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Revenue and Receipts Cycle, Money/profit generating cycle, 3 Distinct…
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- Ordering Function: records orders from customers and initiate action to fill them
- Dispatch Function: fill accepted orders promptly and accurately and to ensure only authorised orders are acted on
- Invoicing Function: notify the customer promptly of amounts due for good supplied
- Revenue Recording Function: record the sales made and to raise the corresponding debtor promptly
- Credit Management Function: limit the loss from bad debts and to encourage debtors to pay promptly.
- Basic Controls
- Controls over cash
- Controls over bank account
Two types of risks: lapping/rolling and kiting
Docs and Records
- Goods returned vouchers
- Credit note returns & allowance journals
- Debtors journal
- General Ledger
Controls
- Goods Returned - recorded on return & debtors account debited; goods returned vouchers & credit not is issued
- Adjustments - ensure accuracy recording and authorization; discounts; returns & corrections; writing off bad debt
- Controls - authorization; segregation of duties; formal documentation; monitoring & supervision
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Internal Controls, Control Objectives & Test of Controls in
Revenue cycle for
CREDIT SALES
Validity: all recorded credit sales are valid & supported by proper documents
Authorization: all credit sales are authorised according to company policy
Completeness: all valid credit sales are recorded & nothing is left out
Accuracy: all credit sales are recorded on sales invoice at the correct quantity, price & are arithmetically correct
Recording: all credit sales invoices are recorded correctly
Classification: all credit sales are correctly classified according to the nature thereof
Cut-off: all credit sales transactions are recorded in the correct reporting period
Internal Controls, Control Objectives & Test of Controls in
Revenue cycle for
RECEIPTS FROM DEBTORS
Validity: all payments & discount on debtors' accounts are valid & are supported by appropriate documentation
Authorization: all credit adjustments, e.g. credit notes, discounts, etc are authorised according to company policy
Completeness: all valid payments received from debtors are recorded
Accuracy: all payments & discounts accounted for at the correct amount & discounts are accurately calculated
Recording: all payments & discounts are correctly recorded
Classification: all payments & discounts are correctly classified
Cut-off: payments & discounts are recorded in the correct period to which it relates
Substantive Testing
- Occurrence – recorded transactions have occurred and they pertain to the company
- Accuracy – the amounts of sales have been recorded appropriately
- Cut-off – the sales transactions have been accounted for in the correct accounting
period
- Classification – all sales have been recorded in the proper accounts
- Completeness – all sales should have been recorded, have been recorded
- Presentation - inspect the financial statements for correct presentation
Substantive procedures for the audit of trade receivables
- Rights – the company controls or holds the rights to the trade receivables
- Existence – trade receivables included in the balance actually exists, they are not
fictitious
- Accuracy, valuation and allocation - trade receivables are included in the financial statements at appropriate amounts and related disclosures have been appropriately measured as described
- Completeness – all trade receivables which should have been recorded have been recorded and all related disclosures should have been have been included
- Classification - only trade and other receivables that are expected to be paid within the next 12 months are included
- Presentation - inspect the financial statements for correct presentation
- All general - an overall analytical review of receivables should be performed