Let's do some questions on cycles.
Question number nine, it says sound internal control dictates that immediately upon receiving
checks from customers by mail, a responsible employee should what?
We get this thing in the mail and we open it up and it has a remittance advice and a
check.
Remember, what do we do?
The person that opens the mail, takes the check, prepares a remittance listing.
They take the listing and the check and they give it to one person for depositing.
They take the remittance advice, give it to accounting and that's for recording.
We're separating custody and recording.
Those two get separated.
The person that opens the mail should do nothing else in ARCC, maybe a receptionist.
The one thing they do also, besides prepare a remittance listing, a listing of what came
in, also they stamp or endorse the check for deposit only so no one else can write their
name on it and cash it.
So they should A, nothing else in ARCC, add the checks to the daily cash summary.
That's recording, they shouldn't record.
B, verify that each check is supported by a pre-numbered sale's invoice.
They don't have the invoices that would be the accounting department's job.
Prepare a duplicate listing of the checks received, a remittance listing, true.
Record the checks, they don't record.
So again keeping the mnemonic ARCCs clear in your head makes these questions easier
to do.
Number 10, tracing shipping documents to pre-numbered sales invoices provides evidence that what?
Tracing shipping documents to invoices.
The key is shipping to invoices.
Let's look up here.
Sounds like the revenue cycle.
Here's the sales order, authorization to sell.
Here's the bill of lading custody shipping to invoices.
If we're going this way, that is called tracing.
If we're tracing, can you see the word tracing?
Tracing this to this, what does it tell you?
This tells us what was ordered was shipped, was shipped was billed, was billed was received,
was received was deposited, and it reconciled.
What got received, custody, actually got recorded and deposited.
That's the normal flow that tells us that the transaction was complete.
What if we went the other way?
What if we started here with the receivable and said the receivable occurred from a sale,
the sale was actually shipped, and the stuff shipped was actually properly authorized or
ordered.
That would tell us that the receivable exists or this transaction actually occurred.
Existence occurrence.
This way is existence occurrence.
This way is completeness.
Make sense?
This tells us everything ordered was billed, everything billed was received.
They're asking about this, bill was received.
It says, A, no duplicate shipments or billings occurred, you'd have to look at the whole
population of items.
Shipments to customers were properly invoiced.
Shipments were invoiced, maybe.
Remember, don't commit.
C, all goods ordered were shipped.
That would be ordered to ship, that's when the sales order the bill of lading.
Order was shipped, shipped were billed, billed were received.
All pre-numbered sales invoices were accounted for, that's PPN, pre-printed, pre-numbered,
numerically controlled, which we talked about in the past as well.
That's not it, best answer is B. In testing controls over cash disbursements,
cash going out, an auditor most likely would determine that the person who signs the checks
should what?
This is cash disbursement.
Which cycle is that?
That's this one called the expenditure or spending cycle.
This says the department head requisitions goods, they make sure the goods are within
the budget, what they need, and so on.
They then prepare a purchase requisition, they keep a copy, send a copy to purchasing.
Purchasing prepares the purchase order, which is the authorization to purchase.
The authorization to purchase then, a copy of it goes back to them, a copy goes to payables,
a copy goes to the receiving department with the quantity blocked out, and they keep a
copy.
The goods come in, they prepare a receiving report, they fill out the quantity that was
received, send it to payables.
Then we get the invoice, the invoice goes to payables.
Payables compares what was ordered, what was received, what was billed, proper item, proper
quantity, and proper price.
Payables then prepares the voucher, called an authorization to pay, a check request.
We then give this...
This whole thing is called a voucher package.
This voucher package then goes to the person with custody of the cash, called the treasurer.
The treasurer then signs the check.
What is a good control?
They cancel the supporting documents.
They stamp it with the...
I remember when I use to pay bills, I would cross it out and write the check number and
the date, so if I had a question about it, I could go to the file, pull it out, and go
oh, and here it is, let�s go find the check.
At that point they stamp it or cross it out.
Then, who should mail the check?
The treasurer's department.
You've got a signed check, you don't want it lying around.
Then we send it in here with the remittance advice and the check.
We send it over, notice this is someone buying, this is someone selling, here's the check
and the remittance advice coming into the company.
They do their side, we do our side.
So what was the question?
I forgot.
In testing controls over cash disbursements, an auditor will most likely determine that
the person who signs the checks, should what, mail them.
A, review the monthly bank rec.
That's comparison, that's not the treasurer.
B, returns the checks to payables.
No, we send them out.
Is denied access to the supporting documents.
No, because before the treasurer signs a check, they need to look at the documents.
Make sure it looks correct and then cancel it, embossing it, stamping it with the date
paid, then is responsible for mailing the checks.
Yes, they should mail the checks.
Best answer D.