The Revenue Cycle in Accounting Information Systems

by Sheila Shanker - Updated September 26, 2017

Managing cash flows is important for any business, and it's crucial for small businesses, where every penny counts. An accounting information system can only help in this process, which involves cash, inventories and sales details. A computerized system can give you information much faster than any manual accounting can, making it a valuable tool in managing cash and inventory levels.

Sales

Recognizing sales is the first step in the revenue cycle. The accounting system recognizes a sale as an increase in revenue along with and increase in cash or a receivable. In retail firms, inventories need to be decreased as well -- this type of transaction is automatically processed using a computerized system. Many firms adopt a point-of-sale software, which allows for items to be scanned, and data transferred to an accounting system in real time, a major benefit in managing cash and inventories.

Payments

Payments, closely monitored by management, increase cash flows. Depending on the type of business, payments may be in the form of checks, credit cards, cash, wires and fund transfers. These transactions are captured in the accounting system through manual journal entries or interfaces from other systems. Some companies have special receivables modules that recognize not only accounting data, but also details of sales, terms, contacts and other information. When a payment is received, the accountant enters the payment information in the module, which flows into the general ledger.

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Shipping

Shipping is a vital part of the revenue cycle. In integrated systems, shipping activities are reflected in the general ledger, mostly in the inventory area. The system posts all appropriate transactions behind the scenes, so that employees working in the warehouse don't need to know accounting to perform this activity properly. The shipping function is made up of two parts: picking an item from inventory and shipping. Bar codes are often used to speed up this process, documenting and decreasing inventory accounts.

Reports

An accounting information system can generate reports that are used by management to make decisions over financial matters. Some common reports are inventory level reports, trend analysis and receivables aging reports, which tell a manager who the debtors are, how much they owe and for how long. Actually, Wisconsin requires aging reports from certain government departments on a quarterly basis to monitor cash flows. Without a computer system, it would be very hard to produce these detailed reports in a timely and efficiently matter.

About the Author

Sheila Shanker is a certified public accountant based in California. She writes online courses for professionals seeking CPE hours and has also published the book "Guide to Non-profits: From the Trenches." Her articles have been published in national magazines such as the "Journal of Accountancy," "Architecture Business and Economics" and "Veterinary Economics." Shanker holds a Master of Business Administration.

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