Revenue and Receipt Cycle

Auditing Theory
Purpose of a transaction
walk through
To confirm the auditor's understanding of the internal control
structure
Effective internal control
over AR
Billing function should be separate from maintaining AR
subsidiary records
Billing
Match shipping documents with sales orders and prepare
daily sales summaries
Completeness
An auditor selects a sample from the file of shipping
documents to determine whether invoices were prepared
Assures that all inventory
shipments are billed to
customers
Shipping documents are prenumbered and are independently
accounted for and matched to sales invoices
To prevent nonbilling:
Numerically sequence and independently account for all
controlling documents (such as packing slips and shipping
orders) when sales journal entries are recorded
Select a sample from the
shipping records file:
To determine whether internal control operate effectively to
minimize errors of failure to bill a customer for a shipment
Test of controls over
shipping
Shipments are billed
Test of controls over
billing
Billed goods have been shipped
Treasurer
Approves write-offs
To prevent lapping
Having customers send patments directly to the company's
bank
Separate:
Credit-granting function & sales function
Receiving cash & posting the AR ledger
Cashier
Receives remittance from the mailroom and also prepares the
daily deposit slip