Question

1. Draw an overall conclusion about internal controls related to the revenue cycle of business.

Answer 1

1. Before goods are shipped, the details of the approved order are compared to the actual goods prepared for shipment by an individual independent of the order picking process.

2. Customer service calls and/or complaints are handled independently from transaction processing.

3. Recorded sales, gross margins, and miscellaneous receipts are compared to budget regularly; management reviews and approves significant variances.

4. A policy has been established regarding criteria for issuing credit notes (including evidence of the return of goods, the original cash register receipt, and/or other appropriate supporting documentation), time periods within which credit must be requested, and approval of such credits; compliance with this policy is monitored.

5. Credit notes are sequentially pre-numbered; the sequence of credit notes is accounted for.

6. Management reviews and approves the allowance for doubtful debts.

7. Cash receipts at, before, or after the end of an accounting period are scrutinized and/or reconciled to ensure complete and consistent recording in the appropriate accounting period.

8. Transfer orders are sequentially numbered. The sequence of orders processed is accounted for.

9. Management reviews relevant sales, cash receipts, costs of sales, and inventory reports related to sales at the POS terminal and cash receipts; significant unusual relationships are monitored and acted upon.

10. Sales, cash register receipts, and inventory management processing are performed by an integrated application system. The general ledger is automatically updated by this application system.

11. Personnel responsible for sales and cash receipts, sales audit, and adjustments to the general ledger have responsibility for only one such activity and have no system access to activities other than their assigned activity.

12. Shipping transaction input data is edited and validated; identified errors are corrected promptly.

13. Cash registers are properly closed every evening to prepare for the updating process.

14. Re-dial features in the updating process ensure that all stores are updated.

15. Built in balancing protocols in the updating process ensure the data is transmitted completely.

16. Sales audit function logs first and last transaction number on a daily basis to verify that no transactions are repeated or missed.

17. Sales audit function compares total sales updated to flash sales report printed at the store.

18. Blind store deposits are prepared by two individuals and approved by management.

19. Cash over/short amounts are tracked daily by store management and followed-up by sales audit.

20. A record of store deposits taken to the bank daily is maintained.

21. Store deposit slips are reconciled to the bank statements. Bank statements are then reconciled to the general ledger regularly.

22. All changes made to the file that connects merchandise codes, names and prices are approved by management.

23. The file that connects merchandise codes, names and prices is periodically reviewed by management for accuracy and on-going pertinence.

24. Store personnel or management have neither responsibility for maintenance nor update access to the file that connects merchandise codes, names and prices.

25. All POS terminals are physically protected (e.g., sales person or locked).

26. All personnel with access to a POS terminal has a unique ID and password.

27. Users are held accountable for activity performed on a POS terminal with their user ID.

28. All credit card transactions are signed by the customer.

29. Manual procedures requiring all sales greater than $X (X is determined by management using the average price point of the company’s transactions) are established when POS credit authorizations cannot be obtained.

30. All returned goods are logged when received. The log details such items as customers, goods, defects, inspections, and assessment by quality control. Return details per the log are compared to credit notes issued to ensure that credit is issued in the correct period and in accordance with company policy.

31. Shipments of goods to customers are logged. The log is used to ensure that all shipments are recorded.

32. Sales are recorded using a POS terminal/cash register. Customers are provided with a copy of the register receipt, and total daily receipts per the POS terminal/cash register are balanced to cash deposited to the bank.

33. Bank statements are reconciled to the general ledger regularly.

34. Cash receipts input data is edited and validated; identified errors are corrected promptly.

35. Cash receipts transactions are batched and batch input data is balanced; out-of-balance batches are corrected promptly.

36. Customers are provided with a form acknowledging receipt of any cash payments (i.e., a cash receipt form) and cash receipts forms are balanced to cash deposited to the bank. Cash receipt forms are sequentially pre-numbered and the sequence of such forms is accounted for.

37. Merchandise sold at, before, or after the end of an accounting period is scrutinized and/or reconciled to ensure complete and consistent recording in the appropriate accounting period, including the recording of the related cash receipt.

38. Goods returned by customers at, before, or after the end of an accounting period are scrutinized and/or reconciled to ensure complete and consistent recording in the appropriate accounting period.

39. The information system restricts to authorized personnel the ability to create, change, or delete sales orders, contracts, and delivery schedules.

40. The information system edits and validates order entry transactions on-line.

41. The information system restricts to authorized personnel the ability to create, change, or delete sales order return and credit note requests and subsequent credit note transactions.

42. The information system does not allow processing of sales orders that exceed customer credit limits.

43. The information system reports of invoices issued but not posted in finance are prepared and investigated promptly.

44. The information system matches sales order return and credit request transactions to invoices.

45. The information system reports of gaps in document numbering are reviewed regularly.