A4-M1-REVENUE CYCLE

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5 Terms

1
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Which departments are responsible for preparing the sales order, approving the sales order, preparing the bill of lading, and preparing the invoice?

Sales: prepares the sales order

Credit: approves the sales order

Shipping: prepares the bill of lading

Billing: prepares the invoice

2
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Which department should approve write-offs of uncollectible accounts?

The treasurer’s department should approve write-offs of uncollectible accounts.

3
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A listing of cash receipts should be sent to which three departments?

  1. The cashier

  2. AR (billing)

  3. General accounting departments

Each should receive a copy of the cash receipts listing.

4
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What are some common audit procedures related to the revenue cycle?

  • trace a sample of shipping documents to sales invoices and the sales journal (completeness)

  • vouch a samples of sales transactions from the sales journal to the shipping documents (existence)

  • Examine sales transactions from shortly before and after year-end for recording in the proper period (cutoff)

  • confirmation of a sample of AR (existence)

  • testing of the allowance for uncollectible accounts (valuation)

  • read sales-related disclosures to ensure they are clear and understandable and that all required disclosures have been included (completeness and presentation)

5
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Compare and contrast positive, negative, and blank confirmations

  • Positive confirmation: customer is requested to return confirmation to the auditor. Should be used when accounts are large, errors are expected, or items are disputed.

  • Negative confirmation: customer is requested to reply only if amount stated by auditor is incorrect. Should be used when combined assessed level of inherent and control risk is low, a large number of small balances are being confirmed, and recipients are not expected to disregard the confirmations.

  • Blank confirmation: a positive confirmation that does not include the balance, instead requesting the recipient to provide this information. Blank confirmations provide greater assurance but may result in lower response rates.