Audit of Revenue and Receipt Cycle
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This document summarizes the revenue and receipts cycle of a business. It describes the three main transaction types of this cycle as sales of goods/services, receipt of cash from customers, and returns. It then outlines the key processes in the cycle including sales order entry, credit approval, shipping, billing, inventory accounting, general accounting, accounts receivable, cash collection, sales returns and allowances, and uncollected accounts. Finally, it discusses control objectives around transaction authorization, execution and recording and assessing control risk.
Audit of Revenue and Receipt Cycle
- 1. AUDIT OF THE REVENUE AND RECEIPT
- 2. NATURE: REVENUE – exchange of goods and services with customers RECEIPT – collection of Financing Revenue revenue in cash and and Conversion Receipt Cycle Cycle Expenditu re and Disbursem ent Cycle
- 3. 3 types of transactions associated with Revenue and Receipt Cycle: 1.Sale of goods or rendering of a service (cash/credit) 2.Receipt of cash from customers 3.Return of goods
- 4. Types of documents used and accounting records: 1.Customer order 2.Sales order 3.Credit approval order 4.Open-order report 5.Shipping 8. Customer statement 9. Accounts receivable subsidiary ledger 10. Customer remittance advice 11. Cash receipts journal
- 5. Business Function of Revenue and Receipt Cycle: 1.Sales order entry Goods ordered, catalog or stock numbers, quantities and payment terms Sent to customers and distributed to Credit, Shipping, and Billing Departments. 2. Credit Approval Received and approved by Credit Department personnel Approved sales orders are forwarded to warehousing
- 6. 3. Shipping Comparing of goods received and sales order Obtain a receipt for the goods from the 4. Bcoilmlinmgon carrier Comparing of shipping documents and sales order Prepare sales invoices (remittance advice)
- 7. 4. Inventory Accounting, General Accounting, Accounts Receivable IA - sales invoices (w/ cost information); sales order; shipping documents GA – sales are recorded in sales journal and posted to general ledger; comparing daily totals of sales journal entries and daily sales summaries of Billing AR – sales are posted to individual customer accounts in subsidiary ledger. 5. Cash collection
- 8. 7. Sales return and Allowances Reviewed and approved by personnel independent of cash collection and recording Credit memorandum 8. Uncollected Accounts Review customer accounts periodically If proved uncollectible, written authorization is sent to Accounts Receivable and General Accounting
- 9. Control Objectives and Fraud: 1.Transaction Authorization Customer credit approval Unit prices/sales terms consistent w/ company’s revenue objectives and cash flow requirements Written policies and practices for sales 2. Trraenlasatecdti odne dEuxcetciountiso nand adjustments Match items taken from inventory with items on approved sales order Ship good on a timely basis Bill customers promptly (for actual shipments and at authorized prices
- 10. 3. Transaction Recording Establishing written procedures Reconciling control totals Comparing actual results w/ budgets periodically, if available 2. Access to assets Authorized personnel Establish procedures to pre-number and control remittance advice Prepare separate list of incoming mail receipts Reconcile periodically cash receipts records o deposit slips and bank statements
- 11. CONTROL RISK ASSESSMENT Obtain an understanding 1.Preliminary review 2.System documentation 3.Transaction walk-through 4.Identification of control procedures
- 12. Test of Controls 1.Shipping 2.Billing 3.Recording 4.Cash Collection 5.Sales Returns and Allowances 6.Uncollectible Accounts Reassess control risk and design substantive tests