Bus 426 - Chapter 14

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Department
Business Administration
Course
BUS 426
Professor
Michael Favere- Marchesi
Semester
Fall

Description
Chapter 14 -Audit of the Sales and Collection Cycle Typical Sales Cycle Typical Sales Accounts  Sales  Sales returns and allowances  Bad-debt expense  Cash discounts taken  Trade accounts receivable  Allowance for uncollectible accounts  Cash in Bank Chapter 14 -Audit of the Sales and Collection Cycle  Classes of Transactions in the Sales and Collection Cycle  There are 5 in this cycle: o Sales o Cash Receipts o Sales returns and allowances o Charge-off of uncollectible accounts o Bad-debt expense Nature of the Sales and Collection Cycle  Sales and Collection Cycle: Involves the decisions and processes necessary for the transfer of the ownership of goods and services to customer after they are made available for sale  Information in this cycle is divided into two types o Semi-Permanent Data: Also called master file data, is established when a customer started purchasing, and it is updated as customer information changes o Transaction Information: Based on customer activity, and there is normally one transaction for each activity, such as a sale or cash payment  Information can be processed in two ways:  Batch Processing: Transaction processing using groups of transactions  Online Processing: The processing of transactions one at a time with an immediate update against the data files Business Functions in the Cycle and Related Documents and Records  Business Functions in S&C Cycle: The key activities that an organization must complete to execute and record business transactions o Granting Credit: Approves credit to the customer for sales on account o Remittance Advice: A document that accompanies the sales invoice mailed to the customer; meant to be returned to the seller with the payment Sales Cycle Audit Planning Risk Assessment and the Sales Cycle o Client business risk o Audit risk o Inherent risk o Risk of material misstatement o Risk of fraud o Identify significant risks Chapter 14 -Audit of the Sales and Collection Cycle Methodology for Designing Test of Controls for Sales  Understand General Controls – Sales Understand Internal Control and Evaluate Design Effectiveness – Sales Assess planned control risk, identify and assess risks of material misstatements – Sales Evaluate cost-benefit of testing Controls
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