McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

Chapter 3

Operating Processes: Planning and Control

3-2

What are the Goals of the Revenue Process?• Provide customers with products/services

they want at a price they are willing to pay• Receive payment from customers in a

timely manner• Provide customer support before and after

the sale to ensure future sales

3-3

What are the 5 Primary Activities in the Revenue Process?• Determine marketing and distribution

channels to generate sales• Receive and accept orders for goods and services

Sales discounts 3/30, n/60

• Deliver goods/services FOB shipping versus FOB destination

• Who pays?• Receive payment from customers• Provide customer support

Sales returns and allowances

Generate Sales

• Companies use two important sources of information to determine which products and services meet customers needs

1. a marketing analysis of customer buying habits

2. surveys of customer preferences

Visa, MasterCard, American Express, Sears

Exercise 3-5 Answer• Eddie Bauer accepts Visa, MasterCard, Discover, and American

Express as well as its own Eddie Bauer charge cards. Assume that Visa And MasterCard charge a 1.8 percent processing fee while Discover and American Express charge a 3.5 percent processing fee. During the period, the following charge card sales occurred at a particular Eddie Bauer Store (no payments were made by customers).

• Visa 8,650• MasterCard 10,625• Discover 6,175• American Express 2,130• Eddie Bauer 25,843

• What is the net amount of cash received from charge sales during the period?

Answer

Answer to 3.5

• Visa (8,650 * 0.982) 8494.30• MasterCard ($10,625 * 0.982) 10,433.75• Discover (6,175 * 0.982) 5,958.88• American Express (2,130 * 0.965) 2,055.45

• Total 26,942.38

Receive and Accept Orders

• When an order is received the company must do two things

1. determine the credit and payment policies for the customer

2. determine if the goods are available.

Terms 3/30, n/601/15, n/30

Deliver Goods and/or Services

• Sales may occur where the customer is not present, such as a phone order

Shipping can be done on common carriers Shipping agreement is called a bill of lading.

• Sets out the rules FOB Destination--- legal title does not pass

until the customer receives the goods FOB Shipping point ---legally they belong to the

customer once the carrier picks them up.

Exercise 3.1

• E. 3-1• On Dec 29, 2009, Wolfe Company ships $100,000

of merchandise by common carrier to the Audio Midwest Company. The terms of the sale 2/15, n 30, FOB destination. It takes five days for the merchandise to arrive at Audio Midwest. Wolfe and Audio Midwest have December 31 year ends. Which company should report the merchandise on their balance sheet? Why?

Answer

Answer 3-1

• Title passes at the destination (buyer); therefore, Wolfe owns the merchandise at the end of the year.

Exercise 3-2

• Refer to E 3.1. What is the available sales/purchases discount? When is it available?

Answer

Answer 3-2

• The discount of $2,000 ($100,000 * 0.02) is available if Audio Midwest pays its bill within 15 days.

FOB Destination and Shipping

Deliver Goods and Services (con’t)

• When does the company recognize the sale of goods shipped goods on December 31, 2009?

FOB Shipping point FOB Destination

Receive Payment from Customer

• Sales Invoice It is important for the company to fill customer’s

orders completely, including back-ordered items.

Two copies of an invoice are often sent and the duplicate is returned with the payment as a remittance advice.

Prices of items on the invoice should be taken from an approved price list.

Sales Invoice

Provide Customer Support

• Free to customers Web site 800 numbers Sales returns Sales allowances

Revenue Process