Essay upon Chapter 7 revenue and collection

п»їCHAPTER several

Revenue and Collection Cycle


Review Checkpoints

Exercises, Challenges, and Ruse

1 . Discuss inherent risks related to the revenue and collection pattern with a focus on improper earnings recognition.

one particular, 2, 3


installment payments on your Describe the revenue and collection routine, including normal source documents and regulates.

4, your five, 6, several, 8

54, 55, 61, 63, sixty four, 66

several. Give examples of tests of controls over customer credit approval, delivery, and accounts receivable accounting.

9, 10, 11, doze, 13, 14

56, 65

4. Provide examples of hypostatic procedures in the revenue and collection cycle and relate them to assertions about account balances towards the end of the period.

15, 18, 17, 18, 19, twenty, 21, twenty-two

57, 54.99, 60, sixty one, 67, sixty-eight, 69, seventy, 71, seventy two, 73

5. Describe some common mistakes and scams in the revenue and collection cycle, and design a few audit and investigation procedures for uncovering them.

23, 24, twenty-five 26, twenty-seven, 28

59, 62, sixty-five, 74


six. 1Revenue recognition refers to including revenue inside the financial statements. According to GAAP, this is certainly done when ever revenues are (1) recognized or realizable and (2) earned.

six. 2Revenue recognition is used like a primary opportinity for inflating income for several causes. First, not necessarily always straightforward when income have been attained. Sales can be structured with return provisions, or may have other performance conditions attached. Second, the timing of shipments at yr end could possibly be easy to falsify. Third, businesses are often highly valued at interminables of earnings instead of net income.

7. 3" Bill and Hold" product sales are recognized when revenue are billed, thus building a receivable, however the goods will be held by seller until the customer basically wants them.

7. 4The basic pattern of actions and accounting in a income and collection cycle can be:

1 . Acquiring and processing customer purchases. Entering data in an buy system and obtaining a credit check. 2 . Providing goods and services to customers. Authorizing release coming from storekeeping to shipping to customer. Going into shipping info in the accounting system several. Billing consumers, producing product sales invoices. Accounting for customer trade accounts receivable. 5. Collecting cash and lodging it in the bank. Accounting for funds receipts. your five. Reconciling bank statements.

six. 5When paperwork such as product sales orders, shipping documents, and sales bills are prenumbered, someone can easily later be the cause of the statistical sequence and determine whether any ventures have did not be registered. (Completeness control objective. )

7. 6Access to laptop terminals must be controlled and so only certified persons may enter or change deal data. Usage of master files is important mainly because changes in all of them affect programmed computer settings, such as credit rating checking and accurate products on hand pricing.

several. 7Auditors could examine these types of files for evidence of:

Unrecorded sales — pending purchase master document,

Inadequate credit checks — credit data/check data

Incorrect product unit prices — value list expert file

7. 8With a sample of customer accounts receivable:

(1)Find the support for debit entries in the sales journal data file. Expect to find evidence (copy) of the sales invoice, shipping file, and client order. The sales account showing recording on the delivery date.

(2)Find the support for credit entries in the cash receipts journal file. Expect to find a remittance suggestions (entry about list), which in turn corresponds to fine detail on a deposit slip, on a deposit actually in a traditional bank statement of waking time posted inside the customers' accounts.

7. 9The account bills in a earnings and collection cycle include:

Cash in lender

Accounts receivable

Allowance for doubtful accounts

Bad personal debt expense

Sales revenue

Product sales returns, allowances, discounts

7. 10These specific control procedures (in addition to separating of duties and responsibilities)...