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Tests of controls

18-21
Following are some of the tests of controls and substantive tests of transactions procedures commonly performed in the acquisition and payment cycle. Each is to be done on a sample basis.

1. Trace transactions recorded in the acquisitions journal to supporting documentation, comparing the vendorâ??s name, total dollar amounts, and authorization for acquisition.
2. Examine documents in support of acquisition transactions to make sure that each transaction has an approved vendorâ??s invoice, receiving report, and purchase order included.
3. Foot the cash disbursements journal, trace postings of the total to the general ledger, and trace postings of individual cash disbursements to the accounts payable master file.
4. Account for a numerical sequence of checks in the cash disbursements journal and examine all voided or spoiled checks for proper cancellation.
5. Prepare a proof of cash disbursements for an interim month.
6. Account for a sequence of receiving reports and trace selected ones to related vendorsâ?? invoices and acquisitions journal entries.
7. Review supporting documents for clerical accuracy, correctness of account distribution, and reasonableness of expenditure in relation to the nature of the clientâ??s operations.
8. Compare dates on cancelled checks with dates on the cash disbursements journal and the bank cancellation date.

A â?" State whether each procedure above is primarily a test of control or a substantive test of transactions.
B â?" State the purpose(s) of each procedure.

Solution Preview

1. Trace transactions recorded in the acquisitions journal to supporting documentation, comparing the vendorâ??s name, total dollar amounts, and authorization for acquisition.
This is primarily a test of controls. The purpose is to ascertain if the documentation supporting acquisition transactions are properly recorded. This makes sure that acquisition journal has authorization for purchase. has the vendor's name, and the total dollar amounts. So the acquisition entries are supported by adequate information.
2. Examine documents in support of acquisition transactions to make sure that each transaction has an approved vendorâ??s invoice, receiving report, and ...

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