AUD 4.1 - Revenue Cycle Flashcards
Auditing by transaction cycle enables the auditor to:
Gather evidence for related accents simultaneously making the audit process more efficient
Includes sales revenues, receivables, and cash receipts
Revenue cycle
Includes purchases, payables, and cash disbursements
Expenditure cycle
Includes cash receipts and cash disbursements
Cash cycle
Includes perpetual inventory, physical counts, and manufacturing costs
Inventory cycle
Includes investments in debt and equity and the income received from investments
Investment cycle
Includes cycles for property, plan and equipment; payroll and personnel; and financing
Other transactions cycles
Common revenue recognition fraud includes:
Early rev recognition
Holding the books open past the close
Fictitious sales
Failure to record sales returns
Side agreements
Channel stuffing
Overstatement of receivables
Under strong internal controls, segregation of the functions in a sales transaction should exist as follows:
- Preparation of the sales order
- Credit approval
- Shipment
- Billing
- Accounting
Who begins the sales transaction by obtaining the receipt of a customer purchase order?
The sales department
The sales department prepares what after obtaining a customer purchase order and sends it to who?
Prepares a serially numbered sales order and sends to the credit department for approval
Who decides if the customer who submitted a purchase order may receive goods on credit?
The credit department
If the credit department approves the sales order, what happens next?
A copy of the approved sales order is sent to the shipping department, billing department, and accounting department
Who gets a copy of the approved sales order from the credit department?
Th shipping department, the billing department, and the accounting department
Once the approved sales order is sent to the shipping department, what does the shipping department do?
They prepare a serially numbered bill of lading and send a copy to the customer
When goods are ready to be shipped in the shipping department, what happens from an accounting standpoint?
A receivable is created based on the invoice shipping terms
After a copy of the approved sales rider is sent to the billing department, what happens next in the billing department?
They prepare a serially numbered sales invoice and send it to the customer and the accounts receivable department after comparing the shipping documents, sales order, and invoice in a 3 way match
Once a copy of the approved sales order is sent to the accounting department and goods are shipped, what happens next in the accounting department?
the sale is entered into the sales journal and a receivable is recorded
Under strong internal control segregation of the functions in an accounts receivable transaction should exist as follows:
- Sales
- Collection of cash receipts
- Uncollectible receivables
- Sales returns
- Sales discounts
To start the accounts receivable transaction process, what happens?
A receivable is recorded in the accounts receivable account by the accounting department
After a receivable is recorded, what happens when a cash receipt is collected?
The receivable is removed from the account
In carrying out a company’s receivables collection program, the accounting department sends an aging schedule to who?
They send it to the credit department
Controls for writing off receivables include proper segregation of:
Authorization by the treasurer and record keeping within the accounting department
When a sales return occurs, what happens?
A serially numbered receiving report may be used as a sales return slip. Once the return is approved, the sales return is recorded and the related outstanding receivable is eliminated
