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Auditing > SU 6: Internal Control -- Sales, Receivables, Cash Receipts Cylce > Flashcards

SU 6: Internal Control -- Sales, Receivables, Cash Receipts Cylce Flashcards

1
Q

Match Department with S-R-CR cycle: Inventory Warehouse

A

D, Maintains physical custody of products. The inventory warehouse maintains custody of assets

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2
Q

Match Department with S-R-CR cycle: Shipping Department

A

E, prepares shipping documents.

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3
Q

Match Department with S-R-CR cycle: Credit Manager

A

B, Authorizes credit

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4
Q

Match Department with S-R-CR cycle: Sales Department

A

A, prepares sales orders

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5
Q

Match Department with S-R-CR cycle: General Ledger

A

J, maintains the A/R control account

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6
Q

Match Department with S-R-CR cycle: Cash Receipts

A

I, Safeguards and deposits cash receipts

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7
Q

Match Department with S-R-CR cycle: Mail Room

A

H, receives initial customer receipts

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8
Q

Match Department with S-R-CR cycle: A/R clerk

A

G, maintains A/R subsidiary ledger

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9
Q

Match Department with S-R-CR cycle: Billing Department

A

F, Prepares customer invoices

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10
Q

Controls match department or person with related control: Inventory Warehouse

A

l, releases goods only upon receipt of a valid copy of sales order.

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11
Q

Controls match department or person with related control: Shipping Department

A

Q, goods are sent to customers based only on authorized sales orders

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12
Q

Controls match department or person with related control: Credit Manager

A

S, investigates potential customers and their likelihood of payment

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13
Q

Controls match department or person with related control: Sales Department

A

P, approved customer orders are required before sales orders are released for processing

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14
Q

Controls match department or person with related control: General Ledger

A

T, provides check balance for the sum of the A/R

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15
Q

Controls match department or person with related control: Cash Receipts

A

K, safeguards cash and check prior to deposit in the bank

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16
Q

Controls match department or person with related control: Mail Room

A

checks are immediately stamped “for deposit only” when received

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17
Q

Controls match department or person with related control: A/R clerk

A

O, only remittance advices are forwarded here for posting to customer accounts

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18
Q

Controls match department or person with related control: Billing Department

A

M, matches copies of documents to ensure all customers are invoiced.

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19
Q

Strength or Weakness: the sales clerk accepts orders and prepares multi-part sales order

A

Strength - the sales clerk should accept customer orders and prepare sales orders for internal processing

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20
Q

Strength or Weakness: The credit department is responsible for approving customer credit

A

Strength - the credit department should be responsible for approving customer credit

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21
Q

Strength or Weakness: Products are shipped by the warehouse clerk based on sales order received directly from sales clerk

A

Weakness - products may be shipped to customers before credit approval. There is no communication between Credit and the Warehouse clerk

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22
Q

Strength or Weakness: Invoices are prepared by the credit department

A

Weakness - Invoices should be prepared by the billing department

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23
Q

Strength or Weakness: Invoices are prepared based on the approved sales order

A

Weakness - invoices should be prepared based on products shipped, not ordered

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24
Q

Strength or Weakness: sales order, shipping advices, and invoices are matched by the billing department

A

Strength - Matching by the billing department for sales orders, shipping advices, and invoices assures that the order was completed and the customer was billed.

25
Q

Strength or Weakness: The accounting clerk records the sales transaction in the sales journal

A

Strength - Recording is an accounting function and should be separate from authorization and custody

26
Q

Strength or Weakness: the accounting clerk posts the sales transaction in the GL and the sub-ledger A/R

A

Weakness - although posting is an accounting function, ideally the GL and A/R sub-ledger should be maintained by different individuals. The two records should be reconciled periodically

27
Q

Strength or Weakness: The collection department stamps “for deposit only” on checks as they are received by the customer

A

Strength - stamping “for deposit only” on checks would help ensure that checks could not be stolen and cashed

28
Q

Strength or Weakness: Checks are deposited weekly by the collection clerk

A

Weakness - receipts should be deposited intact daily

29
Q

Personnel Responsibility - Sales

A

Prepares orders based on customer orders

30
Q

Personnel Responsibility - Credit Manager

A

authorizes customer credit and initiates write-offs of bad debts. Should report to CFO

31
Q

Personnel Responsibility - Inventory Warehouse

A

maintains physical custody of products

32
Q

Personnel Responsibility - Shipping

A

Prepares shipping documents and ships products based on authorized sales orders

33
Q

Personnel Responsibility - Billing

A

Prepares customer invoices based on products shipped

34
Q

Personnel Responsibility - AR

A

Maintains AR sub-ledger

35
Q

Personnel Responsibility - Mail Room

A

Receives mail and prepares initial cash receipt records

36
Q

Personnel Responsibility - Cash Receipts

A

Safeguards and promptly deposits cash receipts

37
Q

Personnel Responsibility - GL

A

maintains AR control account and records sales. Daily summaries of sales are recorded in sales journal. Totals of details of sales are generally posted monthly

38
Q

Personnel Responsibility - Receiving

A

Prepares receiving reports and handles all receipts of goods materials, including sales returns

39
Q

Validity Check

A

A validity check test the relationship among input items and other parts of the system. Such as, customer number on sales order is included in customer file

40
Q

Field Check

A

Used to test the characters in a field to verify they are an appropriate type for that field

41
Q

Reasonableness test

A

Tests that are used to test inventory quantities and billing amounts to determine if they appear out of line with expectations

42
Q

Preformatted Screen

A

Used to avoid data entry errors. Sales entry for orders. Shipping entry for shipments

43
Q

Sales controls frequently missed

A

(1) Credit granted by a credit department
(2) Sales orders and invoices prenumbered and controlled
(3) Sales returns are presented to receiving clerk who prepares a receiving report which supports
prenumbered sales return credit memoranda

44
Q

AR Controls Frequently Missed

A

(1) Subsidiary ledger reconciled to control ledger regularly
(2) Individual independent of receivable posting reviews statements before sending to
customers
(3) Monthly statements sent to all customers
(4) Write-offs approved by management official independent of recordkeeping responsibility
(e.g., the treasurer is appropriate)

45
Q

Cash Receipts Controls Frequently Missed

A

1) Cash receipts received in mail listed by individuals with no recordkeeping responsibility
(a) Cash goes to cashier
(b) Remittance advices go to accounting
(2) Over-the counter cash receipts controlled (cash register tapes)
(3) Cash deposited daily
(4) Employees handling cash are bonded
(5) Lockbox, a post office box controlled by the company’s bank at which cash remittances
from customers are received. The bank collects customer remittances, immediately credits
the cash to the company’s bank account, and forwards the remittance advices to the
company. A lockbox system is considered an extremely effective control because company
employees have no access to cash and bank employees have no access to the company’s
accounting records.
(6) Bank reconciliation prepared by individuals independent of cash receipts recordkeeping

46
Q

Controls most likely to ensure all credit sales are recorded

A

Billing department supervisor matches prenumbered ship docs with entries in sales journal.

47
Q

tests of controls for completeness of revenue cycle

A

An invoice is prepared for each shipping document
When shipping document does not have matching invoice, the relevant revenue is not recorded. The invoice is used to prepare necessary JE

48
Q

Under effective internal control the sales department should be responsible for

A

Approval of return for defective merchandise.

This is a part of the segregation of duties that ensures the sales returns and allowances function is effective.

49
Q

To determine whether internal control operated effectively to minimize failures to post invoices to A/R ledger the auditor should select a sample from the population of

A

Sales invoice file.
The auditor should trace sales according to sales invoices to the A/R ledger. Sales invoices in sales invoice file w/o corresponding entries represent unposted transactions

50
Q

Proper authorization for revenue cycle for the approval of bad debt write-off

A

CFO

The credit manager who reports to the CFO, will approve write-offs based on aging reports produced by CM

51
Q

A control to prevent a misposting error

A

Using predetermined totals to control posting routines. A control total should be generated for the transaction to be posted. It should then be compared to the total items posted to accounts.

52
Q

Per sound internal control polices an employee receiving check payments by mail should

A

Prepare duplicate listing of checks received. The mail room receives all customer receipts separates checks from remittance advices, and prepares a daily listing of checks received. The daily remittance list ordinarily is prepared in duplicate

53
Q

Internal control activity that would most likely deter lapping

A

Separation of duties between receiving cash and posting to A/R

54
Q

Tests of controls are used to determine

A
  1. ) How controls were applied at relevant times
  2. ) The consistency of application
  3. ) by whom and by what means they were applied.
55
Q

The best procedure for determining if credit limits are being exceed

A

Develop a program to compare credit limits with acct balances and print out details of any account exceeding limits.

56
Q

Inadequate control for sales invoices and posting to perpetual inventory records would cause

A

Understatement of revenues and receivables and overstatement of inventory

57
Q

Receipts misappropriated is defalcation and would least likely be detected by the auditor if

A

Understating sales journal

58
Q

Evidence regarding Inventory in public warehouse can be most efficiently acquired thru

A

Confirmation

59
Q

Testing the control of obtaining credit approval before goods are shipped supports which assertion

A

Valuation - the proper authorization of credit provides assurance that account is collectible.

Auditing (21 decks)

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