Professional Documents
Culture Documents
14 - 1
Learning Objective 1
Identify the accounts and the
classes of transactions in the
sales and collection cycle.
14 - 2
Cash in Bank
Accounts Receivable
Beginning Cash receipts
balance
Cash Discounts
Taken
Sales on
account
Sales returns
and allowances
Sales Returns
and Allowances
Ending
balance
Write-off of
uncollectible
accounts
Bad Debt
Expense
14 - 3
Sales returns
and allowances
Ending
balance
Write-off of
uncollectible
accounts
Allowance for
Uncollectible Accounts
Write-off of
Beginning
uncollectible balance
accounts
Estimate of
bad debt
expense
Ending
balance
Bad Debt
Expense
14 - 4
Learning Objective 2
Describe the business functions
and the related documents and
records in the sales and
collection cycle.
14 - 5
Sales Transaction
Accounts
Sales
Accounts
receivable
Processing
customer orders
Granting credit
Shipping goods
Billing customers
and recording
sales
Customer order
Sales order
Customer order or
sales order
Shipping document
Sales invoice
Sales transaction file
Sales journal or listing
Accounts receivable
master file
Accounts receivable
trial balance
Monthly statements
14 - 6
Remittance advice
Prelisting of cash
receipts
Cash receipts
transaction file
Cash receipts journal
or listing
14 - 7
Sales returns
and
allowances
Accounts
receivable
Processing and
recording sales
returns and
allowances
Credit memo
Sales and returns and
allowances journal
14 - 8
Write-off of Uncollectible
Accounts Transaction
Accounts
Accounts
Writing off
receivable
uncollectible
Allowance for
accounts
uncollectible receivable
accounts
Uncollectible account
authorization from
general journal
14 - 9
Bad debt
Providing for bad
expense
debts
Allowance for
uncollectible
accounts
General journal
14 - 10
14 - 11
Granting Credit
Before goods are shipped, a properly
authorized person must approve credit
to the customer for sales on account
14 - 12
Shipping Goods
This is the first point in the cycle
where company assets are given up
14 - 13
Monthly statement
14 - 14
14 - 15
14 - 16
14 - 17
14 - 18
Learning Objective 3
Understand internal control, and
design and perform tests of
controls and substantive tests
of transactions for sales.
14 - 19
14 - 20
14 - 21
14 - 22
14 - 23
14 - 24
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.
14 - 25
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.
14 - 26
Sales
journal
Shipping
document
Duplicate
sales
invoice
General
journal
Accounts
receivable
master file
Completeness
start
2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder
Existence
start
14 - 27
Summary of Methodology
for Sales
Transaction-related audit objectives (Column 1)
Key existing controls (Column 2)
Tests of control (Column 3)
Deficiencies (Column 4)
14 - 28
Learning Objective 4
Apply the methodology for controls
over sales transactions to controls
over sales returns and allowances.
14 - 29
14 - 30
14 - 31
Learning Objective 5
Understand internal control, and
design and perform tests of
controls and substantive tests
of transactions for cash receipts.
14 - 32
14 - 33
Learning Objective 6
Apply the methodology for
controls over the sales and
collection cycle to write-offs
of uncollectible accounts
receivable.
14 - 34
14 - 35
Credit approval
Aged accounts receivable trial balance
Writing off uncollectibles
Rights and obligations
14 - 36
14 - 37
Accounts
Cash in
Receivable
Bank
Sales
Cash receipts
transactions
transactions
Audited by
TOC, STOT, and AP
Ending
balance
Audited by
TOC, STOT, and AP
Ending
balance
14 - 38
End of Chapter 14
14 - 39