Chapter 6: Revenue system Flashcards

1
Q

Name 2 risks related to ordering process in sales system

A
  1. customers cannot pay
  2. orders may not be fulfilled
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2
Q

Describe the process of the ordering stage in the sales system

A

customers order -> credit checks -> authorization from mgt -> inventory check -> generates orders -> sent to despatching department

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3
Q

Name 2 risks related to the despatch and invoicing process in the sales system.

A
  1. goods are despatched but not invoiced
  2. invoices/ credits raised in error
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4
Q

Describe the process of the despatching and invoicing stage in the sales system

A

despatching department receives orders -> check for packaged goods -> sent to customers -> customers make quality check -> customers sign a pre-numbered despatch record -> raised invoices/ credit notes (if the goods are not in good quality)

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5
Q

Name 2 risks related to the recording process in the sales system.

A
  1. invoices are not recorded
  2. invoices are processed to wrong account
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6
Q

Describe the process of the recording stage in the sales system

A

accounting department after receiving despatch record, credit notes and invoices -> matched receipts with invoices to record sales to the correct customer account -> check trade receivable ledgers to identify any irrecoverable receivables

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7
Q

Name 2 risks related to the cash collection process in the sales system.

A
  1. money received but not recorded
  2. money received but not banked
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8
Q

Describe the process of the cash collection stage in the sales system

A

case 1: customers pay immediately -> treasurer receives money -> accountant record payment transactions
case 2: customers pay on credit -> accountant record on trade receivables -> regularly checking to identify any irrecoverable receivables

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9
Q

Name 3 of the functions should ideally be segregated to have an effective system of internal control over the sales system.

A
  1. authorization of orders
  2. recording cash receipts from receivables
  3. invoicing
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10
Q

Why do auditors prefer to perform tests of control over sales rather than substantive procedures?

A

Because sales usually comprise a large number of similar transactions

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11
Q

What is a key control over cash collection process in the sales system?

A

segregation of duties

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12
Q
A
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