PPT Chapter 14: Audit of the Sales and Collection Cycle: Tests of Controls PowerPoint Presentation ID:3928825

Some internal controls for the cash receipts class include the segregation of duties between the cash handler and the record-keeper, and monthly bank reconciliations. These two controls sales and collection cycle pertain mainly to the occurrence assertion. Remember that substantive tests comprise substantive analytical procedures and tests of details of balances.

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The sales class and receipts class of transactions are the typical journal entries that debit accounts receivable and credit sales revenue, and debit cash and credit accounts receivable, respectively. These are the recording of the sales and cash collection of the sale. Peter Pan has worked on this audit assignment for several years and this year he is the senior in charge of the audit.

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If your process is smooth and well-structured, you maximize your chances of conversion and close more deals while avoiding unnecessary losses. Chapter 16 Completing the Tests in the Sales and Collection Cycle Accounts Receivable. … a new system for sales transactions had been implemented Susan’s substantive tests of transactions identified misstatements. In terms of the completeness assertion, shipping documents are typically sequentially pre-numbered so that any duplicate transaction or a missing transaction can be properly accounted for. Whether the sales transaction actually occurred usually involves backward testing.

• Create a systematic approach to collecting and sharing customer success stories, focusing on specific outcomes and challenges overcome.
• You decide to let an audit assistant help you perform some analytical procedures for accounts receivables and send out debtors’ confirmation.
• Question 5 In the audit of Belmont Manufacturing Co Ltd’s accounts for the year ended 31 December 2001, the following data are extracted from the accounting records.
• Although business entities maintain transparent sales books, manually or electronically, there is always scope for manipulation or mistakes in such entries.
• Rather than pushing everyone through the same process, you can create tailored pathways that respect each customer’s natural buying rhythm while gently accelerating their progress.
• A Sales And Collection Cycle refers to the continuous flow of business activities concerning the cash or credit sale of commodities to the receipt of payment in exchange for the same.
• Disclosed events, transactions, and other matters have occurred and pertain to the entity.

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Recorded sales are according to the accurate amount presented in the sales invoice in terms of (1) units shipped to customer, (2) unit price and (3) total amount of the sales. Recorded sales are for title of goods actually transferred to customers. The receipt of cash from the customer for the goods and services received. Disclosed events, transactions, and other matters have occurred and pertain to the entity. The entity possesses and controls the rights to assets, and liabilities are the obligations of the entity.

Completing the Tests in the Sales and Collection Cycle: Accounts Receivable

At this stage, ABC’s mistake is detected, which it later gets countered for, irrespective of being intentionally or unintentionally involved in the same. There are instances where companies don’t record sales transactions to save taxes or draw a false representation of their financial position. On the contrary, in some cases, the records vary from the actual sales because of mistakes made unintentionally. Also known as the Revenue, Receivables, and Receipts (RRR) Cycle, it determines an entity’s cash flow efficiency. The process starts with selling goods or services to the customers and completes with the realization of the final payment from them.

• Assets, liabilities and equity interests are included in the financial statements at appropriate amounts and any resulting valuation or allocation adjustments are appropriately recorded.
• Collecting this information can also save your company money by building a database of customers for future marketing and retargeting efforts.
• The process usually begins when a customer approaches the company and files a customer purchase order.
• After checking the appropriate response below, please sign and date your reply and mail it directly to our auditors in the enclosed return envelope.
• This means that the auditor will first look at the financial statements/ledger and trace the sale back to its source documents to see if they are genuine.
• Establish clear processes for sharing successful approaches across the team, turning individual wins into repeatable practices everyone can benefit from.

If there are differences, please provide any information in sufficient detail to assist our auditors in reconciling the difference. Accounts receivable transactions around the year end date is included in the appropriate accounting period. Recorded receipts are for cash actually received by the company. Sales transactions are properly classified and record in the correct account. Company audits can either be transaction-related or balance-related or both. The auditor checks the above transactions on the grounds of their occurrence, completeness, accuracy, cut-off, and classification.

You have already conducted tests of controls for the transaction cycles, and control risks are assessed as medium for these cycles. You decide to let an audit assistant help you perform some analytical procedures for accounts receivables and send out debtors’ confirmation. What are the primary transactions in the sales and collection cycle ?. Sales (cash sales and credit sales) Cash receipts Sales returns and allowances Write-off of uncollectible accounts Estimate bad debt expense. The Sales and Collection Cycle, also known as the Revenue, Receivables, and Receipts (RRR) Cycle, is composed of various classes of transactions.