2221273-Notes-Chapter-4-AUD - AUD - Notes Chapter 4...

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AUD - Notes Chapter 4 http://cpacfa.blogspot.com Transaction Cycles (4B-3) TIP PIE ACDO – whole chapter 4 Revenue cycle – includes sales revenues, receivables and cash receipts Sales (serially number documents are P AID TIP) 1. Preparation of sales order – a serially numbered sales order is prepared and sent to the credit department for approval 2. Credit approval – valuation assertion, credit department determines (A RC) 3. Shipment – Shipping department prepares a serially numbered bill of lading (ARC ) 4. Billing – Billing dept. prepares serially numbered sales invoice. Shipping documents, sales orders, and invoices are compared to ensure that all shipments were based on customer orders and properly billed. The invoice is then sent to the customer and A/R dept. (AR C) 5. Accounting – the sale is entered into the sales journal and a receivable is recorded (AR C) Accounts receivable 1. Sales 2. Collection of cash receipts 3. Uncollectible receivables – an aging schedule is prepared and sent to the credit department for use in carrying out its collection program. Auditor observes the preparation of aging schedule to support assessing control risk below maximum 4. Sales returns – a serially numbered receiving report may be used as a sales return slip. Once the return is approved, the related receivable is eliminated Cash receipts 1. Collection – incoming mail must be opened by a person who does not have access to the A/R ledger. One receipt copy should be sent to cashier (or treasury) for bank deposit. Another copy sent to A/R dept. for entry into the A/R subsidiary ledger. A third copy should be sent to acctg dept. for entry into the general ledger Testing controls for Sales Inquire about credit procedures for new customers (valuation) (A RC) Compare sales journal to subsidiary ledgers Inspect a sample of prenumbered shipping documents and - agree to sales order (existence) - account for prenumbered (completeness) Vouch a sample of sales invoices, trace a sample of shipping documents Inspect customer exception file and disposition (existence, completeness, rights and valuation) Send confirmations – follow up on error reports (rights and obligations) Test cutoff Test adequacy of uncollectible accounts Expenditure cycle Purchases 1. Purchase requisition – the dept. needing an asset or services sends an approved serially numbered requisition to the purchasing dept 2. Purchase orders – obtain competitive bids from various suppliers to make sure that the best price is obtained. Use prenumbered purchase orders 3. Receipt of goods or services- it is preferable that the copy not indicate the quantity ordered (blind copy), thus the receiving dept is forced to count the goods upon arrival 1
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AUD - Notes Chapter 4 http://cpacfa.blogspot.com Accounts payable 1. record the payable 2. approve the bill – when the invoice arrives, the accounting department approves it by matching the invoice, purchase order, receiving report, and (sometimes) the requisition
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This note was uploaded on 08/12/2010 for the course ACC 452 taught by Professor Mr.cula during the Spring '10 term at Abraham Baldwin Agricultural College.

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2221273-Notes-Chapter-4-AUD - AUD - Notes Chapter 4...

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