20 Questions
What are the general categories from which cash receipts may result?
Revenue transactions, short and long-term borrowing, issuance of share capital, and sale of marketable securities
What is the focus of tests of controls over cash receipts transactions related to 'Existence or Occurrence'?
Ensuring recorded receipts represent actual cash collections from customers
What is the objective of the control where a trustworthy employee prepares a prelisting of cash receipts before further processing?
To prevent misappropriation of cash
What is the focus of tests of controls related to 'Rights and Obligations' in cash receipts transactions?
Verifying that all cash receipts are deposited intact in the client's account
What is the purpose of aggregating total cash received in cash receipts transactions?
To facilitate efficient processing and recording of cash receipts
What is the focus of tests of controls related to 'Valuation or Allocation' in cash receipts transactions?
Valuing debits to cash and credits to accounts receivable at amounts received
What is the objective of substantive test of cash receipts transactions related to existence or occurrence?
To determine that recorded receipts represent actual collections of cash from customers
What could discrepancies between the prelisting of cash receipts and the entries in the cash receipts journal suggest?
Lapping of cash receipts
What is the purpose of footing the cash receipts journal and reconciling it to the accounts receivable subsidiary ledger?
To verify the mathematical accuracy of cash collections
What is the auditor's objective in reviewing account coding for a sample of entries in the cash receipts journal?
To ensure proper presentation and disclosure
What is the purpose of verifying that all cash receipts are recorded by reconciling daily listings of cash receipts and validated deposit ticket to cash receipt journal?
To detect lapping of cash receipts
What is the primary focus of substantive test of cash receipts transactions related to valuation or allocation?
To ensure proper valuation of debits to cash and credits to accounts receivable
What evidence does an auditor use to verify that a collection was made from a customer?
Remittance advice and validated deposit ticket
What does the auditor verify to determine whether the credit to accounts receivable is proper?
Recompute the cash discounts allowed to customers who made payments
What is the purpose of segregating duties of handling cash receipts from posting to accounts receivable?
To prevent misappropriation
What is the purpose of restrictively endorsing checks upon receipt?
To reduce the likelihood of misappropriation
Why should cash receipts be recorded at the amount indicated on the remittance advice?
To serve as strong evidence
What is the purpose of an accounting supervisor approving classifications made in journalizing?
To reduce the likelihood of mispostings
What is an example of a possible error resulting from control weaknesses in cash receipts handling?
Lack of segregation of duties
What is the purpose of reconciling the daily cash summary to prelisting and over-the-counter receipts?
To ensure all cash receipts are deposited and recorded
Study Notes
Summary of Cash Receipts Controls and Tests
- Daily deposits are validated with deposit slips and compared to cash receipts summary
- Duties of handling cash receipts are segregated from posting to accounts receivable to prevent misappropriation
- Bank reconciliation is prepared monthly by an independent employee not involved in cash handling
- Completeness is ensured by processing and recording all receipts, and reconciling cash receipts journal total with accounts receivable
- Controls include prelisting and cash register procedures being monitored, and checks being restrictively endorsed upon receipt
- Daily cash summary is reconciled to prelisting and over-the-counter receipts, ensuring all cash receipts are deposited and recorded
- Cash receipts journal total is reconciled independently to the total posted to accounts receivable
- Cash receipts are deposited intact daily in the company’s bank account, reducing the likelihood of misappropriation
- Cash receipts should be recorded at the amount indicated on the remittance advice, serving as strong evidence
- An accounting supervisor should approve classifications made in journalizing to reduce the likelihood of mispostings
- Audit program for test of controls includes comparing remittances with entries, testing cash discounts, and reviewing cash receipts for unusual items
- Possible errors resulting from control weaknesses include lack of segregation of duties, inadequate reconciliations, and failure to list and deposit cash receipts on a timely basis
Test your knowledge of cash receipts controls and tests with this quiz. Challenge yourself with questions about daily deposits validation, segregation of duties, bank reconciliation, completeness checks, and more. Sharpen your understanding of important controls to prevent misappropriation and ensure accuracy in cash receipts processing.
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