Internal Control -- Sales-Receivables-Cash Receipts Cycle

Question 1

What does an entity’s policy of credit approval shows the auditor?

Answer 1

It provides assurance that the receivable will be collectible, therefore shows that accts receivable shows the appropriate amounts ex. Acct Rec. at net realizable value.

Question 2

What is the Subsidiary customer’s account ledger?

Answer 2

It is the open accounts receivable account where open invoices are waiting to be paid by customers.

Question 3

Test of completeness means?

Answer 3

It means or determines whether all assets, liabilities and equity interests are recorded properly. Its an emphasis on the completeness of the event rather than the existence of documents. ex. an invoice is prepared for each shipping document so that revenue is recorded.

Question 4

What is a remittance advice?

Answer 4

remittance advice is a piece of document sent with an invoice for the customer to return that with a payment so that the payment can be posted to the correct customer’s account when received by the company.

Question 5

Who is responsible for depositing the checks received from customers as payments?

Answer 5

The CFO is the custodian responsible for deposits of daily receipts.

Question 6

When is an invoice created?

Answer 6

Upon receipt of the packing slip and bill of lading, billing matches them with the approved sales order, prepares an invoice, and sends it to the customer.

Question 7

Who authorizes write-offs of uncollectible accounts?

Answer 7

The Credit manager initiates the process of writte-off and then the CFO reviews and authorize the transaction.

Question 8

Examples of Logic, Limit, Field and digit checks are?

Answer 8

1. Logic check also called validity check = looks at the relationships among items inputted and other parts of the system example. checking that employee number entered in on the payroll file.
2. Limit Check = determines if a value is outside a prescribed range.
3. Field check = doesnt allow a name to be entered where a number expected to be entered.
4. Check digit = recalculation of digits to verify identification codes.

Question 9

For transactions outside of the normal course of business, the auditor will not?

Answer 9

Understand the controls over authorization and approval of such transactions because normal controls do not typically apply, therefore, substantive testing of the transaction should be made.

Question 10

The treasurer oversees the following departments:

Answer 10

Mail Room
Cash Receipts