Audit of The Sales and Collection Cycle
Audit of The Sales and Collection Cycle
Audit of The Sales and Collection Cycle
Collection Cycle
Chapter 14
2005 Prentice Hall Business Publishing, Auditing and Assurance Services 10/e, Arens/Elder/Beasley 14 - 1
Learning Objective 1
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Accounts in the Sales
and Collection Cycle
Sales Cash in Bank
Cash
sales
Accounts Receivable Cash Discounts
Sales on Taken
account Beginning Cash receipts
balance
Sales on Sales returns Sales Returns
account and allowances and Allowances
Ending Charge-off of
balance uncollectible Bad Debt
accounts Expense
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Accounts in the Sales
and Collection Cycle
Allowance for
Accounts Receivable Uncollectible Accounts
Beginning Cash receipts Charge-off of Beginning
balance uncollectible balance
accounts
Sales on Sales returns Estimate of
account and allowances bad debt
expense
Ending Charge-off of
balance uncollectible Ending
accounts balance
Bad Debt
Expense
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Learning Objective 2
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Sales Transaction
Sales
Accounts
Accounts Receivable
Business
Processing and recording cash receipts
functions
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Charge-off of Uncollectible
Accounts Transaction
Accounts Receivable
Accounts
Allowance for Uncollectible Accounts
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Bad Debt Expense
Transaction
Business
Providing for bad debts
functions
Documents
General journal
and records
2005 Prentice Hall Business Publishing, Auditing and Assurance Services 10/e, Arens/Elder/Beasley 14 - 10
Processing Customer Orders
Customer Order:
A request for merchandise
by a customer
Sales Order:
A document describing the
goods ordered by a customer
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Granting Credit
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Shipping Goods
Shipping
document
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Billing Customers
and Recording Sales
Sales invoice
Monthly statement
2005 Prentice Hall Business Publishing, Auditing and Assurance Services 10/e, Arens/Elder/Beasley 14 - 14
Processing and Recording
Cash Receipts
Remittance advice
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Processing and Recording
Sales Returns and Allowances
Credit memo
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Charging Off Uncollectible
Accounts Receivable
Uncollectible account
authorization form
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Providing for Bad Debts
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Learning Objective 3
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Effect of E-Commerce on the
Sales and Collection Cycle
The Internet
The Internet and
other developing
technologies allow
companies to develop
new business models.
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Effect of E-Commerce on the
Sales and Collection Cycle
Business-to-business (B2B)
Business-to-consumer (B2C)
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Effect of E-Commerce on the
Sales and Collection Cycle
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Learning Objective 4
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Methodology for Designing Controls
and Substantive Tests: Sales
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Assess Planned
Control Risk Sales
Adequate separation
of duties
Proper authorization
Adequate documents
and records Prenumbered
documents
Monthly statements
Internal verification
procedures
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Internal Verification Procedures
Evaluate cost-benefit
of testing controls.
Design tests of
controls for sales.
2005 Prentice Hall Business Publishing, Auditing and Assurance Services 10/e, Arens/Elder/Beasley 14 - 27
Transaction-Related Audit
Objectives for Sales
Existence:
Recorded sales are for shipments actually made.
Completeness:
Existing sales transactions are recorded.
Accuracy:
Recorded sales are for the amount shipped.
2005 Prentice Hall Business Publishing, Auditing and Assurance Services 10/e, Arens/Elder/Beasley 14 - 28
Design Substantive Tests
of Transactions for Sales
Classification:
Sales transactions are properly classified.
Timing:
Sales are recorded on the correct dates.
Duplicate Accounts
Customer Shipping Sales General
order document
sales
journal journal
= receivable
invoice master file
Completeness Existence
start start
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Summary of Methodology
for Sales
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Learning Objective 5
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Sales Returns
and Allowances
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Sales Returns
and Allowances
Emphasis on
Materiality
objectives
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Learning Objective 6
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Tests of Controls and Substantive Tests
of Transactions for Cash Receipts
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Learning Objective 7
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Audit Tests for
Uncollectible Accounts
Realizable value
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Effect of Results of Controls and
Substantive Tests of Transactions
Accounts
Cash
receivable
2005 Prentice Hall Business Publishing, Auditing and Assurance Services 10/e, Arens/Elder/Beasley 14 - 42
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