Professional Documents
Culture Documents
Chapter 13 Audit of The Sales and Collection Cycle
Chapter 13 Audit of The Sales and Collection Cycle
ACCOUNTING PROGRAM
Objectives
Identify the accounts and the classes of transactions
in the sales and collection cycle.
Contents
• Accounts and Classes of Transactions in the Sales and
Collection Cycle
• Business Functions in the Cycle and Related Documents
and Records
• Methodology For Designing Test of Controls and
Substantives Test of Transaction for Sales
• Sales Returns and Allowences
• Methodologi for Designing Test on Controls and
Substantive Test of Transactions for Cash Receipts
• Audit Tests for Uncollectible Accounts
• Effect of Results of Tests of Controls and Substantive
Test of Transactions
Audit of the Sales and Collection
Cycle: Tests of Controls and
Substantive Tests of Transactions
Accounts in the Sales and Collection
Cycle
Learning Objective 2
Describe the business functions and the related
documents and records in the sales and collection
cycle.
Sales Transaction
Accounts Business Functions Documents and Records
Sales Processing Customer order
Accounts customer orders Sales order
Customer order or
receivable Granting credit sales order
Shipping goods Shipping document
Billing customers Sales invoice
and recording Sales transaction file
sales Sales journal or listing
Accounts receivable
master file
Accounts receivable
trial balance
Monthly statements
Cash Receipts Transaction
Accounts Business Functions Documents and Records
Cash in bank Processing and Remittance advice
(debits from recording cash Prelisting of cash
cash receipts) receipts receipts
Accounts Cash receipts
receivable transaction file
Cash receipts journal
or listing
Sales Returns and Allowances
Transaction
Accounts Business Functions Documents and Records
Sales returns Processing and Credit memo
and recording sales Sales and returns and
allowances returns and allowances journal
Accounts allowances
receivable
Write-off of Uncollectible Accounts
Transaction
Accounts Business Functions Documents and Records
Accounts Writing off Uncollectible account
receivable uncollectible authorization form
Allowance for accounts General journal
uncollectible receivable
accounts
Bad Debt Expense Transaction
Accounts Business Functions Documents and Records
Bad debt Providing for bad General journal
expense debts
Allowance for
uncollectible
accounts
Processing Customer Orders
Customer Order:
➢ A request for merchandise by a customer
Sales Order:
➢ A document describing the goods ordered
by a customer
Granting Credit
Sales Sales
transaction journal
file
Accounts Accounts
receivable receivable
file trial balance
Processing and Recording Cash Receipts
Prelisting
of
Cash
receipts
Remittance advice
Cash receipts
transaction
file
Cash receipts listing
Processing and Recording Sales Returns
and Allowances
➢ Credit memo
➢Proper authorization
➢Pre-numbered documents
➢Monthly statements
Control
effectiveness
Control
risk
Direction of Tests for Sales
Transaction-related Audit
Objectives for Sales
Occurrence:
Recorded sales are for shipments actually made.
Completeness:
Existing sales transactions are recorded.
Accuracy:
Recorded sales are for the
amount shipped.
Transaction-related Audit
Objectives for Sales
Posting and summarization:
Sales transactions are correctly included
in the accounts receivable master file.
Classification:
Sales transactions are correctly classified.
Timing:
Sales are recorded on the
correct dates.
COSO Report Identifies Revenue
Misstatement Techniques
Improper Premature
sales cutoff revenue
Sham sales
recognition
Unauthorized
Improper shipments
Fraudulent
% of completion
Techniques
Bill and hold
Conditional sales
Round-tripping
Consignment
loans as sales
sales
Summary of Methodology
for Sales
Emphasis
Materiality
on
objectives
Learning Objective 5
Understand internal control, and design and
perform tests of controls and substantive tests of
transactions for cash receipts.
Tests of Controls and Substantive Tests of
Transactions for Cash Receipts
Allowance for
Accounts doubtful accounts
receivable
Bad debt expense
Cash