2C2 - IC, Sales, Receivables, Cash Receipts Cycle

University of Illinois, Chicago **We aren't endorsed by this school
ACTG 435
Oct 31, 2023
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2C2 - Sales, Receivables, and Cash Receipts Cycle Sales, Receivables, And Cash Receipts Cycle Initiate and Authorize Sale - A customer order is received - The sales order department prepares a prenumbered sales order (SO) listing all the relevant information about the sale - The credit department immediately verifies credit approval and it is notes approval on the SO - A copy of the SO goes to the warehouse where the goods are gathered and sent to shipping Process Sale - Shipping signs for the goods and prepares a Bill of Lading (BL) - Shipping compares order to what is being shipped - FOB Shipping Point : Buyer pays for freight o Title transfers to the buyer when it is shipped o Cost of the freight is part of the cost of inventory (freight-in) - FOB Destination : Seller pays the freight o Title transfer to buyer when it is received o Cost of the freight is an expense to seller (freight-out) Record Sale and Initiate Receivable - A copy of the SO and BL are sent to the billing department where they are matched for agreement - Billing prepares and sends the sales invoice to (SI) to the customer - The transaction is recorded in the Sales Journal - A copy of the SO, BL, and SI are sent to the Accounts Receivable department where they are matched for agreement Process/Record Receivable - A/R records the transaction in the subsidiary ledger - A/R prepares a periodic aging o Old accounts are sent to collection o Collection recommends which amount to write-of - The Treasurer has the authority to deem an account uncollectible
Key Controls for Cash Receipts - Cash receipts recorded immediately and deposited daily - Bank reconciliations prepared monthly by internal audit or persons NOT involved in handling cash or cash transactions - All employees who handled cash are bonded Question #1 An auditor's tests of controls for completeness for the revenue cycle usually include determining whether: a) Each receivable is collected subsequent to the year-end b) An invoice is prepared for each shipping document c) Each invoice is supported by a customer purchase order d) Each credit memo is properly approved Question #2 Evidence concerning the proper segregation of duties for receiving and depositing cash receipts ordinarily is obtained by: a) Completing an internal control questionnaire that describes the control activities b) Observing the employees who are performing the control activities c) Performing substantive tests to verify the details of the bank balance d) Preparing a flowchart of the duties performed and the entity's available personnel Question #3 Tracing shipping documents to prenumbered sales invoices provides evidence that: a) NO duplicate shipments or billings occurred b) Shipments to customers were properly invoiced c) All goods ordered by customers were shipped d) All prenumbered sales invoices were accounted for Question #4 Proper authorization of write-ofs of uncollectible accounts SHOULD be approved in which of the following departments? a) Accounts receivable b) Credit
c) Accounts payable d) Treasurer Question #5 An auditor who uses a transaction cycle approach to assessing control risk most likely would test control activities related to transactions involving the sale of goods to customers with the: a) Collection of receivables b) Purchase of merchandise inventory c) Payment of accounts payable d) Sale of long-term debt
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