Modern

Modern Auditing:
Auditing:

Assurance
Assurance Services
Services and
and the
the Integrity
Integrity
th
of
Financial
Reporting,
8
of Financial Reporting, 8th Edition
Edition
William C. Boynton

California Polytechnic State

University at San Luis Obispo

Raymond N. Johnson
Portland State University

Chapter 14 Auditing the Revenue Cycle

Chapter
Chapter Overview
Overview

The
The Revenue
Revenue Cycle
Cycle

Develop
Develop Audit
Audit Objectives
Objectives

Inherent
Inherent Risk,
Risk, Including
Including the
the Risk
Risk
of
of Fraud
Fraud
Management Misstatement of Revenue

Overstate revenues
Overstate cash and gross receivables
Understate allowance for doubtful accounts

Other Misstatement Factors

Opportunities for error

Timing
Misclassification
Adjustment transactions

Analytical
Analytical Procedures
Procedures

Consideration
Consideration of
of Internal
Internal Control
Control
Components
Components
Control Environment
Risk Assessment
Information and Communication
Monitoring
Initial Assessments of Control Risk

Study
Study Break
Break
1. The revenue cycle includes all of
the following transactions, except:
A.
B.
C.
D.

Credit Sales
Cash Receipt
Inventory Purchase
Sales Returns and Allowances

C. Inventory Purchase

Study
Study Break
Break
2. This internal control component should
provide management with feedback as
to whether internal controls pertaining
to revenue cycle transactions and
balances are operating as intended.
A.
B.
C.
D.

Monitoring
Initial Assessments of Control Risk
Information and Communication
Control Environment

A. Monitoring

Control
Control Activities
Activities for
for Credit
Credit
Sales
Sales Transactions
Transactions
Credit Sales Orders
Over-the-Counter
Mail Order
Internet

Computerized Accounting System

General Controls
Application Controls

Common
Common Documents
Documents and
and
Records
Records
Customer Order
Sales Order
Shipping Document
Bill of Lading
Packing Slip

Sales Invoice
Authorized Price List

Common
Common Documents
Documents and
and
Records
Records
Sales Transactions File
Sales Journal
Customer Master File
Accounts Receivable Master File

Accounts receivable subsidiary ledger

Customer Monthly Statement

Function
Function and
and Control
Control Activities
Activities
Authorizing Sales

Accepting Customer Orders

Approving Credit

Delivery of Goods and Services

Filling Sales Orders
Shipping Sales Orders

Recording Sales

System
System Flowchart
Flowchart Credit
Credit Sales
Sales

System
System Flowchart
Flowchart Credit
Credit Sales
Sales

System
System Flowchart
Flowchart Credit
Credit Sales
Sales

Study
Study Break
Break
3. This document is a journal listing
of the completed sales
transactions.
A.
B.
C.
D.

Sales invoice
Sales transactions files
Authorized price list
Sales journal

D. Sales journal

Study
Study Break
Break
4. This document shows the
description, quantity, and other
data pertaining to a customer
order.
A.
B.
C.
D.

Customer order
Sales order
Shipping document
Sales invoice

B. Sales order

Cash
Cash Receipts
Receipts Transactions
Transactions
Common
Common Documents
Documents and
and Records
Records
Remittance Advice
Prelist
Cash Count Sheets
Daily Cash Summary
Validated Deposit Slip
Cash Receipts Transactions File
Cash Receipts Journal

Cash
Cash Receipts
Receipts Transactions
Transactions -Functions
Functions
Receiving Cash Receipts

Over-the-Counter Receipts
Mail Receipts

Depositing Cash in Bank

Deposited intact daily

Recording the Receipts

Sales
Sales Adjustment
Adjustment Transactions
Transactions
Common
Common Documents
Documents and
and Records
Records
Sales return authorization
Authorization for accounts receivable write-of
Receiving report
Credit memo
Journal entry
Cash Receipts journal

Sales
Sales Adjustment
Adjustment Functions
Functions and
and
Controls
Controls
Granting Cash Discounts
Granting Sales Returns and Allowances
Determining Uncollectible Accounts
Other Controls
Tests of Controls

Study
Study Break
Break
5. This cash receipts transaction
document is a listing of cash
receipts received through the
mail.
A.
B.
C.
D.

Remittance advice
Prelist
Daily cash summary
Validated deposit slip

B. Prelist

Study
Study Break
Break
6. All of the following are sales
adjustment functions, except:
A.
B.
C.
D.

Granting cash discounts

Determining uncollectible accounts
Recording the cash receipts
Granting sales returns and allowances

C. Recording the cash receipts

Substantive
Substantive Tests
Tests of
of Accounts
Accounts
Receivable
Receivable
Determining Detection Risk for Tests of
Details
Existence and Occurrence
Completeness
Rights and Obligations
Valuation and Allocation
Presentation and Disclosure

Designing
Designing Substantive
Substantive Tests
Tests
Initial Procedures

Analytical Procedures

Designing
Designing Substantive
Substantive Tests
Tests
Tests of Details of Transactions
Vouch Revenue Transactions
Trace Revenue Transactions
Perform Cutof Tests

Sales Cutof Tests

Sales Return Cutof Tests

Perform Cash Receipts Cutof Test

Designing
Designing Substantive
Substantive Tests
Tests
Tests of Details of Balances
Confirm Receivables

Forms of Confirmation
Positive Confirmation
Negative Confirmation

Timing and Extent of Requests

Controlling the Requests

Designing
Designing Substantive
Substantive Tests
Tests
Tests of Details of Balances
Disposition of Exceptions

Alternative Procedures for Dealing with

Nonresponses
Summarizing and Evaluating Results
Applicability to Assertions

Designing
Designing Substantive
Substantive Tests
Tests
Tests of Details of Accounting
Estimates

Allowance for Doubtful Accounts

Aged Trial Balance

Tests of Details of Disclosures

Study
Study Break
Break
7. This type of confirmation requires
a debtor to respond only when the
amount shown is incorrect.
A.
B.
C.
D.

Positive Confirmation
Negative Confirmation
Avoidance
Existence

B. Negative Confirmation

Study
Study Break
Break
8. This cutof test is designed to obtain
reasonable assurance that cash receipts
are recorded in the accounting period
in which received.
A.
B.
C.
D.

Sales cutof test

Sales return cutof test
Vouching revenue transactions
Cash receipts cutof test

D. Cash receipts cutof test