Revenue and Collection Cycle

1. Chapter 7 Revenue and Collection Cycle Accounting 408 1 Chapter 7

2. Accounting 408 Chapter 7 2 1. Internal Control Internal control over sales separate functions: receiving customer order, credit approval, filling and shipping sales order, billing customers, recording the sales documents and records: customer order, sales order, shipping documents, sales invoice, approved vendor list, authorized price list, sales journal, A/R subsidiary ledger, A/R general ledger account

3. Accounting 408 Chapter 7 3 1. Internal Control (cont�) Internal control over cash receipts general rules for handling cash separate functions: receiving cash, depositing cash, recording the transactions controls over cash sales, payments received through the mail documents and records: remittance advice, cash receipts list, daily cash summary, deposit slip

4. Accounting 408 Chapter 7 4 1. Internal Control (cont�) Internal control over sales adjustments type of sales adjustments cash discounts sales returns and allowances writing off uncollectible accounts separate functions: cash handling, cash recording, sales adjustments documents and records: credit memos, write-off authorization memo

5. Accounting 408 Chapter 7 5 2. Substantive Tests Accounts Receivable Confirmations - GAAPro positive, negative, others balances, transactions effectiveness returned mail improving response rates Examination of subsequent cash collections Vouching and tracing transactions Cutoff tests - sales and cash Analytical procedures Evaluate adequacy of allow. for uncollectibles Search for related party receivables

6. Accounting 408 Chapter 7 6 Positive Confirmation