AUDIT PROGRAM DESIGN PART II
AUDIT PROGRAM DESIGN PART II
Sales and Collection Cycle
The objective in the audit of the sales and collection cycle is to evaluate whether the account balance affected by the cycle are fairly presented in accordance with accounting standards.
There are five classes of transactions in the sales and collection cycle.
• Sales
• Cash Receipts
• Sales returns and allowances
• Write-off of uncollectible accounts
• Estimate of bad debt expense
(Arens, 2012, p.442)
The Key control activities are proper segregation of duties, authorization, documentation and recording, preparation of monthly statements and internal verification procedures.
With the exception of cash sales, every transaction and amount is ultimately included in one of two balance sheet accounts, accounts receivable or allowance for uncollectible accounts. There are eight business functions for the sales and collection cycle. The first four processes are for recording sales, while every other class of transactions includes only one business function. The four sales transaction functions are necessary for getting the goods into the hands of customers, correctly billing them, and reflecting the information in the accounting records. The remaining four functions involve the collection and recording of cash, sales returns and allowances, write-off of uncollectible accounts, and providing for bad debt expense.
Classes of Transactions Business Functions
Sales Processing customer orders
Granting credit
Shipping goods
Billing customers and recording sales
Cash Receipts Processing and recording cash receipts
Sales returns and allowances Processing and recording sales returns and allowances
Write-off of uncollectible accounts Writing off uncollectible accounts receivable
Bad debt expense Providing for bad debts (Arens, 2012, p.443)
The direction of testing for sales is as follows: Customer orders; Shipping Documents; Duplicate Sales invoices; Sales Journals;
Sales and Collection Cycle
The objective in the audit of the sales and collection cycle is to evaluate whether the account balance affected by the cycle are fairly presented in accordance with accounting standards.
There are five classes of transactions in the sales and collection cycle.
• Sales
• Cash Receipts
• Sales returns and allowances
• Write-off of uncollectible accounts
• Estimate of bad debt expense
(Arens, 2012, p.442)
The Key control activities are proper segregation of duties, authorization, documentation and recording, preparation of monthly statements and internal verification procedures.
With the exception of cash sales, every transaction and amount is ultimately included in one of two balance sheet accounts, accounts receivable or allowance for uncollectible accounts. There are eight business functions for the sales and collection cycle. The first four processes are for recording sales, while every other class of transactions includes only one business function. The four sales transaction functions are necessary for getting the goods into the hands of customers, correctly billing them, and reflecting the information in the accounting records. The remaining four functions involve the collection and recording of cash, sales returns and allowances, write-off of uncollectible accounts, and providing for bad debt expense.
Classes of Transactions Business Functions
Sales Processing customer orders
Granting credit
Shipping goods
Billing customers and recording sales
Cash Receipts Processing and recording cash receipts
Sales returns and allowances Processing and recording sales returns and allowances
Write-off of uncollectible accounts Writing off uncollectible accounts receivable
Bad debt expense Providing for bad debts (Arens, 2012, p.443)
The direction of testing for sales is as follows: Customer orders; Shipping Documents; Duplicate Sales invoices; Sales Journals;
References: Arens, A. A., Elder, R.J., & Beasley, M.S. (2012). Auditing and assurance services: An integrated approach (14th Ed.). New York, New York: Pearson. Louwers, T. J., & Reynolds, J. K. (2007). Apollo Shoes Casebook. New York, New York: McGraw-Hill.