ACN 2213-1 ACCOUNTING INFORMATION SYSTEM

CHAPTER 4: THE REVENUE CYCLE

3RD YEAR-1ST SEMESTER | A.Y 2024-2025

CHAPTER OUTLINE • Begins with the receipt of a customer order

I. Introduction indicating the type and quantity of
II. The Conceptual System merchandised desired
A. Sales Order Procedures • Orders may arrive by mail, telephone or field
B. Sales Return Procedures representative therefore there is no standard
C. Cash Receipts Procedures format or physical document.
D. Revenue Cycle Controls • Customer order will be transcribed into formal
III. Physical Systems sales order.
A. Basic Technology Revenue Cycle
• A copy of sales orde is placed in the customer
B. Basic Technology Sales Order Processing
open order file for future reference.
System
C. Basic Technology Cash Receipts System
• Customer record in the open order file is
D. Advanced Technology Revenue Cycle updated each time the status of the order
E. Integrated Sales Order Processing System changes such as credit approval, on back-
IV. Manual Systems order, and shipment
V. Revenue Cycle Risks and Internal Controls RELATED DOCUMENTS
VI. Point-Of-Sale (POS) Systems Captures vital information such as
A. Point-Of-Sale (POS) Control Issues the customer’s name, address, and
SALES account number; the name,
VII. Reengineering using EDI
ORDER number, and description of the items
VIII. Reengineering using the Internet sold; and the quantities and unit
prices of each item sold
INTRODUCTION
• Revenue cycle: Direct exchange of finished [2] CHECK CREDIT
goods or services for cash in a single • Customer’s creditworthiness needs to be
transaction between a seller and a buyer. established
• Credit approval process is an authorization
TIME LAG OF REVENUE TRANSACTION control and should be performed as a
PHYSICAL The transfer of asset or services from function separate from the sales activity
PHASE seller to buyer • The receive-order task sends the sales order
FINANCIAL Receipt of cash by the seller in (credit Copy) to the check-credit task for
PHASE payment of the accounts receivable
approval.
• Returned approve sales order triggers
THE CONCEPTUAL SYSTEM
continuation of sales process by releasing
SALES ORDER PROCEDURE
sales order information simultaneously to
• Task involved in receiving and processing a
various task
customer order, filling the order and shipping
products to the customer, billing the customer
[3] PICK GOODS
at the proper time, and correctly accounting
• Forwards the stock release document (picking
for the transaction.
ticket) to pick goods function in the
warehouse
• After picking the stock, order is verified for
accuracy and verified stock release
document are sent to the ship goods task.
• Warehouse employees adjust the stock
records to reflect reduction in inventory
RELATED DOCUMENTS
A document which identifies items of
inventory that must be located and
STOCK
picked from warehouse shelves.
RELEASE
Provides formal authorization to
DFD of Sales Order Processing System release specified items
SUMMARY OF SALES ORDER PROCESS When inventory levels are insufficient
BACK-
1 Receive Order to fill the order. Back-ordered items
ORDER
2 Check Credit are shipped before new sales are
RECORD
3 Pick Goods processed.
4 Ship Goods
5 Bill Customer [4] SHIP GOODS
6 Update Inventory Records • The shipping department receives the
7 Update Accounts Receivable packing slip and shipping notice from the
8 Post to General Ledger receive order function.
• Upon receipt of goods from warehouse,
[1] RECEIVE ORDER shipping clerk reconciles the physical items
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with the stock release, packing slip, and

shipping notice to verify that the order is [8] POST TO GENERAL LEDGER
correct • General ledger uses the journal vouchers to
• After packaging, attaching packing slip, and post control accounts
complete the shipping notice, shipping clerk • General ledgers contain only summary figures
will prepare bill of lading and require only summary posting information
RELATED DOCUMENTS • The information supports an important
Ultimately travel with goods to the independent verification control.
PACKING
customer to describe the contents of
SLIP
the order
SALES RETURN PROCEDURES
Will be forwarded later to the billing
SHIPPING function as evidence that • Only a certain percentage of its sales will be
NOTICE customer’s order was filled and returned because
shipped o Company shipped the customer the wrong
A formal contract between the seller merchandise.
and carrier to transport the goods to o Goods were defective.
BILL OF
customer. Establishes legal o Product was damaged in shipment
LADING
ownership and responsibility for asset o Seller shipped the goods too late or they were
in transit. delayed in transit.
• When return happens, buyer requests credit
[5] BILL CUSTOMER for unwanted products therefore this involves
• Shipment of goods marks the completion of reversing in the sales order procedure.
the economic event and the point at which
the customer should be billed
o Billing function awaits notification from
shipping before it bills.
• Upon credit approval, bill-customer function
receives the sales order (invoice copy) from
the receive order task.
• Document is place in an S.O. pending file until
receipt of the shipping notices.
• Upon arrival, the items shipped are reconciled
with those ordered and unit prices, taxes, and
freight charges are added to the invoice copy
of the sales order. DFD of Sales Return Procedures
RELATED DOCUMENTS SUMMARY OF SALES RETURN PROCESS
SALES The customer’s bill which formally 1 Prepare Return Slip
INVOICE depicts the charges to the customer. 2 Prepare Credit Memo
SALES Special journal used for recording 3 Approve Credit Memo
JOURNAL complete sales transactions. 4 Update Sales Journal
SALES Entries will be summarized in the sales 5 Update Inventory and AR Records
JOURNAL journal voucher which is sent to the 6 Update General Ledger
VOUCHER general ledger for posting.
[1] PREPARE RETURN SLIP
[6] UPDATE INVENTORY RECORDS • When items are returned, the receiving
• Inventory control function which updates the department employee counts, inspects, and
inventory subsidiary ledger account based on prepares a return slip
the information contained in the stock release • The goods (together with return slip) go to the
document. warehouse to be restocked.
• Each stock release document reduces the • The second copy of return slip is sent to the
quantity on hand of one or more inventory sales function to prepare a credit memo.
accounts
RELATED DOCUMENTS
• Financial value of the total reduction in A form filled out with information
inventory is summarized in a journal voucher RETURN
about the items that are being
SLIP
and sent to the general ledger function. returned

[7] UPDATE ACCOUNTS RECEIVABLE [2] PREPARE CREDIT MEMO

• Customer records in AR subsidiary ledger are • Sales employee will prepare credit memo
updated from information that the sales order upon receipt of the return slip
(ledger copy) provides. • If there is specific authorization required, credit
• Individual account balances are summarized memo goes to the credit manager for
in a report that is sent to the general ledger approval.
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• If the clerk has sufficient general authority, 1 Open Mail and Prepare Remittance Advice
then the credit memo is sent directly to the 2 Record and Deposit Checks
billing function where the sale transaction is 3 Update Accounts Receivable
reversed. 4 Update General Ledger
5 Reconcile Cash Receipts and Deposits
RELATED DOCUMENTS
The authorization for the customer to
CREDIT [1] OPEN MAIL & PREPARE REMITTANCE
receive credit for the merchandise
MEMO ADVICE
returned
• Opening of envelopes containing customers’
[3] APPROVE CREDIT MEMO payments and remittance advices
• Credit manager evaluates the circumstances • Remittance advice is a form of a turnaround
of the return and make a judgment to grant or document and important to those companies
disapprove credit. that process large volumes of cash receipts
• Manager will return the approved credit daily.
memo to the sales department • Mail room personnel route the checks and
remittance advices to an administrative clerk
[4] UPDATE SALES JOURNAL who endorses the check “for deposits only”
• Upon receipt of the approved credit memo, and reconciles the amount in each
the transaction is recorded in the sales journal remittance advice.
as a contra entry. • Records it on a remittance list (or cash prelist).
• Credit memo is the forwarded to the inventory • Copies of the document:
control function for posting o Original copy is sent with the checks to record
• At the end, total sales returns are summarized and deposit checks.
o Second copy goes with the remittance
in a journal voucher and sent to the general
advice to update the A/R function.
ledger department.
o Third copy goes to a reconciliation task
RELATED DOCUMENTS
[5] UPDATE INVENTORY & A/R RECORDS
A turnaround document which
• Adjusts the inventory records and forward the REMITTANCE contains information needed to
credit memo to A/R so that the customer’s ADVICES service individual customers’
account can also be adjusted. accounts
• Inventory control sends a journal voucher
summarizing the total value of inventory [2] RECORD AND DEPOSIT CHECKS
returns to the general ledger update task • Cash receipt employees verify accuracy and
completeness of the checks against prelist.
[6] UPDATE GENERAL LEDGER • After reconciling, employee will record the
• Upon receipt of the voucher and account check in the cash receipt journal.
summary information, the general ledger • Next, the clerk prepares a bank deposit slip
function reconciles the figures and post the showing the number of receipts and forwards
accounts. along with the check to the bank
• Bank teller validates the deposit slip and
CASH RECEIPTS PROCEDURES returns it to eh company for reconciliation.
• Involve receiving and securing the cash;
depositing the cash in the bank; matching the RELATED DOCUMENTS
payment with the customer and adjusting the A turnaround document which
DEPOSIT
contains information needed to
correct account; and properly accounting for SLIP
service individual customers’ accounts
and reconciling the financial details of the
transaction
[3] UPDATE ACCOUNTS RECEIVABLE
• Remittance advices are used to post to the
customers’ accounts in the A/R subsidiary
ledger and periodically summarized the
changes and forwarded to the general ledger
function

[4] UPDATE GENERAL LEDGER

• Upon receipt of voucher and account
summary, general ledger function reconciles
the figures, posts to the cash and A/R control
DFD of Cash Receipts Procedure accounts and files the journal voucher
SUMMARY OF CASH RECEIPTS PROCESS
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[5] RECONCILE CASH RECEIPTS AND DEPOSITS • Credit department is segregated from the rest
• Periodically, a clerk from the controller’s office of the process therefore formal authorization
reconciles cash receipts by comparing the of a transaction is an independent event
following documents: • Importance is when one considers potential
(1) Copy of the prelist conflicts in objectives between individual
(2) Deposit slip received from the bank salesperson and the organization.
(3) Related Journal Vouchers • By acting in an independent capacity, the
credit department may objectively detect
REVENUE CYCLE CONTROLS risky customers and disallow poor and
irresponsible sales decisions.

[2] Asset custody should be separate from the

task of asset record keeping
• Physical assets at risk in the revenue cycle are
inventory and cash therefore there is a need
of a separate asset custody from record
keeping.
• Inventory warehouse has physical custody of
inventory assets but inventory control (is an
Summary of Revenue Cycle Controls
accounting function) maintains records of
inventory levels.
TRANSACTION AUTHORIZATION
• Cash receipt depart takes custody of cash
• Objective is to ensure that only valid
asset while updating AR records (is an
transactions are processed.
accounting function) responsibility.
• Accounting functions report to the controller
APPLICATION TO THE THREE SYSTEMS
• Credit department function
[3] The organization should be structured so
• Ensures proper application of
credit policies
that the perpetration of a fraud requires
• Principal concern is the collusion between two or more individuals.
creditworthiness of the customer • Record-keeping tasks needs to be carefully
CREDIT
CHECK
• Credit decision falls within sales separated especially the subsidiary ledgers,
employee’s general authority journals, and general ledgers
• Complexity depends on the
• By separating these tasks, collusion must
organization, relationship with the
customer and materiality of the involve more people, which increases the risk
transaction. of detection and therefore is less likely to
• Credit department function occur.
• Authorizes the processing of sales
returns SUPERVISION
• Approval is based on the nature of
RETURN the sale and circumstance of the
• Those will few employees which makes
POLICY return separation of functions difficult which is why
• Specific and general authority they must rely on supervision as form of
influence this activity compensation control
• As materiality increases, credit • Provide control in systems that are properly
approval becomes more formal.
segregated
• Remittance List
• Provides a means for verifying • Detecting crimes after the fact accomplishes
checks and remittance advices to little; prevention is the best solution. The
CASH
match in amounts deterrent effect of supervision can provide an
PRELIST
• Authorizes the posting of a effective preventive control.
remittance advice to a customer’s
account
ACCOUNTING RECORDS
• A type of control which is an important
SEGREGATION OF DUTIES
operational feature of a well-designed
• Ensures that no single individual or department
accounting system
processes a transaction in its entirety
• Using audit trail when transaction gets lost in
• Number of employees and volume of
the system, management can discover where
transactions being processes influence how to
error occurred.
accomplish segregation

CONTROL TECHNIQUES
[1] Transaction Authorization should be
PRENUMBERED • Sequentially number by the
separate from transaction processing
DOCUMENTS printer and allow every
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transaction to be identified o Using a safe or night deposit box for cash.

uniquely o Locking cash drawers and safes in the
• Permits isolation and cash receipts department
tracking for a single event
through the accounting INDEPENDENT VERIFICATION
system. • Verify the accuracy and completeness of task
• Grouping similar that other functions in the process perform.
transactions together, the
• Must occur at key points in the process where
system provides a concise
errors can be detected quickly and
SPECIAL record of an entire class of
JOURNALS events corrected.
• Revenue cycle uses sales • Discrepancies between the numbers supplied
journal and cash receipt by these various sources will signal errors that
journals need to be resolved before posting to the
• The revenue cycle uses two general ledger can take place.
subsidiary ledger: (1)
Inventory and (2) A/R. PHYSICAL SYSTEMS
• Sales of Products: Reduces • A combination of computer technology and
SUBSIDIARY
quantities in inventory but human activity
LEDGERS
increases customer • Creates a continuum of alternative design
balance in A/R
options.
• Receipt of cash: reduces
o One End: Employ minimal technology
customer’s balance in A/R
and heavily rely on human involvement
• Basis for financial statement
o Other end: Advance technology system
preparation
• Revenue cycle transaction and then replace human activities with
affects: sales, inventory, automated processes.
GENERAL PARTS OF PHYSICAL SYSTEM
COGS, AR, and cash
LEDGERS 1 Source Documents
• Journal voucher summarize
activities captured in Physical documents that initiate and support the
journals and subsidiary revenue processes.
ledgers. 2 Cash Handling Procedures
• Revenue cycle employs Physical processes for managing cash inflows from
customers.
several temporary and
3 Manual Accounting Records
permanent files:
Physical ledgers and journals that record financial
o Open Sales Order File:
transactions.
Status of customers’
4 Physical Inventory Management
orders
Tangible controls and processes for managing
o Shipping Log: Specifies inventory related sales.
orders shipped during 5 Mailroom Operations
the period Physical handling of customer payments and
o Credit record file: related correspondence.
FILES Customer credit data 6 Physical Filing Systems
o Sale order pending file: Systems for organizing and storing physical
Open orders not shipped documents related to the revenue cycle.
or billed
o Back-order file: BASIC TECHNOLOGY REVENUE CYCLE
Customer orders for out- • Computers used in these systems are
of-stock items independent (nonnetworked) PCs.
o Journal voucher file:
• Information flows between department via
Compilation of all journal
hard-copy documents
vouchers posted to the
general ledger. • Maintaining physical files of source
documents are critical to audit trail.
ACCESS CONTROLS
• Prevent and detect unauthorized and illegal BASIC TECHNOLOGY SALES ORDER
PROCESSING SYSTEM
access to the firm’s asset
• Physical asset at risk: Inventories and Cash
SALES DEPARTMENT
• Information is also an important asset at risk.
• Begins with a customer contacting the sales
• Limiting access includes:
department via telephone, mail, e-mail, fax,
o Warehouse security, such as fences,
or in person
alarms, and guards.
• Sales department clerk manually records on a
o Depositing cash daily in the bank.
sales order which will trigger many tasks.
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• It is filed while one copy is sent to the credit • Where a clerk opens the envelope, reconciles
department for approval. the checks and remittance advices, endorses
the checks, gathers the remittance advices
CREDIT DEPARTMENT APPROVAL and checks into batches, and prepares a
• Credit department is organizationally and remittance list
physically segregated from the sales
department CASH RECEIPTS
• Credit department clerk verifies the • Cashier records the checks in the cash
customer’s creditworthiness using the receipts journal and promptly sends them to
department computer to review the the bank, accompanied by two copies of the
customer's credit. deposit slip.
• When credit is approved, sales department
clerk will pull various copies of the sales orders ACCOUNTS RECEIVABLE
and release them to the billing, warehouse, • AR department uses the remittance advices
and shipping department to reduce the customers’ account balances
• Customer order and credit approval are consistent with the amount paid
placed in one customer order file.
GENERAL LEDGER DEPARTMENT
WAREHOUSE PROCEDURES • Upon receipt of the journal voucher and
• Shipping the merchandise account summary from cash receipts and AR,
• Warehouse clerk received the stock release respectively, the general ledger clerk
copy and uses this to locate inventory reconciles the information and posts to the
• Inventory items and stock release are sent to control accounts.
the shipping department.
• Warehouse clerk will use the department PC CONTROLLER’S OFFICE
to record inventory reduction • Cash is a liquid asset and subject to
misappropriation, someone from the
SHIPPING DEPARTMENT controller’s office periodically performs a bank
• Reconciles the product received from the reconciliation by comparing deposit slips
warehouse with the shipping notice copy of returned from the bank, account summaries
the sales order received earlier. used to post to the accounts, and journal
• Ensures that the firm sends the correct vouchers.
products and quantity to the customer
• Once confirmed, a bill of lading is prepared, ADVANCED TECHNOLOGY REVENUE CYCLE
and the products will be packaged and • Allow systems designer to integrate
shipped accounting and other business function
• Clerk will use the department PC to record the through common information system
transaction in the shipping log and sent out • Objective: Improve operational performance
the shipping notice and stock release and reduce costs by eliminating nonvalue-
document to the billing department added task.
• Replacing procedures with a different one.
BILLING DEPARTMENT
• Proof that the product has been shipped and INTEGRATED SALES ORDER PROCESSING
is the trigger document that initiates the billing SYSTEM
process
• Billing clerk uses the department PC to SALES PROCEDURE
compile the relevant facts about the • Access the inventory subsidiary file and
transaction and bills customers. checks availability.
• Performs a credit check through review
ACCOUNTS RECEIVABLE, INVENTORY 1 of customer’s credit record
CONTROL AND GENERAL LEDGER DEPT. • Based on programmed criteria,
• Upon receipt of the document, AR and customer’s request could be approved
or denied
Inventory control clerk update their respective
• If credit is approved, system will add
subsidiary ledgers.
record to the sales invoice file, transmit a
2 stock release document and send
BASIC TECHNOLOGY CASH RECEIPTS SYSTEM digital copy of the packing slip to the
MAIL ROOM shipping department
• Room where customer payments and
remittance advice arrives
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• Warehouse clerk’s terminal immediately o Shipping function verifies the

produces a hard-copy printout of the goods sent from the warehouse
electronic stock release documents are correct
3 o Stock release document and
• Pick out the good and send them to the
packing slip should be
shipping department with a copy of
reconciled before sending the
stock release goods.
• Shipping department will perform the • Scanner Technology:
task of reconciling goods with the o Product code scanners in
packing slip, prepare the goods, and warehouse and shipping
4 select a carrier. department will reduce the risk
• After goods are shipped, shipping clerk of human error
assess and transmit a digital shipping o System will verify the items
notice that transaction is complete IT Control selected match those sales
order
• The system will automatically perform its
• Automated Inventory Ordering
5 accounting task upon receipt of o Computer logic checks to
shipping notice. determine if the reduction in
the inventory drops below the
MANUAL SYSTEMS inventory reorder point
• Supports the concept of the system where it
depicts people, organizational units and
physical documents and files INACCURATE RECORD KEEPING
• Generate a great deal of hard-copy (paper) • Transaction Authorization:
documents o Remittance list or cash prelist
provides a means for verifying
• The physical documents require to be
checks and remittance advices
prepare, transported, stored o Discrepancies should be noted
when the documents are
REVENUE CYCLE RISKS AND INTERNAL logged
CONTROL • Accounting Records:
o Source documents, journals,
and ledgers form an audit trail
which allows to trace
transactions
• Prenumbered Documents:
o Sequentially numbered by the
printer and allow every
transaction to be uniquely
identified.
o Permits isolation and tracking
• Special Journals:
o Group of similar transaction
Physical together
Summary of Revenue Cycle Risks and Controls Control o The use of sales journal and cash
receipt Journal
• Subsidiary Journals:
SALES TO UN-CREDITWORTHY CUSTOMERS o Concise record of an entire class
• Transaction Authorization: of events
o Ensure that only valid • General Ledger:
transactions are processed o Basis for financial statement
o A credit check of the customer • Files:
• Segregation of Duties: o Employed by the revenue cycle
Physical
o To separate transaction to contribute to the audit trail
Control
authorization from transaction • Independent verification:
processing o Verify accuracy and
o Provide independence completeness of tasks
o Separate credit function from performed by other functions in
sales function the process.
• Automated Credit Checking: o Discrepancies between the
o Performed automatically by numbers supplied by these
IT Control the system various sources will signal errors
o System logic makes the that need to be resolved before
decision to grant or deny posting to the general ledger
can take place
SHIPPING WRONG ITEMS/QUANTITY • Data Input Edits:
o Assumption that master file
Physical • Independent Verification: IT Control
(Inventory, A/R, and GL) are
Control
clean and free from error
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o If mistakes are not detected, it obtaining information for which

will corrupt the master files they lack authorization.
• Automated Posting:
o Manually performed by
POINT OF SALE (POS) SYSTEM
accounting clerks are
automated. • The physical or virtual location where
o Segregation of duties is customers pay for their purchases
important for physical control • A combination of hardware and software that
• File Backup facilitates transactions.
o To reduce risk of data loss • Maintains no customer accounts receivable
therefore making all transactions in forms of
MISAPPROPRIATION OF ASSETS cash, checks, credit/debit cards.
• Transaction Authorization: • Inventories are stored in shelves not in
o Remittance list provides control
against loss and theft
warehouses.
o Presence of a copy of a • Used in grocery stores, department stores, and
remittance advice or absences other retail stores.
of customer check would be
detected when it is time to
KEY DETAILS IN POS
reconcile.
1 Transaction Processing
• Supervision:
Allows for efficient sales processing and supports
o Detecting crimes after the fact
various payment method
accomplishes little; prevention is
Physical 2 Inventory Management
the best solution.
Control Automatically tracks inventory levels, updating
o Relying on supervision as form of
compensating control stock counts as sales are made
• Access Controls: 3 Sales Reporting and Analytics
o Warehouse security Generates comprehensive reports on sales
o Depositing cash to bank daily performances
o Usage of sage or deposit box
o Locking cash drawers and safes POINT-OF-SALE CONTROL ISSUES
• Segregation of Duties:
• Associated with unique risks that give rise to
o No single individual or
department processes a the need for additional physical controls
transaction in its entirety
• Multilevel Security: ISSUES IN POS
o Limiting an individual’s access 1 Authorization
IT Control
to authorized processes and • Authorization process involves validating credit
data. card charges and establishing that the
customer is the valid user.
UNAUTHORIZED ACCESS TO DATA • Clerk should match the customer’s signature on
• Physical Controls: the sales voucher to the one on the credit card
o Source documents and 2 Supervision
accounting need to be • POS environment places both inventory and
physically protected. cash at risk
o Keeping them in secure areas • Crime of shoplifting and theft is a great concern
and access to them should be since customers and cashiers have direct
Physical restricted on a need-to-know access to cash
Control basis. • Supervision using surveillance and floor security
• Segregation of Duties: personnel are implemented to reduce these risk
o The organization should be so 3 Access Control
structured that the perpetration • Must restrict access to cash assets
of a fraud requires collusion • Method 1: Assign each sales clerk separate cash
between two or more register for an entire shift and cash drawer
individuals. should lock when clerk leaves. At the end of the
• Passwords: shift, clerk shall immediately deposit funds to the
o Implement a robust password cash room
control policy to prevent • Method 2: Sharing of register in which
unauthorized access to responsibility for asset custody is split and
computer files and programs accountability is reduced.
that reside in each of the • Inventory issues can be protected from
department unauthorized access and theft through the use
IT Control
• Multilevel Security physical restraints and electronic devices.
o Employs programmed 4 Accounting Records
techniques that permit • Tape is a record of all sales transactions
simultaneous access to a processed at the register
central system by many users • Only the clerk’s supervisor should have access
with different access privileges to the tape, which is used at the end of the shift
but prevent them from to balance the cash drawer.
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5 Independent Verification
• Cash drawer should contain cash and credit
card vouchers equal to the amount recorded
on the tap

REENGINEERING USING EDI

ELECTRONIC DATA INTERCHANGE (EDI)
1 Standardization
EDI relies on standardized formats to ensure that
documents can be read and processed by
different systems across various industries
2 Automation
EDI automates the exchange of documents,
which minimizes the need for manual intervention
3 Real-time Communication
EDI facilitates real-time communication between
trading partners, allowing for quicker response
times

DOING BUSINESS VIA EDI

• Devised to expedite routine transactions
between manufacturers and wholesalers, and
wholesalers and retailers.
• Represents a strategic business arrangement
between buyer and seller in which they agree,
in advance, to the terms of their relationship
• One problem is ensuring that the absence of
explicit authorization, only valid transactions
are processed.
• Another risk is that a trading partner, or
someone masquerading as a trading partner,
will access the firm’s accounting records in a
way that is unauthorized by the trading
partner agreement
• Exclusively a B2B arrangement between
trading partners

REENGINEERING USING THE INTERNET

DOING BUSINESS ON THE INTERNET
• Internet sales are credit card transactions that
are sent to the seller’s e-mail file.
• Internet sales are both B2B and business-to-
consumer (B2C) transactions.
• Connecting to the Internet exposes the
organization to threats from computer
hackers, viruses, and transaction fraud
• Taking these threats seriously and
implementing control such as password
techniques, message encryption, and
firewalls, to minimize their risk