NOTE FROM TIM: This document I found on the web seems to have some relevant CPA Exam Questions that are worth studying.
I. REVENUE CYCLE. As you will recall, the revenue cycle involves accounting transactions resulting from economic events that produce revenue for the accounting entity. The major events occurring in the revenue cycle are: receiving and ordering from a customer, delivering goods or services to the customer, requesting payment from the customer, and receiving the payment. Understanding a cycle involves familiarity with the documentation of the cycle. Flowcharts, internal control questionnaires and narratives are common methods of documentation. Fill in the flowcharts for revenue (credit sales and cash sales and receipts).
I. Identify appropriate internal control procedures for the revenue cycle using DAASI. (Reconciliation to ARCCS: D (Recorded) A (Custody) A (Authorized) S (Seg of Duties) I (Comparison).)
Prenumbered (and accounted for), multiple-copy SO, SD, SI used
One copy of the SO, SD, SI filed in the department generated
Remittance advices used to post from
A/R subsidiary ledger, sales journals, cash receipts journal
Prenumbered cash receipt tickets, credit memos & bad debt write-off forms
Aging prepared monthly
Prepare a prelisting of cash receipts
Individuals with access to cash or goods should be bonded
Use of a lockbox
Cash deposited intact daily
Checks restrictively endorsed
Control over write-offs and collection of write-offs
Cash registers --internal tapes, locked drawers, correct change, bell, window to
customer, assigned drawers, preprogrammed prices, drawers reconciled
Credit approved prior to shipment of goods
Monthly statements reviewed by supervisor before sent out
Appropriate credit policy
Approved sales price list with deviations authorized
Authorization of A/R write-offs
Segregate the sales order function from the A) credit function from the B) shipping
function from the C) billing function from the D) cash receipts function
Segregate cash receipts from accounts receivable record keeping
Segregate cash receipts from the credit function
Segregate accounts receivable subsidiary ledger from the general ledger
A/R general ledger reconciled to subsidiary ledger
Rotate duties between G/L and A/R subsidiary ledger (S/L) clerks
Sendout monthly statements to customers
Compare SO, SD, & SI to ensure ordered goods were shipped/shipped goods billed
Compare duplicate deposit slip with a) cash receipts journal, and b) A/R sub ledger
Daily reconciliation of cash collections
Match credit memoranda and receiving report
I. Internal controls frequently missing in the revenue cycle.
A. Credit granted by the credit department
A. Sales orders and invoices prenumbered and controlled
A. Sales return credit memoranda prenumbered and matched with receiving reports A. Subsidiary ledger reconciled to control ledger regularly A. Individual who does not post accounts receivables reviews monthly statements before sending to customer A. Monthly statements sent to all customers
A. Write-offs approved by mgm’t official independent of recordkeeping responsibility A. Cash receipts received in mail listed by individual(s) with no recordkeeping responsibility; cash goes directly to cashier A. Over-the-counter cash receipts controlled (cash register tapes) A. Cash deposited intact daily
A. Employees handling cash are bonded
A. Bank reconciliation prepared by individuals independent of cash receipts recordkeeping
I. Internal control questionnaire designed using DAASI.
Yes or No
Are prenumbered SO, SD, and SI used and accounted for?
Is posting of the A/R S/L done from remittance...
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