Sales and Collection Cycle
The objective in the audit of the sales and collection cycle is to evaluate whether the account balance affected by the cycle are fairly presented in accordance with accounting standards.
There are five classes of transactions in the sales and collection cycle.
• Cash Receipts
• Sales returns and allowances
• Write-off of uncollectible accounts
• Estimate of bad debt expense
(Arens, 2012, p.442)
The Key control activities are proper segregation of duties, authorization, documentation and recording, preparation of monthly statements and internal verification procedures.
With the exception of cash sales, every transaction and amount is …show more content…
Compare sales by month (by product line) Overstatement or understatement of sales over time. and accounts receivable.
Compare sales returns and allowances as a Overstatement or understatement of sales percentage of gross sales with previous years returns and allowances and accounts
(by product line). receivable.
Compare individual customer balances over a Misstatements in accounts receivable and stated amount with previous years. related income statement accounts.
Compare bad debt expense as a percentage of Uncollectible accounts receivable that have gross sales with previous years. not been provided for.
Compare number of days that accounts Overstatement or understatement of receivable are outstanding with previous years allowance for uncollectible accounts and and related turnover of accounts receivable. bad debt expense; also may indicate fictitious accounts receivable.
Compare aging categories as a percentage of Overstatement or understatement of accounts receivable with previous years. allowance for uncollectible accounts and bad debt expense.
Compare allowance for uncollectible accounts Overstatement or understatement of as a percentage of accounts receivable with allowance for uncollectible accounts and previous years. bad debt expense.
Compare write-off of uncollectible accounts as Overstatement or understatement of a percentage of total accounts