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36 Cards in this Set

  • Front
  • Back
Accounts and classes of trans in the sales and collection cycle
Cash sales
Sales on account
Cash received on account
Sales Returns and allowances
Adjusting journal entries
Write offs of uncollectible accounts
Estimate of bad debt expense
Cash sales journal entry
dr cash cr Sales
Dr. COGS Cr Inventory
Sales on accounts journal entry
Dr A/R cr Sales
Dr. COGS Cr. Inventory
Cash received on account journal entry
Dr. Cash cr A.R
Returns and allowances journal entry
Dr sales returns and allowances cr. A.r
Customer order relates to what class of transaction
Sales
Remittance advice relates to what class of transaction
cash receipts
credit memo relates to what class of transaction
sales returns and allowances
Uncollectible account authorization form relates to what class of transaction
uncollectible accounts
sales order relates to what class of transaction
sales
Sales invoices relates to what class of transaction
sales
prelisting of cash receipts relates to what class of transaction
Cash receipts
bill of lading relates to what class of transaction
SAles
monthly statement relates to what class of transaction
Sales
Customer order
A customer order is a request for merchandise by a customer. It may be received by phone, internet, letter, or printed form that has been sent to prospective and current customers.
sales order
A sales order is a document for communicating the description, quantity, and related information for goods ordered by a customer. Often used to indicate credit approval and authorization for shipment.
Sales invoice
An invoice is a business document issued any time a sale takes place. Doctors issue invoices after a patient's appointment. Office-supply companies issue invoices when a client places an order.
Invoices serve as a permanent reminder of what was purchased, when it was purchased, how much it cost, who sold it, who bought it and how to reach them. Using the example of the doctor's office visit, an invoice would include the name, address and telephone number of the doctor's office; and the name, address and telephone number of a patient and the services the doctor performed (and charges for each).
Bill of lading
A legal document between the shipper of a particular good and the carrier detailing the type, quantity and destination of the good being carried. The bill of lading also serves as a receipt of shipment when the good is delivered to the predetermined destination. This document must accompany the shipped goods, no matter the form of transportation, and must be signed by an authorized representative from the carrier, shipper and receiver.
Monthly statement
Document sent to customer to confirm their outstanding balances
Remittance advice
Send in with your bill it's the bottom half that you tear off usually. A remittance advice is a letter sent by a customer to a supplier, to inform the supplier that their invoice has been paid. If the customer is paying by cheque, the remittance advice often accompanies the cheque. The advice may consist of a literal letter (e.g., "Gentlemen: Your shipment of the 10th inst was received in good order; accompanying is our remittance of $52.47 per invoice No 83046") or of a voucher attached to the side or top of the cheque.
Prelisting of cash receipts
A printed document that is logged by a business each time cash is received for a good or service.
Credit memo
Authorizes a write off of an account
Uncollectible account authorization form
These forms are what should be filled out before an account is written off.
Sales returns and allowances if immaterial:
No audit procedures required for the valuation requirement. We don't care if they are off because the amount is immaterial.
Sales returns and allowances for the occurrence objective
Test often to make sure a fraudulant write off hasn't happened.
Sales returns and allowances for completeness objective
Important to look at significant year end sales to see if they are inflated or overstated.
What are three important controls for cash receipts?
1. If cash received in mail, person opening must complete prelisting of cash receipts.
2. Best control=trustworthy employees
3. Proof of cash
IF cash received in the mail
Whoever opens the mail should prepare a prelisting of cash receipts. Whoever fills out the pre-listing should not record transactions nor make out deposit slips to ensure they aren't taking cash for themselves.
What is the best control for the sales/collection cycle/any cycle?
Trustworthy employees. Hiring people who won't do this. A company should trust but verify through mandatory vacations. These vacations last 1-2 weeks and help identify fraud.
Proof of cash
When test of controls are weak look at cash account from forward, backward, left, and right. Tests cash account from 4 ways used when controls are really, really weak and you doubt cash balances.
Lapping of accounts receivable
Receipts from one person are stolen and covered by receipts from another account. STudent one comes in and then their money is taken then student 2 comes in and the recepient of cash uses student 2's cash to pay student 1's bills and continues doing this for some time.
Audit tests for uncollectible accounts biggest risk
Someone attempting to cover up a fraud by writing off an A/R that hasn't been authorized.
What should you do to ensure this doesn't happen?
Audit procedure: Review documents authorizing write offs. Should be a significant correspondence trail between a business and a customer before they write off an account then you follow the trail, send them letters, if nothing trailed then the trans is highly suspect.
Effects of tests of controls and substantive tests
Do tests of controls: the results impact test of transaction.
When controls are effective
test of trans are high
Test of balance are low
Analytical procedures are high
When controls are not effective
Test of tx. are moderate
test of bal are moderate
analytical procedures are low