The last step in the revenue cycle is cash collections. The accounts receivable department must know when customers pay their invoices, yet segregation of duty controls dictate that the collection and recording functions be kept separate from each other. What is a solution to this potential internal control problem?

A solution to the potential internal control problem in the revenue cycle, where the accounts receivable department needs to know when customers pay their invoices while maintaining segregation of duty controls, is to implement a separate cash receipts department or function.

Here's how it works:

1. Establish a dedicated cash receipts department: Create a separate department or designate specific individuals responsible for receiving and processing incoming cash payments from customers. This department will be responsible for collecting cash, checks, electronic funds transfers, or any other forms of payment from customers.

2. Maintain segregation of duties: Ensure that the individuals responsible for collecting the cash are different from those who are involved in recording the transaction in the accounts receivable system. This segregation of duties prevents one individual from having complete control over the entire process and reduces the risk of errors or fraudulent activities.

3. Implement internal controls: Set up a series of internal controls to ensure that cash collections are properly recorded and accounted for. This can include procedures such as reconciling the cash collected with recorded sales, regularly monitoring and reviewing the cash receipts activities, and conducting periodic audits.

4. Utilize technology: Implement a robust accounting software system that can help automate and streamline the revenue cycle process. This software should allow for the efficient recording and tracking of cash collections, as well as provide comprehensive reporting capabilities to monitor and analyze the financial transactions.

By implementing this separate cash receipts department and maintaining segregation of duties, the accounts receivable department can effectively track customer payments without compromising internal controls. This solution helps reduce the potential risks associated with the collection and recording processes, ensuring accurate and reliable financial information.