Chap 7 - Revenue and Collection Cycle

Chap 7 - Revenue and Collection Cycle - Chap 7 Revenue and...

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Chap 7 – Revenue and Collection Cycle Review Checkpoints:7.3, 7.7, 7.10, 7.13, 7.16, 7.17, 7.21, 7.23, 7.27 7.3 What do we mean by revenue recognition? What does GAAP say about proper revenue recognition? Revenue recognition is the recording of any revenue into the general ledger that has been realized (or realizable) and earned. 7.7 What computer based files might auditors examine to find evidence of unrecorded sales? Of inadequate credit checks? Of incorrect product unit prices? Evidence of unrecorded sales can be found in the Master Pending Order file of a computer based system. Inadequate credit checks can be checked against the data in the Credit Check files. If an auditor is checking the computer system for incorrect product unit prices, they will most likely find them in the Master Price List file. 7.10 What specific control procedures (in addition to separation of duties and responsibilities) should be in place and operating in internal controls governing revenue recognition and cash accounting? There are a few really good controls that a smaller company (which may not be able to have complete separation of duties) can put into place for revenue reignition and cash accounting. Here is a list of a few: No sales orders should be entered without a customer purchase order Access to inventory and the shipping area should be restricted to authorized personnel Access to billing terminals or blank invoice forms should be restricted to authorized personnel Customer invoices should be compared with bills of lading and customer orders to determine that the customer is sent the goods ordered at the proper location for the proper pricing and the quantity being billed is the same as the quantity shipped Pending order files should be reviewed frequently to avoid failure to bill and record shipments 7.13
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