Chapter 14

Front 1

There are 5 classes of transactions in the sales and collection cycle which include:

Back 1

1. Sales 2. Cash receipts 3. Sales returns and allowances 4. Write off of uncollectible accounts 5. Estimate of bad debt expense

Front 2

What involves the decisions and processes necessary for the transfer of the ownership of goods and services to customers after they are made available for sale.

Back 2

Sales and collection cycle

Front 3

What are the key activities that an organization must complete to execute and record business transactions for sales, cash receipts, sales returns and allowances, write off of uncollectible accounts, and bad debt expense?

Back 3

Business functions for the sales and collection cycle

Front 4

A _____ is a request for merchandise by a customer.

Back 4

customer order

Front 5

A _____ is a document for communicating the description, quantity, and related information for goods ordered by a customer.

Back 5

Sales Order

Front 6

Before goods are shipped, a properly authorized person must ____ to the customer for sales on account.

Back 6

Approve credit

Front 7

Weak practices in credit approval often result in excessive..

Back 7

bad debts and accounts receivable that may be uncollected.

Front 8

The _____, which is often a multicopy bill of lading, is essential to the proper billing of shipments to customers.

Back 8

Shipping document

Front 9

The _____ is prepared to initiate shipment of the goods, indicating the description of the merchandise, the quantity shipped, and other relevant data.

Back 9

Shipping document

Front 10

The most important aspects of billing are:

Back 10

1. All shipments made have been billed (completeness)
2. No shipment has been billed more than once (occurrence)
3. Each on is billed for the proper amount (accuracy)

Front 11

A _____ is a document or electronic record indicating the description and quantity of goods sold, the price, freight charges, insurance, terms and other relevant data.

Back 11

Sales invoice

Front 12

This is a computer generated file that includes all information entered into the system and information for each transaction.

Back 12

Sales transaction file

Front 13

This is a listing generated from sales transaction file that typically includes the customer name, date, amount, and account classification for each transaction. Also identifies whether the sale was cash or AR.

Back 13

Sales Journal or Listing

Front 14

This is a computer file used to record individual sales, cash receipts, and sales returns and allowances for each customer and to maintain customer account balances.

Back 14

Accounts receivable master file

Front 15

This report shows the amount receivable from each customer at a point in time.

Back 15

Accounts Receivable Trial Balance

Front 16

A document mailed o the customer and typically returned to the seller with cash payment.

Back 16

Remittance Advice

Front 17

This is a list prepared when cash is received by someone who has no responsibility for recording sales, accounts receivable, or cash, and who has no access to accounting record.

Back 17

Prelisting of Cash Receipts

Front 18

This is a computer generated file that includes all cash receipts transactions processed by the accounting system for a period.

Back 18

Cash receipts transaction file

Front 19

This is a document used internally to indicate authority to write an account receivable off as uncollectible.

Back 19

Uncollectible Account Authorization Form

Front 20

The four steps to assess control risk:

Back 20

1. The auditor needs a framework for assessing control risk.
2. The auditor must identify the key internal controls and deficiencies for sales
3.After identifying the controls and deficiencies the auditor associates the with the objectives
4. The auditor assesses the control risk for each objective by evaluating the controls and deficiencies for each objective.

Front 21

The auditor is concerned about proper authorization at three key points:

Back 21

1. Credit must be properly authorized before a sale takes place
2. Goods should be shipped only after proper authorization
3. Prices must be authorized

Front 22

Key control activities:

Back 22

1. adequate separation of duties 2. proper authorization
3. adequate documents and records
4. prenumbered documents
5. monthly statements
6. Internal verification procedures

Front 23

For each key control..

Back 23

one or more tests of controls must be designed to verify its effectiveness.

Front 24

Recorded Sales Occur: for this objective the auditor is concerned with the possibility of three types of misstatements:

Back 24

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

Front 25

SAS 99 indicates that the auditor should normally identify improper revenue recognition as ___.

Back 25

fraud risk.

Front 26

The accurate recording of sales transactions concerns:

Back 26

- shipping the amount of goods ordered
- accurately billing for the amount of goods shipped
- accurately recording the amount billed in the accounting records

Front 27

Methodology for designing controls and substantive tests

Back 27

1. Understand internal control 2. assess planned control risk 3. determine extent of testing control 4. design tests of controls and substantive tests of transactions

Front 28

Recorded sales are for shipments actually made to non-fictitious customers.

Back 28

Occurrence

Front 29

Existing sales transactions are recorded.

Back 29

Completeness

Front 30

Recorded sales are for the amount of goods shipped and are correctly billed and recorded.

Back 30

Accuracy

Front 31

Sales transactions are correctly included in the accounts receivable master file and are correctly summarized.

Back 31

posting and summarization

Front 32

Sales transactions are correctly classified

Back 32

Classification

Front 33

Sales are recorded on the correct dates.

Back 33

Timing

Front 34

The postponement of entries for the collection of receivables to conceal an existing cash shortage.

Back 34

Lapping of accounts receivable

Front 35

An audit procedure to test whether all recorded cash receipts have been deposited in the bank account by reconciling the total cash receipts recorded in the cash receipts journal

Back 35

Proof of cash receipts