Audit of the Sales and Collection Cycle

A report that lists all cash receipts transactions for a specific timeframe. Think of it as a detailed record of every dollar that came in.

A document issued when a customer returns goods or receives a price reduction due to dissatisfaction. It reduces the amount owed by the customer.

A journal that records sales returns and allowances. It tracks the money a business has to refund to customers.

When a business decides an outstanding customer balance is unlikely to be collected, it removes the amount from its accounts receivable. This happens after exhausting all collection efforts.

An expense recorded to account for the estimated amount of uncollectible accounts receivable. It creates a reserve for bad debts.

An account that holds a balance for estimated future uncollectible accounts receivable. It acts as a buffer against potential losses.

Auditors use a questionnaire and walk-through tests to assess a company's internal controls for sales transactions. This helps evaluate how well the controls prevent errors and fraud.

The process of determining the risk of misstatement in financial statements related to sales. This involves analyzing internal controls and identifying potential problems.

An independent official should address any customer disagreements about their account balance.

Auditors test internal controls to ensure they are effective in achieving transaction-related audit objectives.

The type of tests of controls depends on the nature of the control being tested.

Auditors use various procedures for substantive tests of transactions, depending on internal controls and the results of controls testing.

Auditors must ensure that all recorded sales correspond to actual shipments of goods.

Auditors trace entries in the sales journal to supporting shipping documents to verify the existence of sales.

Auditors may trace amounts from the sales journal to inventory records to detect fraudulent duplicates.

Auditors focus their substantive test of transactions for existence on areas where misstatement is likely.

Tracing the credit in the A/R master file back to its source to ensure it originated from a valid sale. This involves investigating if the credit is due to collection, returned goods, bad debt, or an outstanding payment.

Identifying duplicate sales entries by reviewing a numerically sorted list of recorded sales transactions. Also, checking for proper cancellation of shipping documents helps ensure sales are not recorded twice.

This occurs when goods are shipped to a nonexistent customer. It often happens when the individual recording sales also has authority over shipments. This is harder to detect if internal controls are weak.

Testing for missing sales transactions involves tracing from source documents, like shipping documents, to the sales journal. This ensures all legitimate sales are captured.

Testing for nonexistent sales transactions involves tracing from the sales journal back to source documents, like customer orders. This verifies the recorded sales actually occurred.

Evaluating the accuracy of recorded sales by comparing details on sales invoices, shipping records, and customer orders for consistency. This includes checking the amount of goods shipped, the amount billed, and the accuracy of the billing itself.

This involves comparing information in the sales journal with entries in the A/R master file and duplicate sales invoices. Also, confirming prices against an approved price list, re-calculating extensions and footings, and verifying details on invoices with shipping records.

When sales invoices are automatically calculated and posted by a computer, auditors may reduce their substantive tests for accuracy. However, they should still perform selective checks to ensure system accuracy.

A fraudulent scheme where an employee covers up a cash shortage by stealing from another customer's payment and then covers that theft with a payment from a third customer later on.

A policy that requires employees who handle cash to take time off from their job, allowing for another employee to review their work and potentially identify irregularities.

This control measure involves comparing the information on customer payment slips with the corresponding entries in the cash receipts journal and the bank deposit slips.

A set of procedures designed to ensure that the financial records are accurately represented.

One of the balance-related audit objectives, which ensures that all existing receivables are included in the accounts receivable balance.

One of the balance-related audit objectives, which ensures that each recorded receivable actually exists.

One of the balance-related audit objectives, which ensures that the receivables are valued appropriately, taking into account any potential uncollectible amounts.

One of the balance-related audit objectives, which ensures that the receivables are properly classified and presented in the financial statements.

The process of verifying that all cash received by a company is accurately recorded in the accounting records.

A procedure used to ensure that all recorded cash receipts have been deposited into the company's bank account. It involves comparing the total cash receipts recorded in the journal with the actual deposits made during the period.

A type of fraud where someone who handles cash receipts intentionally delays recording the receipt of payments to cover up a previous theft. They use the customer's payment to cover the missing funds.

Internal controls designed to prevent cash receipts from being recorded incorrectly or not at all. These controls aim to ensure that all genuine cash received is properly captured in the accounting system.

Procedures performed by auditors to test the effectiveness of controls designed to ensure all cash received is recorded. This often involves tracing prenumbered remittance advices or lists of cash receipts to the cash receipt journal and subsidiary A/R records.

Procedures performed by auditors to detect monetary errors in the recording of cash receipts. This often involves tracing from the cash receipt journal to the bank deposit records or other supporting documents.

An auditor's primary responsibility is to identify weaknesses in internal controls that could increase the risk of fraud involving cash receipts.

The process of identifying and evaluating the key internal controls related to cash receipts. This involves determining the controls crucial for each transaction-related audit objective, such as completeness or accuracy.

The auditor should assess if the allowance for uncollectible accounts is reasonable. This involves analyzing the allowance, reviewing credit policy test results, examining noncurrent accounts, and comparing unpaid balances with previous years.

Auditors should ensure the client has full ownership of accounts receivable. This involves reviewing minutes, discussing with the client, confirming with banks, and examining debt contracts for any pledging, assignment, factoring, or discounting of receivables.

To evaluate proper presentation and disclosure, auditors must understand IFRS requirements. They should check if material amounts requiring separate disclosure are separated, such as receivables from officers or related parties. Additionally, footnotes should provide information about pledging, discounting, factoring, assignment of A/R, and amounts due from related parties.

Confirmation of Accounts Receivable is a primary audit procedure for testing existence, accuracy, and cutoff of receivables. It addresses five out of the eight balance-related audit objectives.