Podcast
Questions and Answers
What is the primary purpose of balancing the accounts receivable subsidiary ledger?
What is the primary purpose of balancing the accounts receivable subsidiary ledger?
- To enhance sales growth
- To ensure accurate segment reporting
- To simplify recordkeeping
- To prevent omissions in postings (correct)
How can an auditor verify the classification of accounts in sales?
How can an auditor verify the classification of accounts in sales?
- By reviewing the cash register prints
- By checking for the approval signature on invoices (correct)
- By analyzing the sales trends
- By calculating the total sales volume
What key document must an auditor compare to ensure the existence of a recorded transaction?
What key document must an auditor compare to ensure the existence of a recorded transaction?
- The sales journal (correct)
- The employee time card
- The annual budget report
- The general ledger summary
What aspect is crucial for generating accurate segment reporting in sales?
What aspect is crucial for generating accurate segment reporting in sales?
Which of the following is NOT a procedure the auditor would follow when testing sales transactions?
Which of the following is NOT a procedure the auditor would follow when testing sales transactions?
What does the auditor need to confirm during credit approval testing?
What does the auditor need to confirm during credit approval testing?
Which procedure is involved in testing the accuracy of recorded sales transactions?
Which procedure is involved in testing the accuracy of recorded sales transactions?
What consequence could arise from the absence of control over the accounts receivable subsidiary ledger?
What consequence could arise from the absence of control over the accounts receivable subsidiary ledger?
What should be indicated by signatures on invoices?
What should be indicated by signatures on invoices?
Which of the following is NOT part of the procedures for checking shipping documents?
Which of the following is NOT part of the procedures for checking shipping documents?
What is a potential consequence of ineffective internal controls related to sales transactions?
What is a potential consequence of ineffective internal controls related to sales transactions?
What should be observed to ensure proper cutoff of sales at year-end?
What should be observed to ensure proper cutoff of sales at year-end?
Which of the following actions indicates a possible internal control weakness?
Which of the following actions indicates a possible internal control weakness?
What type of correspondence files should be reviewed for resolving complaints?
What type of correspondence files should be reviewed for resolving complaints?
What does examining signatures on sales invoices help to ensure?
What does examining signatures on sales invoices help to ensure?
Which of the following is a risk of misstatement related to ineffective internal control?
Which of the following is a risk of misstatement related to ineffective internal control?
What mistake is made when sales are recorded for the next year as current year sales?
What mistake is made when sales are recorded for the next year as current year sales?
What occurs when revenue is recorded despite the likelihood of goods being returned?
What occurs when revenue is recorded despite the likelihood of goods being returned?
When should franchise revenue be recorded?
When should franchise revenue be recorded?
What could lead to misstatement when using the percentage-of-completion method?
What could lead to misstatement when using the percentage-of-completion method?
What impact does an ineffective billing process have on revenue recognition?
What impact does an ineffective billing process have on revenue recognition?
When is revenue considered unearned?
When is revenue considered unearned?
What is a common issue arising from cutting off sales too early?
What is a common issue arising from cutting off sales too early?
What issue is created by recording sales based on receipt of orders rather than shipment?
What issue is created by recording sales based on receipt of orders rather than shipment?
What is the primary purpose of the accounts receivable subsidiary ledger?
What is the primary purpose of the accounts receivable subsidiary ledger?
Which audit procedure is used to confirm the accuracy of account coding for recorded sales?
Which audit procedure is used to confirm the accuracy of account coding for recorded sales?
Which audit objective focuses on recording sales that are authorized?
Which audit objective focuses on recording sales that are authorized?
What is a key procedure in the substantive tests of sales transactions?
What is a key procedure in the substantive tests of sales transactions?
What method is used to confirm the amounts recorded in the accounts receivable master file?
What method is used to confirm the amounts recorded in the accounts receivable master file?
In the context of audit assertions, rights and obligations relates to what?
In the context of audit assertions, rights and obligations relates to what?
Which of the following is a common substantive test conducted irrespective of controls?
Which of the following is a common substantive test conducted irrespective of controls?
What is the role of GAS in the substantive audit procedures for sales transactions?
What is the role of GAS in the substantive audit procedures for sales transactions?
What is the purpose of tracing sales invoices to shipping documents?
What is the purpose of tracing sales invoices to shipping documents?
Which procedure is NOT typically used by auditors when examining sales transactions?
Which procedure is NOT typically used by auditors when examining sales transactions?
What can indicate that an entity's control over sales transactions was properly performed?
What can indicate that an entity's control over sales transactions was properly performed?
When performing cutoff tests, which document would auditors examine to verify the recording of transactions?
When performing cutoff tests, which document would auditors examine to verify the recording of transactions?
Which is a key aspect that auditors check to determine if a sale was properly recorded?
Which is a key aspect that auditors check to determine if a sale was properly recorded?
What should an auditor look for to confirm the entity’s right to a receivable from a sale?
What should an auditor look for to confirm the entity’s right to a receivable from a sale?
What does examining cash receipts help auditors determine?
What does examining cash receipts help auditors determine?
What can be concluded if an auditor finds a discrepancy between the entries in the sales journal and the shipping document?
What can be concluded if an auditor finds a discrepancy between the entries in the sales journal and the shipping document?
What is the primary focus for auditors when testing sales returns and allowances?
What is the primary focus for auditors when testing sales returns and allowances?
What can material unrecorded sales returns and allowances result in for a company?
What can material unrecorded sales returns and allowances result in for a company?
Which objective is often overlooked when auditing sales adjustments?
Which objective is often overlooked when auditing sales adjustments?
What should management do before charging off uncollectible accounts?
What should management do before charging off uncollectible accounts?
What type of audit test is often performed for cash discounts?
What type of audit test is often performed for cash discounts?
How can clients potentially disguise a defalcation related to accounts receivable write-offs?
How can clients potentially disguise a defalcation related to accounts receivable write-offs?
What is a common audit methodology for controls over sales adjustments?
What is a common audit methodology for controls over sales adjustments?
What does the audit of uncollectible accounts significantly focus on?
What does the audit of uncollectible accounts significantly focus on?
Flashcards
Sales Journal Error
Sales Journal Error
Recording next year's sales as current year's sales.
Uncertain Customer Returns
Uncertain Customer Returns
Recording revenue when customer might return goods
Uncompleted Franchise Services
Uncompleted Franchise Services
Recording franchise revenue even when significant services are still owed.
Percentage-of-Completion Error
Percentage-of-Completion Error
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Ineffective Billing Process
Ineffective Billing Process
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Unearned Revenue
Unearned Revenue
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Accounts Receivable Subsidiary Ledger Balance
Accounts Receivable Subsidiary Ledger Balance
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Control over Accounts Receivable
Control over Accounts Receivable
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Sales Classification Accuracy
Sales Classification Accuracy
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Sales Transaction Existence/Occurrence
Sales Transaction Existence/Occurrence
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Sales Transaction Recording
Sales Transaction Recording
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Sales Journal Data Testing
Sales Journal Data Testing
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Credit Approval Testing
Credit Approval Testing
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Invoice Signature Verification
Invoice Signature Verification
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Account Coding Recheck
Account Coding Recheck
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Shipping Document Verification
Shipping Document Verification
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Sales Journal Recording
Sales Journal Recording
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Customer Statement Procedures
Customer Statement Procedures
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Year-End Sales Cutoff
Year-End Sales Cutoff
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Accounts Receivable Reconciliation
Accounts Receivable Reconciliation
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Sales Order, Shipping, & Invoice Sequence
Sales Order, Shipping, & Invoice Sequence
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Internal Control Weaknesses (Risk)
Internal Control Weaknesses (Risk)
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Fictitious Sales Recording
Fictitious Sales Recording
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Unearned Revenue
Unearned Revenue
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Intentional Overshipment
Intentional Overshipment
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Accounts Receivable Subsidiary Ledger
Accounts Receivable Subsidiary Ledger
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Foot Subsidiary Ledger
Foot Subsidiary Ledger
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General Ledger Control Account
General Ledger Control Account
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Sales Transaction Occurrence & Validity
Sales Transaction Occurrence & Validity
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Sales Transaction Audit Objective
Sales Transaction Audit Objective
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Sales Journal
Sales Journal
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Substantive Tests
Substantive Tests
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Tracing Sales Invoices
Tracing Sales Invoices
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Sales Transaction Classification
Sales Transaction Classification
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Sales Existence Test
Sales Existence Test
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Control Procedure Indication
Control Procedure Indication
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Inventory Perpetual Record Trace
Inventory Perpetual Record Trace
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Cash Receipts Examination
Cash Receipts Examination
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Customer Transaction Confirmation
Customer Transaction Confirmation
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Sales Journal and AR Ledger Trace
Sales Journal and AR Ledger Trace
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Cutoff Test in Sales
Cutoff Test in Sales
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Consignment vs. Sale
Consignment vs. Sale
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Confirmation of Right to Receivable
Confirmation of Right to Receivable
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Sales Adjustments Audit
Sales Adjustments Audit
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Cash Discounts Audit
Cash Discounts Audit
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Uncollectible Accounts Write-offs
Uncollectible Accounts Write-offs
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Material Adjustments
Material Adjustments
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Sales Returns and Allowances Verification
Sales Returns and Allowances Verification
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Proper Authorization of Write-offs
Proper Authorization of Write-offs
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Study Notes
Revenue and Collection Cycle
- Consists of activities related to the exchange of goods/services and collecting revenue from customers.
- Includes sales (cash & credit), sales adjustments (discounts, returns, uncollectible accounts), and cash receipts.
- Key accounts affected include Sales, Accounts Receivable, Sales Returns/Allowances, Cash, Sales Discounts, Allowance for Uncollectible Accounts, Uncollectible Accounts Expense, and Inventories.
Documents Used
- Customer Purchase Order: Shows customer's order of goods.
- Sales Order: Seller's understanding of sales terms (includes credit approval & shipment authorization).
- Shipping Document/Bill of Lading: Details shipped merchandise (quantity, description). Confirms goods were shipped.
- Sales Invoice: Shows sold goods' description, quantity, price, terms. Essential for recording sales.
- Credit Memo: Reduces amount due from customer (e.g., returned goods, allowances). Matches sales invoice format.
- Remittance Advice: Accompanies payment checks, identifying invoices paid.
- Uncollectible Account Authorization Form: Authorizes write-off of uncollectible accounts.
- Monthly Statement: Sent to customers, detailing account activity (balance, sales, payments, etc.).
Accounting Records
- Sales Journal: Records sales transactions (product lines, accounts receivable, debits/credits).
- Sales Returns and Allowances Journal: Records returns and price adjustments.
- Cash Receipts Journal: Records cash receipts from collections, cash sales, and other cash receipts.
- General Journal: Records transactions not suited for special journals (e.g., uncollectible accounts expense).
- Accounts Receivable Master File/Subsidiary Ledger: Tracks individual customer accounts and balances.
- Accounts Receivable Trial Balance: Lists amount owed by each customer at a specific point in time. Comes from the master file.
Audit of Sales Transactions
- Tests of Controls: Focus on evaluating if internal controls over sales and receivables are effective. Used to understand the client's internal process.
- Existence or Occurrence: Ensures recorded sales are for actual shipments to customers.
- Rights and Obligations: Verifies recorded sales relate only to the company's transactions.
- Completeness: Assesses if all sales transactions are recorded.
- Valuation or Allocation: Ensures sales were correctly billed and recorded.
- Presentation and Disclosure: Checks if sales and receivables are presented and disclosed correctly in the financial statements.
Audit of Sales Adjustments Transactions
- Focuses on adjustments to sales like discounts, allowances, returns, and write-offs of uncollectible accounts.
- Tests for validity: Checks if recorded transactions are accurate.
- Tests for Completeness: Determines all returns/adjustments are recorded.
- Crucial to prevent concealing misappropriations through fictional adjustments.
Audit of Cash Receipts Transactions
- Covers cash collection processes from customers.
- General: Encompasses existence, completeness, rights, obligations, valuation, and disclosure.
- Specific concerns: Actual cash collections recorded, all receipts are processed, all collections deposited, proper valuations, and compliance with presentation/disclosure rules.
- Crucial to prevent cash misappropriation or lapping.
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Description
Explore the essential activities and documents involved in the revenue and collection cycle. This quiz covers key concepts such as sales, accounts receivable, and cash receipts, along with important documents like sales orders and invoices. Test your understanding of this critical aspect of business accounting.