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Unformatted text preview: 14-6Tests of controls:1. On a sample of sales invoices, examine proper authorization and indication of internal verification of sales amounts.2. Examine approved computer printout of unit selling prices.3. Examine file of batch totals for initials of data control clerk; compare totals to summary reports.Substantive tests of transactions:1. Recompute information on sales invoices.2. Trace entries in sales journal to related sales invoices.3. Trace detail on sales invoices to shipping documents, approved price lists, and customers' orders.14-7The most important duties that should be segregated in the sales and collection cycle are:1.Receiving orders for sales2.Shipping goods3. Billing customers and recording sales4. Maintaining inventory records5. Maintaining general accounting records6. Maintaining detailed accounts receivable records7. Processing cash receipts8. Granting credit and pursuing unpaid accountsSegregation of duties should be used extensively in the sales and collection cycle for two reasons. First, cash receipts are subject to easy manipulation. Second, the large number and nature of transactions within the cycle make the procedure of cross-checking, where one employee's duties automatically serve to verify the accuracy of another's, highly desirable.If the asset-handling activities (shipping goods and processing cash receipts) are combined with their respective accountability activities (maintaining inventory, accounts receivable, and general accounting records), a serious deficiency with respect to safeguarding those assets exists. It would be easy for an employee, by either omitting or adding an entry, to use the company's assets for his or her own purpose. If the credit granting function is combined with the sales function, there may be a tendency of sales staff to optimize volume even at the expense of high bad debt write-offs.14-8The use of prenumbered documents is meant to prevent the failure to bill or record sales as well as to prevent duplicate billings and recordings. An example of a useful control to provide reasonable assurance that all shipments are billed is for the billing clerk to file a copy of all shipping documents in sequential order after a shipment has been billed. Periodically, someone can account for all numbers in the sequence and investigate the reason for missing documents. Computer programs can be used to identify gaps and duplicates in the sequence. The same type of a useful test in this area is to account for the sequence of duplicate sales invoices in the sales journal, watching for omitted numbers, duplicate numbers, or invoices outside the normal sequence. This test simultaneously provides evidence of both the occurrence and completeness objectives....
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- Spring '11