Audit Documentation of the Revenue Cycle Finance Coursework

The Revenue Cycle
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The revenue cycle entails transactions and activities that are done in a company’s activities meant to generate income by offering services and goods to customers. The revenue cycle consists of four main activities: (1) receipt of a customer’s order, (2) fulfilling customer’s order by providing services and goods, (3) billing customers, and (4) processing returns or collecting payments (like writing-off bad debts, returning sales and cash receipt) (Raymond, 2019).
Receipt of customer’s orders involves the client’s request for a good, product or service, either physically or via online means. Based on the agreement between the seller and buyer, the client can order on credit, pay in full or pay in installments. Fulfilling a customer’s order involves either giving the product or service instantly or ship online incase of internet-based transactions. Billing entails having the customer pay for a service or products while processing returns involves writing-off bad debts, returning sales and, cash receipts (AICPA, 2016).
Some of the follow up questions that clients may ask in regards to products and services involved in a revenue cycle include:
* How much does a product/service cost?
* How long will the product take to reach me if I order online?
* Is there a refund or return of sales in case the product is faulty?
* Does the product have a warranty?
* What is the scope of the service you are going to offer?
* Is the transactional agreement binding to both parties?
Because the timing for collecting and recording revenue may vary from field to field, the Financial Accounting Standards Board (FASB) lately under Generally Accepted Accounting Principles (GAAP) provided guidance and new standards that govern the processes and principles of recording revenue. According to FASB, the main principle that underlies the standards is that firms will “recognize revenue to mean the transfer of services or good to clients in volumes that reflect considerations expected by the second party in exchange for other services and goods.” FASB also has five steps that demonstrate the process of revenue recognition (Stephen, 2013). The steps are as below:
1. Identify a contract with a client
The contract can be implied, verbal or, written and should be in line with the ordinary practices of your business. The contract should show the rights and payment terms of your business and the customers associated with the services or goods to be transferred.
2. Identify all the performance obligations contained in the contract
Once a contract has been established, identify the promises also known as the performance obligations that you make to the customer. A performance obligation is a distin...