Explore BrainMass

Substantive test for cash balances

This content was STOLEN from BrainMass.com - View the original, and get the already-completed solution here!

You are the in-charge accountant examining the financial statements of the Gutzler Company for the year ended December 31, 20X0. During late October 20X0, you with the help of Gutzler's controller, completed an internal control questionnaire and prepared the appropriate memoranda describing Gutzler's accounting procedures. Your comments relative to cash receipts are as follows:

All cash receipts are send directly to the accounts receivable clerk with no processing by the mail department. The accounts receivable clerk keeps the cash receipts journal, prepares the bank deposit slip in duplicate, posts from the deposit slip to the subsidiary accounts receivable ledger, and mails the deposit to the bank.

The controller receives the validated deposit slips directly (unopened) from the bank. He also receives the monthly bank statement directly (unopened) from the bank and promptly reconciles it.
At the end of each month, the accounts receivable clerk notifies the general ledger clerk by journal voucher of the monthly totals of the cash receipts journal for posting to the general ledger.

Each month, with regard to the general ledger cash account, the general ledger clerk makes an entry to record the total debits to cash from the cash receipts journal. In addition, the general ledger clerk on occasion makes debit entries in the general ledger cash account from sources other than the cash receipts journal (e.g., funds borrowed from the bank).
In the audit of cash receipts you have already performed certain of the standard auditing procedures listed below. The extent to which these procedures were performed is not relevant to the question.

1. Total and cross-total all columns in the cash receipts journal.
2. Trace postings from the cash receipts journal to the general ledger.
3. Examine remittance advices and related correspondence to support entries in the cash receipts journal.


Considering Gutzler's internal control over cash receipts and standard auditing procedures already performed, list all other auditing procedures and reasons therefore which should be performed to obtain sufficient audit evidence regarding cash receipts. Do not discuss the procedures for cash disbursements and cash balances. Also do not discuss the extent to which any of the procedures are to be performed. Assume adequate controls exists to assure that all sales transactions are recorded. Organize your answer sheet as follows:

Other audit procedures. Reasons for other audit procedures.

© BrainMass Inc. brainmass.com October 24, 2018, 10:37 pm ad1c9bdddf

Solution Summary

This posting provides a detailed, 10-point, answer organised as "Other audit procedures" & "Reasons for other audit procedures" to meet the requirements of the question.

See Also This Related BrainMass Solution

Auditing the sales and collection cycle

Please help me so I can complete the following:

You are auditing the sales and collection cycle for the United Regional Hospital, a small not-for-profit hospital. The hospital has a reputation for excellent medical services and weak record keeping. The medical people have a tradition of doing all aspects of their job correctly, but because of a shortage of accounting personnel, there is no time for internal verification or careful performance. In previous years, your audit firm has found quite a few misstatements in billings, cash receipts, and accounts receivable.

As in all hospitals, the two largest assets are accounts receivable and property, plant and equipment. The hospital has several large loans payable to local banks, and the two banks have told management that they are reluctant to extend more credit, especially considering the modern hospital that is being built in a nearby city.

In the past, government taxes have made up deficits, but in the past year, the government has been incurring deficits because of high unemployment. In previous years, your response from patients to confirmation requests has been frustrating at best. The response rate has been extremely low, and those who did respond did not know the purpose of the confirmations or their correct outstanding balance.

You have had the same experience in confirming receivables at other hospitals. You conclude that control over cash is excellent and the likelihood of fraud is extremely small. You are less confident about unintentional errors in billing, recording sales, cash receipts, accounts receivable and bad debts.

(a) Identify the major inherent risks for this audit

(b) In the audit of the sales and receipts cycle, which types of tests are you likely to emphasize?

(c) For each of the following, explain whether you plan to emphasize the tests and give reasons:

o tests of controls
o substantive tests of transactions
o analytical procedures
o tests of details of balances

View Full Posting Details