Assignment #3
Accounts Receivable and Credit Sales
Part A--Optional Exercises
1. Credit Sales System Flowchart
Peach Blossom Cologne Company
Credit Sales system Flowchart
December 31, 2009
2. Analysis of Internal Control Strengths CSF‑1
Peach Blossom Cologne Company Credit Sales System Internal Control Strengths
Strength
Segregation of Functions
1. Segregation among sales, stores, shipping, and accounts receivable.
Authorization
2. Credit sales are approved before shipment.
3. Sales orders are approved.
4. Credit memos are approved.
Input Controls
5. Invoices are prenumbered and controlled.
6. Shipping documents are prenumbered.
7. Credit memos are prenumbered and controlled.
Processing Controls
8. Accounts
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(c) Trace sale to shipping records.(S‑3)
3. For each credit memo selected from the sales register:
(a) Examine authorized initials on credit memo (S‑4).
(b) Trace items returned to the receiving report, taking note of quantity and date received (S‑4).
4. Account for the numerical sequence of invoices and shipping documents (S‑5; S‑6).
5. Account for the numerical sequence of credit memos (S‑7).
6. Select several customer accounts at random and test aging of accounts (S‑8).
7. Examine list of accounts previously written off and determine efficacy of follow-up procedures, tracing amounts into accounting records (S‑9).
8. Select several months at random and scrutinize the computer generated balancing report for these months (S- 10).
9. Scan applicable accounting records and accounts for unusual items.
Alternative B -- Tests of Controls and Substantive Tests of Transactions SP‑1
Peach Blossom Cologne Company
Credit Sales
System Program
Tests of Controls
1. Trace a transaction through the system, noting segregation of functions and access to assets (walk-through) (S‑1).
2. Account for the numerical sequence of invoices, shipping documents, and credit memos (S‑5; S‑6; S‑7).
3. Examine list of accounts previously written off and determine efficacy of follow-up procedures, tracing amounts into accounting records (S‑9).
4. Select several months at random. Examine computer balancing report
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