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    24 views66 pages

    Auditing Chapter - 4 9

    Uploaded by

    Fel Salazar Japs

    Copyright:

    © All Rights Reserved
    Download as PDF or read online from Scribd
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    of 66
    “crapter 4 = Teansodtion Cycles CHAPTER 4 TRANSACTION CYCLES ‘TOPIC OVERVIEW: “Tr chapter discusses the different transaction cycles and the key conta foreach transaction cycle LEARNING OBJECTIVES: ‘ster studying this chapter you shouldbe able to: 1 pesenbe the diferent categories of transaction cytes. 2. ldentfy the forms or documents used in diferent departments Identify and descnbe the functions of departments in each transaction oye ‘4. Wety possible controls n each transaction cyte “TRANSACTION CYCLES Transaction eles are the means through which an accounting 3tem processed wansactons of related actives such ab sale of Boots 10 tomers sequtton of merchandise and payment to vendor, reduction ished products forsale, and payment to employees for services thy fad rendered ‘Atransaction Is an agreement between two entities to exchange goods or ‘Zervices or any other event that ean be measured in economic terms by an organization ‘The revenue and receipt, purchase to pay and production cyte discussed it us chapter prmanly fora manufacturing enya addition. the discussion Linder the financing cycle is primarily fr a corporation. However. the peyrall ‘ele and investing cycle may be applicable to all entities. Furthermore Internal controls discussed fs normally applicable in a manual proces SP ‘which may significantly vary m an automated process set. Categories of Transaction Cycles “These eyes can be categorized into five interrelat — ] + sale of ods or services icastomes ed major cycles: __ ‘Revenue and receipt { Saeetonofesh = Expenditure and + Sesion of gods and series ‘disbursement 5 pute forthe goods and series cae Hama Fesourcezand | «-scquistin of sevice fom employee | payrot NT | payment forthe services aca — Production oF cnverdion |» production of nity produ fsa Financing and vesting |e generaon of captal fonds fm ou 46 ‘investment of capital funds prritabe acts te other [fuses RiMinows | © Resoures are disibuted to cstomers in exchang for promises future payments «Coster pay ash fr esoutes dsebuted tthe, Frecoumis Aeount fected include te lowing Afceted’ | Salesandelated sales eur allowances and discount 1 Receivable allowance forbad debts ado ett epense tah ‘Departmen | Signtiant departments afedingte cele are imaived | Revenue Sales or customer order | Scrat Inventory contol orsarehouse Shipping ing 1 Accouming (ventory recetable and general) Receipt Mat oom o eceptionit Deasury | Aecunting(eceiable and genera Forms or documents received initiated and processed tors Description | —tnlatedy: —[-Distibuied io | Tales order | Contains. the details Sales * Gastoners Ceersipor | of goods ordered | deparmnent | + Crest swstmer order | (ua, prices and shiping payment terms) | 5 ting Ripping [Describes the goats | Shipping Caer document (bit | to be shipped and | department | + Castomers | Sfladingor | serves as contract ing | Aetvery seein) |etween the ent Salesinvoice —[Deseribes the goods | Bing “Gane | (ong okkamoum durant | Geparment | + Acoumag. | [gsiemens __| theteme of parmest a tance TA documen set by [Cason Tes | + General sive ‘tomer ton seller | thermal rom | "accounting Moeming he seer | depart | Receable that temic hs department ee ‘een pad pees ‘Chapter 4 = Transaction Cycles © Geneai [pai Summaries Recevabievor smmaries | tansctons sis) sxvounting fecorded during the | Treasury or | «yee {ayy the tern | clcton) Reewant ‘epatents, ai om (or l [frees al ceed Important notes to forms or documents processed — 1h department hat inated the processing approves the form 2. The department that inated the processing accountable un forms. Als, aecess to those forms. shall be: limited. to tet department Bs 3. Thenotfeation of forms doesnot necessarily mean hat copy shal forwarded. Notification canbe done thru electrome mall 7? alte ‘he deparement that nite, received or processes for shal sin {copy (hard or electroni op) or ling ‘Summary of Functions of Departments in the Revenue Cycle A Sales department Primary objective: To increase entity's sales 14 Transoction Cys _craguee 4 = Trans So eaecanaees a ry et nd pa anno st “Activities ‘Possible control — TR ar a | ee ae dnt a taventory control that provides | en mano wt |e kets pati Siler ieeenia ao provide reasonable assurance the Shipping department o aeeembjectve” To provide reasonable assurance that ll shipments reauthoried. 5 Aereps customer orders ince ‘Prepares sales order and distibute | Ses department hasan exc copies to customers, credit, shipping | function to communicate wth the Sn bing customers 5 Retaine copy imunfilled order file J Entity maintains st of autora 6 Monitors the status ofthe oder ctstomers to minimise expo | Updates eutomersasto the status of | hgherak customers ‘te order Ey tin fan of ate | prices forts poets, 1B. Credit department Primary objective: To minimize exposure to high-risk cs ‘ator Pesitiecones Receives ad review aes order rom [Common cones oid ‘ies department Siren ettes i he drt 2.Conducts cre investigation inl oe ZLapproves cre request hy preparing «nities etal oat 3Ptemo placie a capprved | dparnent tha i inert tnarkin he sales oder se tesales depart “4.Noties sles department as to the | « Cred nt “Spproval/disapproval ofthe ered authorize custom Inventory conte Spproved soles order from inventory | include conte «Shipping documents that are pre- a.Campletes shipping documents and |” numbered and accounted for Prepares goods for shipment + Ensure related billings are made on SsRalease goods to carier and obtains |” a perdi basis receipt ‘Moti sales department that goods tavebeen sipped | Stove te ting domes = sie ns Billing department Primary objective: To provide reasonable assurance that all shipments setae —— —— Posie contais >) Compare ibe olowing documents | Common contol adopted by a.salesonder trom sles department erat enites in this deparanent ore sles onder an spying | me decane "from shiping |» Premambered sles nice partment 5 Siping document must be 2h ares ‘sales invoice and send |” pretent before preparation of sales fopies to customer (nu the carter) | vole | and inventory scebunting 0 F Accounting department ‘inventory Provides cost information on the forwarded to general accounting and records tr the cost of ood sold * Generak: Records the sale and forward sales documents to accounts receivable * Accounts Reewable: Updates subsidiary ledger related to customer ee Invoice and relates Summary of Functions of Departments in the Receipt Cycle A. Mailroom or Receptionist + Receives remittance advices and custom «+ Prepares listof receipts + Endorses checks and list of rece ‘Endorses remittance advices receivable department B. Treasury department = Updates cash records + Prepares deposit slips * Prepares collection summaries, sends copy to accounts receivable snd general accounting and retains copy + Deposits collection to the bank Accounting department ' Accounts receivable: compares remittance advice trom mall rom and cash summaries from treasury, updates subsidiary ledgers ant prepares daily summaries to be forwarded to general accounting, General: compares daily summaries from treasury and. accounts receivable, then updates general ledgers. er checks from customers pts to the treasury department and list of receipts to the accoums Other activites nthe revenue and receipt yee Uncoteced acounts 1 Arcoune recta Review indvidal customer account peril and compre esis cred its « Prepare moth atcounts recelvable bance for reconiston tithe general eer es GL-reconcaton 2. authorized personne dependent frei department Menterand age scountsrectaesalancesenodely 4 huthotued personnel who repre the ensure and independ ‘coring uncuons or Treasurer toubore the wee! nea of delnquem sroun, sch acount shoul be reviewed so caper «If judged to be uncoletible. written authorization to write-off should pe sen to accounts receivable and general acounting sales returns and allowances Pe Sales department ¢ Reviews customer's request for returns and allowances, 1 Grants sales returns and allowances and prepares credit memo which {f forwarded to customer, accounts recevable (for recording), and Inventory control (or returns) 22 Receiving departinent «Receives returned goods 1 Prepare receiving report 3. Inventory control ‘Compares goods received through the receiving department and credit memo 4, Accounting ‘inventory: updates inventory records based on receiving report and prepare daily summaries to be forwarded to general accounting s ecounts receivable: update records based on the credit memo ‘received and prepares daily summaries to be forwarded to general Secounting «General: compares daily summaries from inventory and accounts receivable. then, updates general ledgers. “Two major busines functions are ] ‘Resourees are acquired from vendors in exchange for | abligations to pay | + Enuty pays cash to vendors and employees | ‘Accounts affected include the folowing: ‘+ Purchases (eg. inventory and supplies) + Purchase returns allowances an cesount * Payables Significant departments aferingiheciele re Expenditure ‘User (any department within the entity) + Purehasinger procurement * Receiving * Accounting (accounts of vouchers payable) * accountng (nsentoy and general) Disbursement “Treasury | + accounting (reesable and general st (Chapter 4 = Transaction Cycles crap Transacvon Cycles Forms or documents received, nated and processed _ Free PCE OST | ta in aS] roe Description Tniated by: | Ditribateg > eras copes to vendor, user, | wit thewcn | _ ae etna aco eva «En mas a of athraed Teqalon | Canane he des ofthe [User oc eemarestatusot herder |” ender | sip user departments request | department * Htaescstomers ast the status of | Entity compares purchase pc to | tse georer |" arteries faust | __ [_wesrte . 7archase | Describes he goods Yo be | Parchasng + Vendag—~, Receiving department frder | soqured(gvemy and | deparimene | 2 yen Primary objective: To provide reasonable assurance that eeived goods assertion) ea rebased on approved purchase order Been ee tives Possible controls - conse Fes pares orders until goods are | Common cantce seemed by | Receiving] Describes the goods | Revaving |» a reeened ferent entites nthe depen report [received (quanuty.| depaiment | 2 chai 2M cep, counts and checks the | inde S70 __| desenpion nd coaiuan) ee rs for appropiate quantity and «To ensure hat the receiving Shiping Describes the goods o be | Vendor iia | © hedetag Enanon department el count and cheek document | shipped and serves as | thevarner) | fos ait" and compares purchase | the gods rested the parang Contract “between the rane nr ed shipping document few | deperearnscnss ek parca | sendor and carrier theca eter Vendors | Describes the poss | Vendor] » Aros Prepares reciving. reports 10 be | Invotce | amount due and the terms (=, forwarded ‘purchasing and | Sfesreet servants payable ‘acopanied by emivanee |X document Sent by the | Teasy + Vendor] Durchase ores (rom purchasing and Sey ees | Shinning document rom hearer pee eee nine tt D. Accounts oF vouchers payable department tha eh eon Primary objective: To provide reasonable asirance that payments wi pw - = only be mad oshipments recived Tay ——| Furmarine waren | Roos] = Gener ict ed nae summaries | recorded during the ay | payale (lor | "sccm, Teviewsand compares parthave | Common ents slopied By | ee er | eae des, reciting rept and vendors |aiferen entities in ths department Treasy (or sito way mate ince | payment) J 2 Prepares voucher = Voucher should be supported by —-1.- ’ reps voucher package |” purchase arr, Tee ep Summary of Functions of Departments in P2P Process Cycle A. User department sti. purchase" order, | nd suppliers sales invoice or any vendors invoice, | other supporting documents Prepares reqston spt be forward to pchsing a cons {Breer day srry |e Aun pate eprimen les pable dparnents be rw to the wenury td |” sone page y oe dat 58 1 Purchasing or procurement department eralacmning respecte) | top by on tne and ake Primary anetve To mect the spel needs te wer department a ney | Stat deouas thelea posable cost a LE. Teeswrydapargneat[Dbborewan!l ‘icivites | Passions = Acie pom — Tries approved rquion ip Comin ono Reviews voncherpatageeccved | Common seat lope he ws departnent ret et nh det 2 [Gaiman coms ered by aisha moe Farwars che’ "aal_enatnce |The psn ting he heck 33 cs vendor anid negotiates wath | cade: «Purchasing _deparime 32 ‘aivicetovendore iY J cancels the voucher patlage 4 Transoction Cycles _qrapter 4 = Teansaction Cycles —__ _jarmsor documents received, nated nd processed Description | Initiated by: | Distributed to | ‘prs Sy smmany wh 6) ing "mac [eae cona al ermaton [| Ieiomndliopetacnoning | anced" wing the Fore | ae" 0" ys | Qarmen |” fit so Entity ‘may adopt any of the secordsor | Srtired up. to ther feed following in relation to suance st ziti) | eventual termination It | taformat eae ‘documents all actions a | | esa ag tne eee | management om bel of ~ Noche shale auc Necieda ale Inempoye. Common | heck afoul Be send by ee eer | | tear authored ean” es inormatisn, MUMAN RESOURCES AND PAYROLL CYCLE atime Desens the wanber | War +Foya | Human resource and_ payroll cyl are part of the wipeniane ad a | hours worked by an | department disbursement cycle. This cycle covers the entity's acquisition of services oe | ‘during a ery |epaeageere | trom ts employees or personnel The flowing ave mln ressone eye pula ay covered by 2 tutor isconcered wth ths te povoerd 1" Payrall mete diferent categories of employee bones (a Fara —] oes al waved parol | Paral ——] Trey term: postemploymen other longsrs sn etement tate Tegoter | formation ress pay * ceneat signifeamy ae mayor elemento incl statements aa nductona tnd ne a) SSoming | Formos nites, sigan amount arses © neue fovea ay ped | Business| Two malar business futons re Taborcom | Shows pay imarmatn | Paral] > Tovey Fenctoes | Sere are reed trom employees in exchanger smmsry’ | wich cpiatzsle er come | | sigstonet pay cin be sunbed «Ente pgs cao employees : barter ab or aster Aazwanis — Broun aed cet aioe owing rer areas | Saanesand mages expense and pyle Taplayee | Shows ihe —camaaive | Paral] haan] 1 Premume expense am poyble fstnigs | geste summary of | "tomate | etnuneniig tis pantie record” | Simms and deduces of “Tiverton for invertors salaries and wags Sry employee ie os yd Daly Stsmerzes"swansatiow [Paral —or > Gener | Significant departments affecting the cycle are Summaries | recorded during the day by | liability accounting imo | Expenditure thediorent depariment | recogton) Doe (er epormen: within hens) Inventory (or | Ditnintesourees (or personel venorable Shaya * Accounting (inventory and general) Disbursement and distribution = Treasury Accounting (eeneral se = Tabor costs) ‘Treasury (or | payment) | ss Chapter 4 ~ Transaction Cycles ‘Summary of Functions of Departments in Human Resource and pays Payra cycle A User department Primary objective: To ensure tht time records prepare by en represent actual hours worked during a pay period mle, —€- aa si ossbie controls — Tonto and approves daily ine | Common comet 3] 5 records different entities inthis dene include: "+ epartmen due to introduction of |+ Appropriate review computeraed human resources |” be'mace te ence aces al systems, tine records ate commonly | daiy tine’ fends ee tracked through biometrics and access | employees = sevices + In case of computerized. system, [| aarrtoran ets ae ‘made bythe user department hag B. HR department oa Primary objective: To ensure em ployees included i the paral ae rendering services to the entity is ‘Activities Possible controls Trnitates, updates and maintains HR | Common conls sdoped By records diferent entities in thi deprme | 2.Forwards payroll related information | include | to payroll department (eg, salary and | Acces, including inating anges wage rates, bonuses, overtime pays, |” to HR record shal be hmited od) 8nd payrail deductions) to the HR deparament B.Determines terms. of settlement | «Information nt relevant opel (Qump-sum or installment) incase of |" eacustion sal not be shared termination ofemployee/s ther departments 4.immediately notify payroll

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