Sei sulla pagina 1di 129

Systems Understanding AID

Accounting 474: Accounting Information


Systems (AIS)
Fall 2015
University of Illinois-Chicago
College of Business Administration

Everything you ever wanted to know


about...

The
Accounting
Cycle

Todays Agenda
Review of the manual Accounting Cycle
6 Major Subcycles
Begin the SUA
Internal Controls in the SUA

The Accounting Cycle


SUA Reference p.10

Prepare
Documents

Record in
Journals

Transactions
Occur
Prepare
Closing
Entries

Post to
Ledgers
Prepare
Unadjusted
Trial Balance

Prepare
Financial
Statements

Prepare
Adjusted Trial
Balance

Prepare and
Post Adjusting
Entries

The Accounting Cycle


Subcycle (transaction cycle):
Group of related business activities
that result in repetitive patterns of
transactions

6 Major Subcycles
Revenue
Cycle

Expenditure
Cycle

General
Ledger and
Reporting
Cycle

Human
Resources
Cycle

Production Financing
Cycle
Cycle

Revenue Cycle in SUA


Instructions pp. 18-21

Consists of:
Credit Sales
Cash Sales
Bad Debt Write-offs
Sales Returns
Cash Receipts

Revenue
Cycle

Revenue Cycle in SUA


Credit Sale

1. Customer Purchase Order


2. Approve Credit
3. Bill of Lading
4. Sales Invoice
5. Pack and ship order
6. Review and approve documents
7. Mail invoice to customer
8. Make the entry in the Sales Journal and then
update the A/R Subsidiary Ledger

Introduction to SUA
Waren Sports Supply

SUA

package materials
Supplemental materials
Worksheet

Introduction to SUA
SUA package materials

Reference book
Documents Folder
Other file tabs
Journal book
Instructions/Flowcharts/Ledgers book

Introduction to SUA
Supplemental materials

Assignment Schedule
File System page
Check Figures
Grading Sheet
Transaction List (Alternate)Document No.1
Price Lists (Alternate) Document No. 3

Introduction to SUA
Worksheet

Worksheet is already prepared as Excel


spreadsheet
Download this spreadsheet from the 474
Blackboard (you dont need the
spreadsheet worksheet until SUA 3)

Alter the SUA package!!!


From your Documents File, throw away:
the blue Transaction List A
the green Transactions List B
(we will be using the Transaction List
in the course packet handout)

Alter the SUA package!!!


Also, from your Documents File, throw away:
1 green Worksheet
1 green Post-closing Trial Balance
Price Lists Document 3 (we will be using
Price list in the packet)
We will use the Excel spreadsheet
worksheet instead (in SUA 3).

Warens Subcycles

Revenue cycle (Waren: Sales and cash receipts


cycle)
Expenditure cycle (Waren: Purchases and cash
disbursements cycle)
Human resources cycle (Waren: Payroll cycle)
General Ledger and Reporting cycle (Waren:
not specifically mentioned)
Production cycle (doesnt apply to Waren)
Financing cycle (Waren doesnt have much
external financing)

Warens Subcycles

Revenue cycle (Waren: Sales and cash receipts


cycle)
Expenditure cycle (Waren: Purchases and cash
disbursements cycle)
Human resources cycle (Waren: Payroll cycle)
General Ledger and Reporting cycle (Waren:
not specifically mentioned)
Production cycle (doesnt apply to Waren)
Financing cycle (Waren doesnt have much
external financing)

SUA Assignments
SUA 1 - Sales and cash receipts cycle
SUA 2 - Purchases and cash disbursements
cycle
SUA 3 - Payroll cycle and G/L cycle

Waren Personnel
Ray Kramer Salaried manager
Jim Adams Hourly accounting clerk
Nancy Ford Hourly production and billing

Use this semesters transaction


set and your own numbers

Lets get started...


Label the transactions
9 S&CR, 8 P&CD, 2 Payroll
SUA 1
SUA reference - chapter 3
Flowcharts - pp. 18-21
Review all S&CR transactions
Do December 19 S&CR transaction credit
sale to Clayborn University

How to do the SUA


1.
2.
3.

4.
5.

Pull out the documents involved


GO TO THE FLOWCHART TO FIND WHERE TO
BEGIN
Follow all the legs of the flowchart to their ends
Not every item involves a journal entry
Every journal entry goes in ONE journal ONCE.
Update subsidiary ledgers as necessary.
NEVER enter anything in the General Ledger.

Working with flowcharts

Flowcharts are written in a compact form,


to cover multiple possibilities. You have to
mentally edit them to fit each particular
case.

Notes on Revenue Cycle

Cash receipts

Cash is always handled the same way.


Endorse

check
Write on prelist
Put on deposit slip
Make an entry in the Cash Receipts Journal
Update the A/R subsidiary ledger, IF NECESSARY!

All checks for the day are put together on a


deposit slip and taken to the bank at the end of
the day. You have 3 deposit slips.

Notes on Revenue Cycle

A/R Write-offs
2 methods:
Direct Write-off Method
Allowance Method (Warens method)

Notes on Revenue Cycle


Direct Write-off Method

No Allowance is made for write-offs ahead of


time. GAAP permits this when write-offs are
INFREQUENT & IMMATERIAL.

When write-off occurs:


???

XXX

???

XXX

Notes on Revenue Cycle


Direct Write-off Method

No Allowance is made for write-offs ahead of


time. GAAP permits this when write-offs are
INFREQUENT & IMMATERIAL.

When write-off occurs:


Bad Debts Expense

A/R

XXX

XXX

Notes on Revenue Cycle

Allowance Method (Warens Method)

Notes on Revenue Cycle

Sales Returns on credit sale


Approve sales return
Receive goods, fill out receiving report,
process credit memo to credit customer acct.

On to controls

Todays Agenda
Finish SUA 1
Begin SUA 2
Review Expenditure Cycle
Inventory Systems
Internal Controls & AIS (Ch. 6)

How to do the SUA


1.
2.
3.

4.
5.

Pull out the documents involved


GO TO THE FLOWCHART TO FIND WHERE TO
BEGIN
Follow all the legs of the flowchart to their ends
Not every item involves a journal entry
Every journal entry goes in ONE journal ONCE.
Update subsidiary ledgers as necessary.
NEVER enter anything in the General Ledger.

Working with flowcharts

Flowcharts are written in a compact form,


to cover multiple possibilities. You have to
mentally edit them to fit each particular
case.

At the end of SUA 1...


All documents in S&CR are properly
processed and filed
All necessary entries are made in journals
and Subsidiary Ledgers
Monthly statement for customer is
complete
A/R aged trial balance (p. 45) is complete
(Exclude zero balances!)

A/R Aged Trial Balance


(Reference Manual p.45 )

2013

How to make good schedules


Type up in Excel
Line up numbers in columns
Show pennies, even when .00
Use Accounting number format
Underline columns, double underline totals

Hard Work Often Pays Off Over Time,


But Laziness Always Pays Off Now

Expenditure Cycle in SUA


Instructions pp. 22-24

Consists of:
Credit Purchases
Cash Purchases
Purchase Returns
Cash Disbursements

Expenditure
Cycle

Expenditure Cycle in SUA


Credit Purchase

1. Prepare purchase order (p.o.)


2. Approve purchase order
3. Send p.o. to vendor
4. Receive goods, prepare receiving report
5. Receive vendor invoice
6. Match documents and approve for payment
7. Make the entry in the Purchases Journal
and then update the A/P Subsidiary Ledger

Inventory Systems
There are two basic types of inventory
systems:
1) Perpetual Inventory
2) Periodic Inventory
Which one is becoming more common?
Perpetual

Inventory Systems
Perpetual Inventory

In Perpetual Inventory:
1) Use an Inventory Subsidiary Ledger
2) No Purchases account
3) Count inventory to determine shrinkage
(not necessarily every period)

Inventory Systems
Perpetual Inventory - Entries

Sales Entries:

Purchases Entry:
Inventory xx
A/P
xx
A/P
xx
Purchase Returns
A/P
xxx
Cash
Purchase Discounts

A/R
Sales

xx

xx
xx

xxx

COGS
xx
Inventory

xxx

xx

Inventory Systems
Perpetual Inventory

Advantages:
1) Better control over inventory
2) Essential for JIT
3) Becoming essential to be competitive
Disadvantages:
More costly than periodic, though costs
are decreasing with better
technology.

Inventory Systems
Periodic Inventory

In Periodic Inventory (Warens method):


1) No Inventory Subsidiary Ledger
2) Use Purchases account
3) At end of period count inventory to
determine COGS at end of every period
(shrinkage will be included)

Inventory Systems
Periodic Inventory - Entries

Sales Entries:

Purchases Entry:
Purchases xx
A/P
xx
A/P
xx
Purchase Returns
A/P
xxx
Cash
Purchase Discounts

A/R
Sales
xx

xx
xx

xxx
xxx

Inventory Systems

Periodic Inventory - Calculating Ending Inventory

1) Count the inventory items (# of units)


2) Calculate ending inventory:
(# of units)(cost per unit) = Ending Inv. Value
3) In an adjusting entry, replace old inventory
balance with new balance, close out purchases
accounts and Freight-In, and record (plug)
COGS
(You do this in SUA 3 , an example entry is in the
Reference book p. 79)

Inventory Systems
Periodic Inventory

Advantages:
1) Cheaper recordkeeping
Disadvantages:
1) Less control over inventory
2) Cant be used with JIT
3) Less competitive strategy in high tech
environment

Warens System
Notes:
Waren uses the periodic system, they have a
Purchases account
The Purchases journal is used for any kind of
purchase, (fixed assets, small expenses,
inventory), but only inventory purchases are
debited to the Purchases account
In the purchase of laptop computers on
12/31/13, only process the purchase, do not pay
the invoice, even though the payment terms
state: Due on receipt of invoice.

A/P Trial Balance


(Reference Manual p.61 )
Waren Sports Supply
Accounts Payable Trial Balance
December 31, 2013
Vendor No.
503
510
545

Name

Amount
Payable
$ 356.30
3,496.00
2,450.00

Sears
Brown & Root
Lapland & Co.
TOTAL

$ 6,302.30

Todays Agenda
Finish SUA 2
Review SUA 3
Internal Controls, Financial Statements
and Auditing

At the end of SUA 2...

All documents in P&CD are properly


processed and filed

All necessary entries are made in journals


and Subsidiary Ledgers

A/P trial balance is complete

A/P Trial Balance


(Reference Manual p.61 )
Waren Sports Supply
Accounts Payable Trial Balance
December 31, 2013
Vendor No.
503
510
545

Name

Amount
Payable
$ 356.30
3,496.00
2,450.00

Sears
Brown & Root
Lapland & Co.
TOTAL

$ 6,302.30

SUA 3

Payroll Cycle - 2 transactions

General Ledger and Reporting Cycle


Do end of period procedures
AJEs
Financial Statements
Closing entries

Prepare SUA for submission

Payroll Cycle in SUA


Instructions p. 24

Consists of:
Timekeeping
Payments

Payroll
Cycle

Payroll Cycle in SUA


1. Hourly Employees work and fill in time cards
2. Approve hours on time cards and give to
accounting department
3. Calculate payroll amounts
4. Record in Payroll Journal and Employee Earnings
Subsidiary Ledger
5. Generate paychecks
6. Review and sign paychecks
7. Distribute paychecks to employees
8. Make the entry in the Cash Disbursements Journal

Lets do a Payroll Clinic

There are 2 entries made for payroll

Salaries Expense Entry


Salaries & Wages Expense

XXX

Federal Income Tax Withholding Payable


State Income Tax Withholding Payable
FICA Payable
Cash

XX
XX
XX
XX

This entry looks different in the Payroll Journal, but it is the same entry

Payroll Tax Expense Entry


Payroll Tax Expense

XXX

FUTA Payable
SUTA Payable
FICA Payable

XX
XX
XX

Make this entry in the General Journal

Employment Arrangements
Employee
Independent Contractor

http://www.irs.gov/pub/irs-pdf/p15.pdf

Independent Contractor
self-employed
Schedule C on 1040 tax form
Self employment tax
FICA x 2
Self employment tax > 13%

Notes on Payroll Cycle

Be careful with Time Card calculation

Hours are calculated in hundredths (1/100) of an hour,


not minutes (1/60).

Nancy Fords time card for December 26


16.86
- 7.50
9.36 hours

Notes on Payroll Cycle

The pay increase on Dec. 20th applies to the whole


pay period, ie. from Dec. 16th

The withholding amounts for employees income


taxes are given to you in the Dec. 20th
transaction; you dont have to calculate them.

Notes on Payroll Cycle

SUTA & FUTA percentages (2.7%, 0.8%)


are given in instruction manual page 13.
Apply to only first $7000 of annual income.

How much have employees already earned?

Calculate SUTA & FUTA only on Nancy


Fords pay!

Notes on Payroll Cycle

FICA tax is 6.2% + 1.45% = 7.65%.

(p. 8 of Instructions book)


6.2% Social Security wages up to $102,000
1.45% Medicare - all wages

So, per employee:

For first $102,000 x 7.65%


For amounts over $102,000 x 1.45%

No Waren employee has earned over $102,000, so


use combined rate of 7.65%

Notes on Payroll Cycle

The payroll check numbers can be in any


order as long as you have all of them.

Ray Kramer signs all the checks, including


his own paycheck!

End of Period Procedures

Follow instructions in project - do all procedures


not done in previous parts of SUA (follow the
Assignment Schedule)

Month-end procedures 1-7

Bank reconciliation, unemployment taxes, etc.


Note: These are not adjusting entries, they are normal
entries of the period

Year-end procedures 1-7

worksheet
Adjusting entries 5 AJEs (4 + 1)
Closing entries 3 Closing entries (no Dividends)

Adjusting Journal Entry Notes

Depreciation policy is the half-year convention.

Bad Debts method is given on last page of


Transaction List

Ending Inventory figure given on last page of


Transaction List

The form of Inventory AJE is shown on p. 79


of the Reference book. (next slide)

AJE for Inventory


Inventory
Purchase Discounts
Purchase Returns
Cost of Goods Sold
Purchases
Freight-In

DR
CR
xx or xx
xx
xx
PLUG
xx
xx

AJE for Inventory


Inventory
Purchase Discounts
Purchase Returns
Cost of Goods Sold
Purchases
Freight-In

CR
DR
xx or xx
xx
xx
PLUG
xx
xx

End of Period Procedures

Closing Entries
1.
2.
3.
4.

Close Revenues & Gains to Income Summary


Close Expenses & Losses to Income Summary
Close Income Summary to Retained Earnings
Close Dividends to Retained Earnings
(Sample Entries: p. 23 Reference Book)

End of Period Procedures

Notes:
Use worksheet spreadsheet on web site
AJE for income tax accrual: Use worksheet
Financial Statements automatically prepared on
spreadsheet
The only columns you need to fill in on the
worksheet are the Unadjusted Trial Balance
and the Adjustments (green columns)

End of Period Procedures


Finding Errors in the worksheet

Calculate the difference between DR and CR


and:
1.
2.

3.

Look for that number in your entries and posting


(you may have forgotten to post the number)
Look for an amount that is exactly half of that
difference (you may have posted a debit as a credit
or vice versa)
Divide the difference by 9 and see if it divides with
no remainder (indicates a transposition error)

Postings include:

Cash
25
A/R
25

Resulting Post-Closing Trial Balance:


DR
CR
Cash
50
A/R
100
A/P
75
Common Stock
75
150
150

If you mispost:
Cash 25
A/R
25

As:

Cash 25
A/P
25

Resulting Post-Closing Trial Balance:


DR
CR
Cash
50
A/R
125
A/P
100
Common Stock
75
150
150
No Difference!!!

If you mispost:
Cash 25
A/R
25

As:

Cash
A/R

25
25

Resulting Post-Closing Trial Balance:


DR
CR
Cash
50
A/R
150
A/P
75
Common Stock
75
200
150
200 150 = 50 / 2 = $25 error

If you mispost:
Cash 25
A/R
25

As:

Cash 25
A/R
52

Resulting Post-Closing Trial Balance:


DR
CR
Cash
50
A/R
73
A/P
75
Common Stock
75
123
150
150 123 = 27 / 9 = 3.000 no remainder
must be a TRANSPOSITION ERROR

Fixed Asset Trial Balance


(Reference Manual p.61 )
Do after depreciation AJE is made and posted
Waren Sports Supply
Fixed Asset Trial Balance
December 31, 2013
ASSET

Cost

Computers
Furniture
Equipment

Accumulated
Depreciation
$ 15,000.00 $12,000.00
10,000.00
10,000.00
25,000.00
8,000.00

Net
Book Value
$ 3,000.00
0.00
17,000.00

TOTALS

$ 50,000.00

$ 20,000.00

$ 30,000.00

SUA 3 - Completing the project


Notes:
All AJEs and Closing entries are made in
General Journal and are posted to G/L
Foot all journals and ledgers
From the spreadsheet, print off the
Worksheet, the Income Statement, and the
Balance Sheet and put in SUA envelope
Total manual G/L balances and make sure they
agree with the worksheet balances

DO NOT DO A STATEMENT OF CASH FLOWS

SUA 3 - Completing the project


A/R Trial Balance
A/P Trial Balance
Fixed Asset Trial Balance
Bank Reconciliation
MUST BE PRINTED OUT AND IN GOOD FORM
HANDWRITTEN WORK WILL NOT RECEIVE
CREDIT

How to make good schedules


Type up in Excel
Line up numbers in columns
Show pennies, even when .00
Use Accounting number format
Underline columns, double underline totals

Use this semesters transaction


set and your own numbers

Prepare project for submission

Tape grading sheet to front of envelope and


fill in name and section day
Make sure that your documents are all filed
according to the File System page
Remove the Reference Manual
Tape envelope shut
Hand in
Have a beer

Internal Controls & Auditing

What is Internal Control?

Internal Control is a process implemented by the


BOD and management that gives reasonable
assurance that these objectives are achieved:

Safeguard assets
Ensure accurate and reliable accounting (and other)
information
Improve operational efficiency
Promote adherence to managerial policies
Financial statements are prepared using GAAP
Comply with laws and regulations

What is Internal Control?

Internal Control is a process implemented by the


BOD and management that gives reasonable
assurance that these objectives are achieved:

Safeguard assets

Ensure accurate and reliable accounting (and


other) information
Improve operational efficiency
Promote adherence to managerial policies

Financial statements are prepared using GAAP


Comply with laws and regulations

Financial Statement Assertions


Who owns the financial
statements of a company?

Financial Statement Assertions


Who owns the financial
statements of a company?

Management

Every number on the financial


statements represents a set of
claims being made by
management known as:
Assertions

Financial Statement Assertions


Sales

$ 1,500,000.00

This statement asserts:


1. All sales are properly included,
you have left none out
2. All sales actually occurred, number
represents actual sales made
3. Sales are properly valued, net of
returns, allowances, discounts
4. You have proper claim to revenue
generated, sales belong to you

Financial Statement Assertions


Sales

$ 1,500,000.00

This statement asserts:


1. All sales are properly included,
you have left none out
2. All sales actually occurred, number
represents actual sales made
3. Sales are properly valued, net of
returns, allowances, discounts
4. You have proper claim to revenue
generated, sales belong to you

COMPLETENESS

Financial Statement Assertions


Sales

$ 1,500,000.00

This statement asserts:


1. All sales are properly included,
you have left none out
2. All sales actually occurred, number
represents actual sales made
3. Sales are properly valued, net of
returns, allowances, discounts
4. You have proper claim to revenue
generated, sales belong to you

COMPLETENESS
EXISTENCE

Financial Statement Assertions


Sales

$ 1,500,000.00

This statement asserts:


1. All sales are properly included,
you have left none out
2. All sales actually occurred, number
represents actual sales made
3. Sales are properly valued, net of
returns, allowances, discounts
4. You have proper claim to revenue
generated, sales belong to you

COMPLETENESS
EXISTENCE
VALUATION

Financial Statement Assertions


Sales

$ 1,500,000.00

This statement asserts:


1. All sales are properly included,
you have left none out
2. All sales actually occurred, number
represents actual sales made
3. Sales are properly valued, net of
returns, allowances, discounts
4. You have proper claim to revenue
generated, sales belong to you

COMPLETENESS
EXISTENCE
VALUATION
RIGHTS/
OBLIGATIONS

Computerization does
not change the
assertions!!!
What changes in a
computerized system is
the design of the
internal controls.

Auditing and Risk

Auditors must give an opinion about the fairness


of the financial statements.

To do this they use their knowledge of


transaction cycles, assertions and the audit trail

Auditors cannot review every transaction, they


must focus their audit work with an assessment
of risk

Auditing and Risk


Sales

$ 1,500,000.00

To audit Sales:
1. What is the risk of misstatement with Sales?
2. Which assertions may be false?
3. Use the Sales audit trail to design audit
testing of Sales

Internal Controls
The Audit Trail

The Audit Trail is the documentary


evidence that links the source
documents to the final numbers
on the financial statements.

Auditing Sales
Credit Sale

1. Customer Purchase Order


2. Approve Credit
3. Bill of Lading
4. Sales Invoice
5. Pack and ship order
6. Review and approve documents
7. Mail invoice to customer
8. Make the entry in the Sales Journal and then
update the A/R Subsidiary Ledger

Auditing Sales
Credit Sale

1. Customer Purchase Order


2. Approve Credit
3. Bill of Lading
4. Sales Invoice
5. Pack and ship order
6. Review and approve documents
7. Mail invoice to customer
8. Make the entry in the Sales Journal and then
update the A/R Subsidiary Ledger

Auditing Sales
Credit Sale

1. Customer Purchase Order


2. Approve Credit
3. Bill of Lading
G/L
F/S
4. Sales Invoice
5. Pack and ship order
6. Review and approve documents
7. Mail invoice to customer
8. Make the entry in the Sales Journal and then
update the A/R Subsidiary Ledger

Expenditure Cycle in SUA


Credit Purchase

1. Prepare purchase order (p.o.)


2. Approve purchase order
3. Send p.o. to vendor
4. Receive goods, prepare receiving report
5. Receive vendor invoice
6. Match documents and approve for payment
7. Make the entry in the Purchases Journal
and then update the A/P Subsidiary Ledger

Expenditure Cycle in SUA


Credit Purchase

1. Prepare purchase order (p.o.)


2. Approve purchase order
3. Send p.o. to vendor
4. Receive goods, prepare receiving report
5. Receive vendor invoice
6. Match documents and approve for payment
7. Make the entry in the Purchases Journal
and then update the A/P Subsidiary Ledger

Expenditure Cycle in SUA


Credit Purchase

1. Prepare purchase order (p.o.)


2. Approve purchase order
3. Send p.o. to vendor
4. Receive goods, prepare receiving report
5. Receive vendor invoice
6. Match documents and approve for payment
7. Make the entry in the Purchases Journal
and then update the A/P Subsidiary Ledger

Expenditure Cycle in SUA


Credit Purchase

1. Prepare purchase order (p.o.)


2. Approve purchase order
G/L
F/S
3. Send p.o. to vendor
4. Receive goods, prepare receiving report
5. Receive vendor invoice
6. Match documents and approve for payment
7. Make the entry in the Purchases Journal
and then update the A/P Subsidiary Ledger

Payroll Cycle in SUA


1. Hourly Employees work and fill in time cards
2. Approve hours on time cards and give to accounting
department
3. Calculate payroll amounts
4. Record in Payroll Journal and Employee Earnings
Subsidiary Ledger
5. Generate paychecks
6. Review and sign paychecks
7. Distribute paychecks to employees
8. Make the entry in the Cash Disbursements Journal

Payroll Cycle in SUA


1. Hourly Employees work and fill in time cards
2. Approve hours on time cards and give to accounting
department
3. Calculate payroll amounts
4. Record in Payroll Journal and Employee Earnings
Subsidiary Ledger
5. Generate paychecks
6. Review and sign paychecks
7. Distribute paychecks to employees
8. Make the entry in the Cash Disbursements Journal

Payroll Cycle in SUA


1. Hourly Employees work and fill in time cards
2. Approve hours on time cards and give to accounting
department
3. Calculate payroll amounts
4. Record in Payroll Journal and Employee Earnings
Subsidiary Ledger
5. Generate paychecks
G/L
F/S
6. Review and sign paychecks
7. Distribute paychecks to employees
8. Make the entry in the Cash Disbursements Journal

Auditing Sales
Credit Sale

1. Customer Purchase Order


2. Approve Credit
3. Bill of Lading
G/L
F/S
4. Sales Invoice
5. Pack and ship order
6. Review and approve documents
7. Mail invoice to customer
8. Make the entry in the Sales Journal and then
update the A/R Subsidiary Ledger

Auditing Sales
Credit Sale

Overstatement risk

Existence assertion must be investigated


Test by vouching back up the audit trail

ie. Sample entries in sales journal and look for


matching customer p.o.s and sales invoices

Understatement risk

Completeness assertion must be investigated


Test by tracing forward down the audit trail

ie. Sample customer p.o.s and sales invoices and


look for matching entries in sales journal

Very Common Audit Tests


Sales - Existence
A/P - Completeness
Fixed Assets - Valuation
A/R - Existence and Valuation

For next class do the


Auditing Questions in the
course packet

Internal Controls & Auditing


END

Expenditure Cycle
Auditing Questions

Population to sample? Examine what?

Were all goods billed by vendor properly


authorized for purchase?

Sample Vendor Invoices, vouch back to approved


pos.

Were all authorized pos properly received?

Sample approved pos, trace forward to receiving


reports

Expenditure Cycle in SUA


Credit Purchase

1. Prepare purchase order (p.o.)


2. Approve purchase order
3. Send p.o. to vendor
4. Receive goods, prepare receiving report
5. Receive vendor invoice
6. Match documents and approve for payment
7. Make the entry in the Purchases Journal
and then update the A/P Subsidiary Ledger

Payroll Cycle
Auditing Questions

Population to sample? Examine what?

Were all paychecks issued for authorized


hours worked?

Sample Paychecks, vouch back to approved


timecards

Were Salaries payable accruals understated?

Sample timecards, trace forward to AJEs for


salaries

Payroll Cycle in SUA


1. Hourly Employees work and fill in time cards
2. Approve hours on time cards and give to accounting
department
3. Calculate payroll amounts
4. Record in Payroll Journal and Employee Earnings
Subsidiary Ledger
5. Generate paychecks
6. Review and sign paychecks
7. Distribute paychecks to employees
8. Make the entry in the Cash Disbursements Journal

END
Internal Controls & Auditing

Audit Trail in the SUA


Credit Sale

1. Customer Purchase Order


2. Approve Credit
3. Bill of Lading
4. Sales Invoice
5. Pack and ship order
6. Review and approve documents
7. Mail invoice to customer
8. Make the entry in the Sales Journal and then
update the A/R Subsidiary Ledger

Hard Work Often Pays Off After Time, But


Laziness Always Pays Off Now