................ 8
Sales Process Overview in SAP Business One ....................................................................................... 8
Prerequisites ......................................................................................................................................... 8
Process .................................................................................................................................................. 8
Key Data in the Sales Process: Business Partners ............................................................................... 10
Application .............................................................................................................................................. 24
References: ................................................................................................................................................. 25

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LEARNING OBJECTIVES:
While going through the module, the students are expected to:
1. Write a brief reflection about the Gospel;
2. Answer the motivation question;
3. Understanding the SAP Business One on different transaction cycles;
4. Performing the revenue cycle and its controls in SAP Business One
5. Understanding the importance of revenue cycle in conducting an IT Audit

TODAY’S GOSPEL

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TODAY’S GOSPEL

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LESSON 2 SALES OR REVENUE CYCLE

Objectives
1. Understanding and enumerating the Standard Sales Process using SAP Business One
2. Performing the steps in the sales process using SAP Business One and different cases in
handling full and partial delivery, full and partial payment
3. Describing the effects of each sales process in the inventory items and accounting cycle

Introduction
The company has set customer satisfaction as its top priority and wants to streamline its
processes in sales to make sure that its customer’s demands can be met as quickly as possible.
When problems arise for the customer, you can quickly solve the issues by using documents such
as Returns and Credit Memos.

Sales Process

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Activating Prior Knowledge

The Purchasing module in SAP Business One:
1. Describes the documents and functions used in the purchasing process
2. Follows the changes in inventory during the purchasing process

Process
You can begin the purchasing process in SAP Business One by requesting quotations for items
or services from your vendors using the purchase quotation document. Once you have compared
the vendors' quotes and found the best offer, you proceed to ordering the goods. To order the
items or services, you create a purchase order document.

The next stage is the goods receipt PO. It is the stage when the inventory is received into the
company. The goods receipt is followed by an A/P invoice, which is the request for payment. It
is the only mandatory document in the purchasing process. It is possible to create the A/P invoice
without first creating a goods receipt PO or a purchase order.

In SAP Business One, you can create an A/P reserve invoice. This document is similar to a
purchase order but includes a request for payment. The A/P reserve invoice is used when a
vendor is concerned about the credit worthiness of his customers. In the purchasing process of
SAP Business One, it is possible to return goods to the vendor if, for example, the goods you
received were faulty. You can use a goods return if you based the return on a goods receipt PO or
an A/P credit memo if the return is based an A/P invoice.

You can create a new document based on one or more of the existing ones. When you create a
new document with reference to an existing document, only the documents that are still open are
displayed. All documents for which you have not created a follow-on document have an open
status. Open documents remain open until you transfer all items completely to the follow-on
document or until you manually close or reverse them.

Each document affects inventory quantities and some affect the general ledger. The purchase
order affects the available inventory quantity. The goods receipt PO increases the actual
inventory quantity. If you create an A/P invoice without reference to the goods receipt PO, it will
also increase the quantity in stock.

As far as accounting is concerned, the A/P invoice always creates an accounting transaction. It
records freight and tax and updates the vendor account with the new outstanding balance.

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The A/P reserve invoice only affects the available inventory quantity and creates an accounting
transaction.

The goods return reduces the actual inventory levels. The A/P credit memo reduces the actual
inventory levels and also creates an accounting transaction by applying negative amounts to the
previously invoiced accounts.

Acquiring New Knowledge

Sales Process Overview in SAP Business One
The sales process moves from issuing a sales quotation for goods to selling the goods (and
services) to delivering the goods to invoicing the customer for the goods. Each step involves a
document, such as a sales order or A/R invoice. SAP Business One moves all relevant
information from one document to the next in the document flow. You can adapt the steps
according to your needs and business processes.
Prerequisites
To avoid problems during document creation in later stages of the sales process, make sure that
the following key data is maintained correctly before you start creating sales documents:
1. Business partner master data, especially the customer's bill-to and ship-to address,
payment terms and dunning parameters
2. Item master data

Process
The sales process in SAP Business One entails creating the following documents:
1. Sales quotation. Before ordering, customers often require a sales quotation for review in
their company. You create it as a proposal of your goods and services to a customer or
lead. It does not result in any posting that alters quantities or values in inventory
management or accounting.
2. Sales order. The sales order is a commitment from a customer or lead to buy a product or
service. The document is important for planning production, creating purchase orders and
scheduling resources.
3. Delivery. You create a delivery note to indicate that the goods have been shipped.
4. A/R invoice. After you have delivered the goods or provided services, you bill the
customer using an A/R invoice. With this document, you request payment from your
customer and record the revenue in the profit and loss statement.

The invoice is the only mandatory document in the sales process. You can create one without
first creating the other three.
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For legal reasons, you cannot delete deliveries and A/R invoices or change any accounting-
relevant data on these documents if they have been already entered in SAP Business One.

Additional Process Documents

Each of the following documents has a specific purpose in the sales process.
1. A/R reserve invoice. Used when a company is concerned about the credit worthiness of
its customer. In this case, the company demands payment before any delivery of items to
the customer.
2. Return. A corrective clearing document used to credit a customer if the goods were
delivered but no A/R invoice was issued
3. A/R Invoice + Payment. Document for cash sales to one-time customers. SAP Business
One treats an A/R invoice + payment document the same way as an A/R invoice. The
corresponding journal entries in accounting and inventory are processed automatically
after the document is posted.
4. A/R credit memo. Used to credit a customer if the goods were delivered and an A/R
invoice was issued

It is possible to create new documents based on existing ones. When you do so, only the
documents that are still open are displayed. Open documents:
 Are those for which you have not created a follow-on document
 Remain open until you transfer all items completely to the follow-on document, or until
you manually close or reverse them

Effects on inventory quantity and the general ledger

Each document updates the inventory quantities and the general ledger in the following ways.
 A sales order affects the amount of inventory committed to a customer and, therefore, the
available inventory quantity.
 A delivery reduces the inventory committed and the in-stock quantities. Furthermore, it
affects the general ledger, if SAP Business One manages the perpetual inventory. In such
a case, the delivery reduces inventory valuation and posts a cost of sale.
 An A/R invoice created without reference to the delivery also reduces the quantity in
stock. An A/R invoice always creates an accounting transaction. It records the revenue
and tax, and it updates the customer accounts with a new outstanding balance.
 An A/R invoice + payment reduce the quantity in stock and record the revenue and tax.
 An A/R reserve invoice affects the amount of inventory committed to a customer and,
therefore, the available inventory quantity. It also creates an accounting transaction.
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 A return increases the in-stock quantity and updates the associated inventory accounts.
 An A/R credit memo increases available inventory levels and creates accounting
transactions. It credits the customer accounts in the general ledger and corrects the
revenue account by the same amount.

Key Data in the Sales Process: Business Partners

There is a common structure for all business partners used in sales and purchasing refer to the
marketing documents discussion.

Business partners used in the sales process are as follows:

1. Leads – used on pre-sales documents or sales orders, not on deliveries or invoices

2. Customers – used on any sales document. Convert leads to customers when they buy

Defaults are set at the company level for business partner details such as

a. Currency
b. Payment Terms
c. Credit Limit
d. Price List

Items

 Items represent products to be sold

 Item information is stored in the item master record
 You can type codes directly into a sales document rows or search for items by description
or other item attributes

The sales process in SAP Business One begins with Sales Order. The sales order affects the
amount of stock committed to a customer and, therefore, the available stock quantity.
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The delivery reduces the stock committed and the in-stock quantities. The delivery affects the
general ledger, if SAP Business One manages the perpetual inventory. In this case, the
delivery will reduce stock valuation and post a cost of sale.

The A/R invoice is created. It is the only mandatory document in the sales process. It is possible
to create an invoice without first creating a delivery, a sales order, or a sales quotation. If the
A/R invoice is created without reference to the delivery, it will also reduce the quantity in stock.

It records the revenue and tax and updates the customers’ accounts with a new outstanding
balance.

Incoming payments are the last step in the basic sales process, even though they are a
function in Banking. Posting an incoming payment receives the payment from the customer.

Additionally, it is possible to credit a customer for damaged goods. The returns document is be
used to credit the customer if the goods were delivered but no A/R invoice was issued. Use the
A/R credit memo to credit a customer after an A/R invoice was already issued. For legal
reasons, you cannot change or delete deliveries and A/R invoices that have been already entered
in SAP Business One. To correct these, use the clearing document, the returns.

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Sales Process

Sales Order

The sales order is a commitment from a customer or lead to buy a product or service. The
document serves as a foundation for planning production or purchase orders. Creating sales
orders does not post value-related changes in the accounting system. However, if the sales
order is created for items, the ordered quantities are listed in Inventory Management as reserved
for the customer. You can view the ordered quantities in various reports, such as the Inventory
Status report, as well as other windows in SAP Business One. This information is important for:
Optimizing ordering transactions and stockholding and ensuring that customer requirements are
dealt with quickly and satisfactorily.

Item Availability Check

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How to Create a Sales Order

1. Go to Modules Menu > Sales A/R > Sales Order. Sales Order window will open.
2. Input the following information on the Sales Order header:
Customer: C20000 (Norm Thompson)

Delivery Date: <date today>

3. Input the following information on the Contents tab

Item/Service Type: Item

Item No: A00001

Quantity: 3

4. Add.
5. Click the Last Data Record button on the Tool bar . Take note of the document
number.

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Item Availability Check. The Item Availability Check window will appear when the ordered
quantity is greater than quantity available. Thus, a Sales Order can be added but cannot be
delivered until the quantity available is already greater than the ordered quantity through
GRPO or when items are already produced.

Sales Order. For Inventory Management purposes, monitoring of items is usually done before
and after the process in order for the company to see the changes in the flow of the inventory
items. You can use either the link arrow beside the Item Code before adding the item or the
Item Master Data Sub-module under the Inventory Data Tab to check the current status of
inventory items.

Item Master Data After the Creation of Sales Order. Note that after adding the Sales Order,
the available quantity decrease while the committed quantity increases.

Delivery
The Delivery is a legally binding document indicating that the shipment of goods or the
delivery of services has occurred. Without this document, goods can be delivered only if an
invoice has already been created.

When you create a delivery, the corresponding goods issue is also posted. The goods leave the
warehouse and the relevant stock changes are posted. When the stock is changed, the values
in the accounting system change as well (only when you use perpetual inventory).

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Delivery. Use of COPY TO and COPY FROM can also be used in this process. Refer to
previous lesson on how to use the COPY TO and COPY FROM Options.

How to Create a Delivery document

1. From the Sales Order previously created, click ‘Copy to’ on the lower right portion of the
window.
2. Choose Delivery.
3. The Delivery document will pop up. Input the quantity delivered if there is partial
delivery.
4. Note that the base document reference is listed in the ‘Remarks’ field.
5. Click ‘Add’ button. Click ‘Yes’ when prompted that you can no longer change the
document once added.
6. Click Last Data Record.

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Accounts Receivable (AR Invoice)

The invoice is a legally binding document. When an invoice is received, the posting is made to
the related customer accounts in the accounting system. If a delivery did not precede the
invoice and you sell the warehouse items, stock quantities are also updated accordingly when
you issue the invoice.

If you create an invoice without reference to the delivery, the system automatically posts
changes to the stock. In other words, if a delivery already exists for the transaction and you
create an invoice without reference to this delivery, errors can occur in inventory management
because the delivery quantity is posted twice in the system.

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AR Invoice

Item Master Data After Creating an Invoice. Note that there is no movement in inventory
since the purpose of A/R Invoice is recognition of an asset (receivable).

How to Create an A/R Invoice

1. On the Delivery document, click ‘Copy to’ on the lower right portion of the window.
2. Choose A/R Invoice.
3. Contents of the Delivery document will copied to the A/R Invoice. Click Accounting tab
on the A/R Invoice window.
4. You can see here the Payment Means and Payment Method to see how payment will be
processed.
5. Add.

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Incoming Payments
Incoming payments are the last step in the sales process, even though they are a function in
banking.

How to Create Incoming Payments

1. Go to Modules Menu > Banking > Incoming Payments > Incoming Payments
2. Choose Customer in the code field. In this case, C20000 (Norm Thompson).
3. On the ‘Selected column’, check the invoice to be paid.
4. Click Payment Means on the tool bar.
5. Select the Payment Means (there are 4 options – Check, Bank Transfer, Credit Card,
Cash), in this case, choose cash.
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6. On the Total field, right click, select Copy Balance Due.

7. Click OK.
8. Click ‘Add’ and click Yes when prompted with the system message.

Relationship Map
1. Go to Sales A/R > A/R Invoice
2. Click Last Data Record
3. Right click then select Relationship Map then OK

Relationship Map using AR Invoice

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Points to remember in the Relationship Map:

1. A/R Invoice window is color yellow because the Relationship Map was generated using
the A/R Invoice

2. The yellow line below A/R Invoice signifies that the invoice on the 100 items delivered
was collected. Thus if partial collection was made, there will be a portion of red on the
line.

Overview of Incoming Payment.

Sale to One-Time Customers (AR Invoice + Payment)

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Posting in Sales Process for Inventory Items.

Document Flow in Sales

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Sales Documents and their properties

Stock Changes in Sales

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Function in Sales – AR

Sales Returns

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Credit Memo

Application
Instructions will be given during synchronous meeting.

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References:

Hall, J. (2016). Information Technology Auditing and Assurance, 4th Edition. South-Western:
Cengage Learning
IT Audit and AIS Quick Guides 2019 version by FIT Academy
https://learn.comptia.org/
https://help.sap.com/saphelp_sbo882/helpdata/en/45/0a572b37ca1f2ce10000000a1553f6/content
.htm?no_cache=true
https://help.sap.com/saphelp_sbo882/helpdata/en/45/0a574437ca1f2ce10000000a1553f6/content
.htm?no_cache=true
https://searchsap.techtarget.com/definition/SAP-Business-One
https://www.erp-information.com/database-management-system.html

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