Describe the following documents and records and explain their use in the sales and collection cycle: bill of lading, credit memo, remittance advice, and accounts receivable trial balance.
14-2 (OBJECTIVE 14-2) Explain the importance of proper credit approval for sales. What effect do adequate controls in the credit function have on the auditor’s evidence accumulation?
14-3 (OBJECTIVE 14-2) Distinguish between the sales journal and the accounts receivable master file. What type of information is recorded in each and how do these accounting records relate?
14-4 (OBJECTIVE 14-2) BestSellers.com sells fiction and nonfiction books and e-books
to customers through the company’s website. Customers place orders for books via the website by providing their name, address, credit card number, and expiration date. What internal controls could BestSellers.com implement to ensure that shipments of books occur only for customers who have the ability to pay for those books? At what point will BestSellers.com be able to record the sale as revenue?
14-5 (OBJECTIVE 14-3) State one test of control and one substantive test of transactions that the auditor can use to verify the following sales transaction-related audit objective:
Recorded sales are stated at the proper amounts.
14-6 (OBJECTIVE 14-3) List the most important duties that should be segregated in the sales and collection cycle. Explain why it is desirable that each duty be segregated.
14-7 (OBJECTIVE 14-3) Explain how prenumbered shipping documents and sales invoices can be useful controls for preventing misstatements in sales.
14-8 (OBJECTIVE 14-3) Explain the purpose of footing and cross-footing the sales journal and tracing the totals to the general ledger.
