The revenue and collection cycle involves a series of activities that businesses follow to generate revenue and collect payments. This cycle varies across industries, but for a typical manufacturing company that sells products on credit, the basic activities include:

Receiving and Processing Customer Orders (Including Credit Approval)

• Customers place orders through various channels (mail, phone, email, websites, or electronic data interchange (EDI)).

• Companies assess customer creditworthiness before approving sales.

• Credit approvals and limits are managed through customer credit files and reports.

Delivering Goods and Services to Customers

• Once approved, the company ships goods or provides services.

• A bill of lading (signed by the carrier) verifies goods were shipped.

• A packing slip is included with shipments, detailing the contents.

Billing Customers and Accounting for Accounts Receivable

• Once delivery is confirmed, a sales invoice is generated and sent to the customer.

• The sales invoice records the transaction in sales revenue and accounts receivable.

• Segregation of duties is crucial to prevent fraud—employees handling billing should not have control over inventory or cash.

Collecting and Depositing Cash

• Payments are recorded in cash receipts and reconciled with accounts receivable.

• Internal controls ensure that payments are applied correctly and deposited promptly.

Typical Source Documents:

• Customer Purchase Orders or Contracts – Initiate the sale.

• Credit Reports and Files – Assess creditworthiness.

• Shipping Documents (Bill of Lading, Packing Slip) – Verify delivery.

• Sales Invoices – Record sales and customer obligations.

• Accounts Receivable Records – Maintain balances due.

• Cash Receipts and Bank Statements – Track payments and deposits.

The cycle is structured to ensure completeness, accuracy, and legitimacy of transactions, while preventing fraud or misstatements​.