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Risk in the Revenue and Collection Cycle

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Risk in the Revenue and Collection Cycle: Design the internal controls for sales, accounts receivable, and cash receipts.

Study Level: Master in Accounting

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Solution Summary

Your tutorial is 617 words and explains seven key objectives and gives control procedures to help assure these control objectives are met.

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In the revenue and collection cycle, you want controls to be sure that :

1. Goods are shipping only to customers with approved credit
2. Goods are shipped only to customers with a valid sales order
3. The accounting system matches the sales order and the shipping documents with the sales invoice before recognizing the sale
4. Sales are recognized on the proper date (per shipping document)
5. The system reports sales orders that have and have not been shipped
6. The system restricts access to individuals who are authorized to put in sales orders, shipping documents and sales invoices
7. Cash receipts are deposited promptly, credited to the proper customers on a timely basis and recorded in the ledger accurately.

The procedures I would recommend to achieve the above goals include:

Segregation of duties

? I would make sure that different employees initiate the sales order, approve credit, ship goods, prepare the invoice, collect cash and write off uncollectible ...

Solution provided by:
Carol Sargent, PhD
Education
  • BSc, University of Virginia
  • MSc, University of Virginia
  • PhD, Georgia State University
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