Quiz 12: Audit of the sales and collection cycle: Tests of controls and substantive tests of transactions
The key to this type of audit is to ensure that the company’s procedures are solidly implemented with no margin for error. The audit should also look for any areas where checks and balances are missing, such as an employee who has access to both the payables and the bank account. Review the company’s procedural manuals and make sure the audit is testing each of the documented policies.
Audit of the Sales and Collection Cycle: Tests of Controls and Substantive Tests of Transactions
The general ledger and financial statements both contain the sales and revenue figures for the given period. The very first step of the audit is to verify that the figures reported in the financial statements match those in the general ledger. A trial balance report and an account summary from the ledger should reflect the same sales revenue figures as the financial statements. Technology can significantly improve the cash collection cycle by automating invoicing, payment reminders, and cash application.
The document used to indicate to the customer the amount of a sale and payment due date is the
Her articles have appeared in various online publications. The audit cycle Criteria and standards Structure, process and outcome An audit example Problems with audit How audit fits into ‘Clinical Governance’. The audit cycle Criteria and standards Structure, process and outcome.
What are the primary transactions in the sales and collection cycle ?. Sales (cash sales and credit sales) Cash receipts Sales Sales And Collection Cycle returns and allowances Write-off of uncollectible accounts Estimate bad debt expense. Depending on the accounting approach of the business, sales are recorded when the order is shipped or when payment is received.
write-off of uncollectible accounts
It emphasizes the importance of accuracy, completeness, and existence in recorded sales and cash collections. The need for robust internal controls, proper documentation, and specific cash handling procedures is discussed to mitigate risks such as fraud and misappropriation. Tracking the actual cash flow is just as important as ensuring that the sales are recorded accurately.
- The measure is important for tracking the ability of a business to grant a reasonable amount of credit to worthy customers, as well as to collect receivables in a timely manner.
- Tracking the actual cash flow is just as important as ensuring that the sales are recorded accurately.
- There should be a predetermined aging point at which accounts are written off, and every effort should be made to collect on those funds before that bad debt determination.
Under cash accounting, the sale is recorded upon payment, while accrual accounting demands that the sale be recorded when the product ships, not when the cash is received. Review a sampling of the sales transactions to validate that these procedures are being followed. Reporting sales outside of these guidelines can potentially create a material misstatement of revenue, so the audit phase is essential for these controls.
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A company’s sales records offer little without the actual revenue being received from customers. For companies that also sell on credit, review the open receivables and assess the aging of the accounts. There should be a predetermined aging point at which accounts are written off, and every effort should be made to collect on those funds before that bad debt determination. Follow the collection process for a sample of the aging accounts to ensure that the procedures are followed appropriately to close these open accounts. Chapter 14 Audit of the Sales and Collection Cycle.
Audit of the sales and collection cycle
- A ________ is a document for communicating the description, quantity, and related information for goods ordered by a customer.
- These improvements help shorten collection times, enhance customer communication, and improve overall cash flow.
- D) the monthly statement is used to prepare the cash receipts journal.
- Since this is the core of your revenue bookings, you need to be sure it is accurate at all times.
The document discusses the audit of the sales and collection cycle. It identifies key accounts, transactions, documents, and business functions in the cycle. The effect of e-commerce and results of cycle testing are also addressed. This chapter addresses the auditing of the sales and collection cycle, focusing on tests of controls and substantive tests of transactions through multiple choice questions from CPA examinations. Key internal control weaknesses are discussed, including issues related to recorded sales, cash collections, and safeguarding procedures. The chapter focuses on the audit of the sales and collection cycle, detailing tests of controls and substantive tests of transactions.
Any red flags that come up during the audit should be addressed right away to protect your company from potentially significant financial loss. A ________ is a list prepared when cash is received by someone who has no responsibility for recording sales, accounts receivable, or cash, and who has no access to the accounting records. The sales and collection cycle applies to businesses that sell goods to customers or provide services to customers. The cash collection cycle should be kept as short as possible, because rapid collection means more cash on hand, which reduces a company’s borrowing requirements.
Some companies have customers send payments directly to an address maintained by a bank. B) theft can only occur before the receipts are entered into the records. One type of shipping document is the ________, which is a written contract between the carrier and the seller of the receipt and shipment of goods.
The overall objective of the audit of the sales and collection cycle is to evaluate whether:
D) balance of the accounts receivable account in the general ledger. C) total sales less the total cash received for the period. C) cash receipts should be deposited at least monthly. B) balance of the sales account in the general ledger. Tara Kimball is a former accounting professional with more than 10 years of experience in corporate finance and small business accounting. She has also worked in desktop support and network management.