Sales & Collection Cycle

Front 1

What are the 5 classes of transactions in the sales & collection cycle?

Back 1

1) Sales
2) Cash receipts
3) Sales Returns & allowances
4) Charge-off of uncollectible accounts
5) Estimate of bad debt expense

Front 2

For each class of transaction, list the accounts that are affected by them
1) Sales
2) Cash receipts
3) Sales returns & allowances
4) Charge-offs
5) Bad debt expense

Back 2

1) Sales & AR
2) Cash & AR
3) Sales returns & allowances & AR
4) AR & allowance for uncollectible accounts
5) Bad debt expense & allowance for uncollectible accounts

Front 3

For each class of transaction, list the business functions they provide:
1) Sales
2) Cash receipts
3) Sales returns & allowances
4) Charge-offs
5) Bad debt expense

Back 3

1) Processing customer orders, granting credit, shipping goods, billing customers & recording sales
2) Processing & recording cash receipts
3) Processing & recording sales returns & allowances
4) Charging off uncollectible AR
5) Providing for bad debts

Front 4

What should be done before goods are shipped?

Back 4

Credit approved

Front 5

What is used as a signal to bill the customer?

Back 5

Shipping document

Front 6

A document indicating the description & quantity of goods sold, the price, freight charges, insurance, terms, & other relevant data

Back 6

Sales Invoice

Front 7

Document indicating a reduction in the amount due from a customer because of returned goods or an allowance granted

Back 7

Credit Memo

Front 8

List the 6 Sales transaction related audit objectives

Back 8

1) Recorded sales are for shipments made to actual customers
2) Existing sales transactions are recorded
3) Recorded sales are for the amount of goods shipped & are correctly billed & recorded
4) Sales transactions are properly classified
5) Sales are recorded on the correct dates
6) Sales transactions are properly included in the AR master file.

Front 9

Anyone responsible for inputting sales or cash receipts transaction information into the computer should be denied:

Back 9

Access to cash

Front 10

Credit granting should be independant of:

Back 10

Sales function

Front 11

What must be authorized before a sale takes place?

Back 11

Credit

Front 12

Goods must be shipped only after?

Back 12

Proper authorization

Front 13

Prenumbered documents exists to prevent both:

Back 13

Failure to bill or record sales and duplicate billings

Front 14

For the audit objective of "Recorded Sales Exist" what are 3 possible types of misstatements?

Back 14

1) Sales being included in the journals for which no shipment was made
2) Sales recorded more than once
3) Shipments being made to nonexistent customers and recorded as sales

Front 15

How can an auditor test for "recorded sale for which there was no shipment"?

Back 15

Trace from sales journal to make sure related copies of shipping & other supporting documents exist

Front 16

An effective procedure to test for unbilled shipments is to:

Back 16

Trace shipping documents to related duplicate sales invoices and the sales journal

Front 17

What are the tests of controls related to existence of sales?

Back 17

1) Examine customer order for evidence of customer approval
2) Examine sales invoice for supporting bill of ladding and customer order
3) Examine file of batch totals for initials of data control clerk
4) Observe whether monthly statements are sent

Front 18

What are the tests of controls related to completeness of sales?

Back 18

1) Account for a sequence of shipping documents
2) Examine file of batch totals for initials of data control clerk

Front 19

What are tests of controls related to "Recorded sales are for the amount of goods shipped and are correctly billed & recorded"?

Back 19

1) Examine sales invoice for supporting documents
2) Examine file of batch totals for initials of data control clerk
3) Examine the approved price list for accuracy & proper authorization
4) Observe whether monthly statements are sent

Front 20

What is the test of control for "Sales transactions are properly classified"

Back 20

Examine document package for internal verification

Front 21

What is the test of control for "Sales are recorded on the correct date"

Back 21

Account for a sequence of shipping documents

Front 22

What are the tests of controls related to "Sales transactions are properly included in the AR Master file"

Back 22

1) Examine evidence that AR Master file is reconciled to the GL
2) Observe whether monthly statements are sent

Front 23

What are the 6 transaction related audit objectives related to cash receipts?

Back 23

1) Recorded cash receipts are for funds actually received by the company
2) Cash received is recorded in the cash receipts journal
3) Cash receipts are deposited and recorded at the amount received
4) Cash receipt transactions are properly classified
5) Cash receipts are recorded on the proper dates
6) Cash receipts are properly included in the AR Master file

Front 24

What are the tests of controls related to the existence of recorded cash receipts?

Back 24

1) Observe whether accountant reconciles bank account
2) Examine file of batch totals forinitials of data control clerk

Front 25

What are the test of controls related to the completeness of cash received?

Back 25

1) Observe prelisting of cash receipts
2) Observe endorsement of incoming checks
3) Examine file of batch totals for initials of data control clerk
4) Observe whether monthly statements are sent

Front 26

What are the tests of controls related to "Cash receipts are deposited and recorded at the amounts received"

Back 26

1) Observe whether accountant reconciles bank account
2) Examine file of batch totals for initials of data control clerk
3) Observe whether monthly statements are sent

Front 27

What is the test control related to "Cash receipts transactions are properly classified"

Back 27

Examine evidence of internal verification

Front 28

What is the test control related to "Cash receipts are recorded on correct dates"

Back 28

Observe unrecorded cash at a point in time

Front 29

What are the tests of controls related to "Cash receipts are properly included in the AR Master file"

Back 29

1) Observe whether monthly statements are sent
2) Examine evidence that AR Master file is reconciled to GL