Exam 12: Audit of the Sales and Collection Cycle: Tests of Controls and Substantive Tests of Transactions

The business functions mainly related to the cash at bank account include:

The classes of transactions in the sales and collection cycle are sales, cash receipts, sales returns and allowances, and writing off uncollectible accounts.

The business functions mainly related to the bad debts expense account include:

The sales and collections cycle consists of eight business functions. The first four functions result in sales transactions. Discuss each of the remaining four business functions that occur after sales transactions and identify the key documents and records involved in each of those four functions.

The auditor's assessment of control risk is a critical one because it affects the auditor's decisions about:

Explain the audit procedure 'proof of cash receipts'.

The sales and collection cycle involves the transfer of ownership of goods to customers and involves the conversion of services into accounts receivable.

Accounting information flows through the various accounts in the sales and collection cycle in which order? 1. Sales (cash and sales on account) 2) Cash receipts 3) Providing for doubtful debts 4) Sales returns and allowances 5) Write- off of uncollectible accounts

Auditors can respond to deficiencies in internal control by:

State the six specific transaction- related audit objectives for cash receipts. For each objective, describe one common test of controls.

Vouching transactions from journals to source documents tests for the objective of:

Which one of the following types of cash defalcation is LEAST likely to be detected by an auditor?

The granting of credit is critical because it is the first point in the cycle at which company assets are given up.

The prelisting of cash receipts should be prepared by the individual who has no access to cash or to accounting records.

The documents mainly related to sales and returns include:

A credit note is a document used internally indicating authority to write off an account receivable as uncollectible.

A document sent to each customer showing his or her beginning accounts receivable balance and the amount and date of each sale, cash payment received, credit notes issued and the ending balance is the:

When designing tests of controls, the emphasis is on testing controls that:

For most firms, the function of indicating credit approval is recorded on the:

Describe the substantive tests of transactions used to test the accuracy objective for sales.