10. Audit Procedures by Transaction Cycles

Question 1

What are the internal control for “Sales” activities?

Answer 1

1. Prepare sales order
2. Approve credit
3. Ship
4. Bill
5. Accounting

Question 2

What are the internal control for “Accounts Receivable” activities?

Answer 2

1. Sales
2. Collection of cash receipts
3. Uncollectible receivables
4. Sales returns
5. Sales discounts

Question 3

What are the internal control for “Cash Receipts” activities?

Answer 3

1. Incoming mail opened by person with no access to A/R ledger
2. Receipts list in detail (actual sent to Cashier, copy sent to A/R dept, and another copy sent to Accounting)
3. Cashier prepares bank deposit
4. A/R dept enters into A/R sub records
5. Accounting dept enters into G/L A/R control account

Question 4

What are the internal control for “Purchases” activities?

Answer 4

1. Purchase requisition
2. Purchase orders
3. Receipt of goods/services

Question 5

What are the internal control for “Accounts Payable” activities?

Answer 5

1. Record payable

2. Approve invoice for payment & recording payment

Question 6

What are the internal control for “Cash Disbursements” activities?

Answer 6

1. Segregate approval & signing of checks
2. Treasurer prepares, signs, and mails checks & cancels all supporting docs after payment
3. Paid vouchers are returned to accounting dept. for posting of payment & filing of documents