Skip to main content
UploadLanguage (EN)Support
BusinessMobileSocial MediaMarketingTechnologyArt & PhotosCareerDesignEducationPresentations & Public SpeakingGovernment & NonprofitHealthcareInternetLawLeadership & ManagementAutomotiveEngineeringSoftwareRecruiting & HRRetailSalesServicesScienceSmall Business & EntrepreneurshipFoodEnvironmentEconomy & FinanceData & AnalyticsInvestor RelationsSportsSpiritualNews & PoliticsTravelSelf ImprovementReal EstateEntertainment & HumorHealth & MedicineDevices & HardwareLifestyle
Uploaded bymit111217
PPT, PDF15,372 views

Auditing the sales and collections cycle

This document summarizes auditing procedures for the sales and collection cycle. It outlines the key accounts, business functions, documents, and records involved in sales, cash receipts, sales returns and allowances, bad debts, and write-offs. It then describes the methodology, objectives, and types of tests auditors perform to test controls and balances, including existence, completeness, accuracy, classification, timing, and posting of transactions. The tests involve examining documents, comparing entries to price lists, tracing postings, confirming balances, and reviewing aging analyses and write-offs.

Education◦
Downloaded 357 times
Auditing the Sales and Collections Cycle Chapter 14
Accounts in the Cycle Sales Cash receipts Sales returns and allowances Estimate of bad debts Write-offs of uncollectibles
Business Functions in Sales Processing customer orders Generating sales orders Granting / checking credit Shipping goods Billing customers and recording sales
Documents in Sales Customer purchase orders Sales orders Credit applications Picking sheets Shipping documents / bills of lading Invoices & remittance advices Monthly statements
Records in Sales Sales journal Accounts receivable subsidiary ledger
Cash Receipts Generally treated as a separate journal rather than commingled with disbursements Good controls require separation of cash handling from accounting Typical is to have one person open the mail and list receipts, then separate
Documents in Cash Receipts Remittance advice Prelisting of receipts Deposit tickets
Sales R & A Process: item is returned, credit memo is issued to A/R Documents: credit memos and sales r&a journal Important to track returns rather than just reduce sales
Bad Debt Expense Estimate is made by management Must have reasonable basis
Write-Offs Treated separately from credit memos Must have proper authorization on a write-off form No special journal though
Credit Card Sales Not treated the same way as A/R Creditor is the bank, not the cardholder Payment is electronic and quick Payment is reduced by bank fee, so expense is recorded as well
Methodology for Testing Should sound familiar! Understand controls Test controls Perform substantive tests Suggest adjustments if necessary
Audit Objectives for Controls Most controls relate to transactions, not balances PERCV is recast (see chapter 6) P & R not pertinent E & C the same Valuation has four components Accuracy Classification Timing Posting and summarization
Tests of Controls Existence: examine sales invoices for supporting bill of lading Completeness: account for numerical sequence of shipping documents Accuracy: compare sales orders to approved price list Classification: examine whether expense account numbers are verified Timing: see completeness Posting: examine reconciliations of deposits to check listings
Substantive Tests of Existence: Sales Vouch sales entries to shipping documents: finds non-existent sales Extract data about possible duplicate sales Shipments to non-existent customers harder to determine
Completeness of Sales Less of a concern in substantive testing Can be tested by tracing pre-numbered shipping documents to journal Remember direction of testing
Accuracy of Sales Select a sample of sales invoices Compare to price list Recompute extensions and footings Trace to journal entries to sales and A/R Can be greatly reduced if controls are effective
Timing of Sales Trace shipping documents to sales journal for timing Test sample of sales transactions on year-end date ± two weeks for timing
Controls for Cash Receipts Prelisting of checks Reconciliation of deposits to batches Checks restrictively endorsed Statements sent each month Returned statements and customer correspondence retained
Tests of Balances Confirmations Tracing just as for sales Aging analysis Review sample to 100% of written-off debts Proof of Cash Lapping Cut-off