Internal Control: Revenue Cycle - Lesson 6
In this video, 3.06 – Internal Control – Revenue Cycle – Lesson 6, Roger Philipp, CPA, CGMA, explains how an auditor should be familiar with characteristics of the revenue cycle in order to conduct tests of controls within the revenue cycle. Having previously provided a contextual exploration of the steps of the revenue cycle, along with a discussion of the segregation of the duties of authorizing, recording, custody, and comparison within the revenue cycle, Roger defines and discusses key terms for documents and actions within the revenue cycle in this lesson. These include: sales order, bill of lading, sales invoice, sales register or sales journal, posting, subsidiary receivables ledger, remittance advice, remittance listing, cash receipts journal, deposit slip, and bank reconciliation. Roger completes the lesson by explaining the audit evidence terms, “tracing” and “vouching”. Tracing means to go from the source to the books while vouching means to go from the books to the source. Tracing can typically help provide audit evidence of the management assertion of completeness while vouching aids with of existence or occurrence. Connect with us: Website: https://accounting.uworld.com/cpa-review/ Blog: https://accounting.uworld.com/blog/cpa-review/ Twitter: https://twitter.com/UWorldRogerCPA Facebook: https://www.facebook.com/UWorldRogerCPAReview Instagram: https://www.instagram.com/uworldrogercpareview/ Pinterest: https://www.pinterest.com/uworldrogercpareview/ LinkedIn: https://www.linkedin.com/company/uworld-roger-cpa-review Are you accounting faculty looking for FREE CPA Exam resources in the classroom? Visit our Professor Resource Center: https://accounting.uworld.com/cpa-review/partner/university/ Video Transcript Sneak Peek: Now, let's read through this. Look at the documents in your notes. It says sales order. Sales order, the list of goods ordered by the customer along with the prices to be charged. Even if a customer has submitted their own purchase order, a sales order will be prepared since they are pre-numbered and make it possible to periodically account for the orders to be sure they were processed. So, again, preprinted, pre-numbered. Bill of lading. The shipping document that is signed by the carrier, usually a trucker, accepting goods from the shipping clerk. Sales invoice. The bill that is prepared and sent to the customer after the shipment request. Before doing so, the billing clerk should compare the sales order and the bill of lading. So the billing clerk compares the sales order and the bill of lading. That was this person, billing, compares these two. Sales register, sales journal. A book in which sales invoice information is posted. What is another word for posting? Recording. So whenever you see the word posted or recorded, recorded is posted, posted recorded. Remember that. Very important term. Cash register records provide similar information if it's a retail store. Subsidiary receivable ledger. A book that lists the outstanding receivables. Remittance advice. The document included in an envelope with the check to indicate the purpose of the check. Remittance listing. A summary of the money received that day. They may be called a pre-list in some cases, and is prepared by the employee first receiving the cash, usually the mailroom clerk. Cash receipts journal. A book in which remittance listings are posted. So we post the listing in the, posted, recorded. A deposit slip. Signed document. Bank rec comparison. Book to physical. Now, as we're looking through this, we're going to cover terms in audit evidence, a couple of sections down the road, and we're going to have the words tracing and vouching. Let me put it right here. Tracing. Vouching. All right, this is tracing, this is vouching. Tracing means you're tracing in the normal flow. You trace from the source into the books and records. What does it tell you? That the transaction was complete. So it relates to the assertion of completeness. What does that mean? What was ordered was shipped, was shipped was billed, was billed was received, was received was recorded, was recorded was reconciled. Okay. Vouching is the opposite. This, instead of completeness, this is existence or occurrence. So the assertion of existence or occur-- So let's say you're looking and you see an account receivable in the book. Remember I said that tracing is source into the books. Vouching is books back to the source. So in the books, I have an account receivable. I want to make sure this receivable actually exists, and the sale actually occurred. That means going this way. So you can see, tracing is this way, from the source into the books. Vouching is from the books back to the source. We're going to go over this a few more times, but I just want to plant the seed in your head now, so you understand tracing, vouching. Tracing, source into books. Vouching, books back to source.
In this video, 3.06 – Internal Control – Revenue Cycle – Lesson 6, Roger Philipp, CPA, CGMA, explains how an auditor should be familiar with characteristics of the revenue cycle in order to conduct tests of controls within the revenue cycle. Having previously provided a contextual exploration of the steps of the revenue cycle, along with a discussion of the segregation of the duties of authorizing, recording, custody, and comparison within the revenue cycle, Roger defines and discusses key terms for documents and actions within the revenue cycle in this lesson. These include: sales order, bill of lading, sales invoice, sales register or sales journal, posting, subsidiary receivables ledger, remittance advice, remittance listing, cash receipts journal, deposit slip, and bank reconciliation. Roger completes the lesson by explaining the audit evidence terms, “tracing” and “vouching”. Tracing means to go from the source to the books while vouching means to go from the books to the source. Tracing can typically help provide audit evidence of the management assertion of completeness while vouching aids with of existence or occurrence. Connect with us: Website: https://accounting.uworld.com/cpa-review/ Blog: https://accounting.uworld.com/blog/cpa-review/ Twitter: https://twitter.com/UWorldRogerCPA Facebook: https://www.facebook.com/UWorldRogerCPAReview Instagram: https://www.instagram.com/uworldrogercpareview/ Pinterest: https://www.pinterest.com/uworldrogercpareview/ LinkedIn: https://www.linkedin.com/company/uworld-roger-cpa-review Are you accounting faculty looking for FREE CPA Exam resources in the classroom? Visit our Professor Resource Center: https://accounting.uworld.com/cpa-review/partner/university/ Video Transcript Sneak Peek: Now, let's read through this. Look at the documents in your notes. It says sales order. Sales order, the list of goods ordered by the customer along with the prices to be charged. Even if a customer has submitted their own purchase order, a sales order will be prepared since they are pre-numbered and make it possible to periodically account for the orders to be sure they were processed. So, again, preprinted, pre-numbered. Bill of lading. The shipping document that is signed by the carrier, usually a trucker, accepting goods from the shipping clerk. Sales invoice. The bill that is prepared and sent to the customer after the shipment request. Before doing so, the billing clerk should compare the sales order and the bill of lading. So the billing clerk compares the sales order and the bill of lading. That was this person, billing, compares these two. Sales register, sales journal. A book in which sales invoice information is posted. What is another word for posting? Recording. So whenever you see the word posted or recorded, recorded is posted, posted recorded. Remember that. Very important term. Cash register records provide similar information if it's a retail store. Subsidiary receivable ledger. A book that lists the outstanding receivables. Remittance advice. The document included in an envelope with the check to indicate the purpose of the check. Remittance listing. A summary of the money received that day. They may be called a pre-list in some cases, and is prepared by the employee first receiving the cash, usually the mailroom clerk. Cash receipts journal. A book in which remittance listings are posted. So we post the listing in the, posted, recorded. A deposit slip. Signed document. Bank rec comparison. Book to physical. Now, as we're looking through this, we're going to cover terms in audit evidence, a couple of sections down the road, and we're going to have the words tracing and vouching. Let me put it right here. Tracing. Vouching. All right, this is tracing, this is vouching. Tracing means you're tracing in the normal flow. You trace from the source into the books and records. What does it tell you? That the transaction was complete. So it relates to the assertion of completeness. What does that mean? What was ordered was shipped, was shipped was billed, was billed was received, was received was recorded, was recorded was reconciled. Okay. Vouching is the opposite. This, instead of completeness, this is existence or occurrence. So the assertion of existence or occur-- So let's say you're looking and you see an account receivable in the book. Remember I said that tracing is source into the books. Vouching is books back to the source. So in the books, I have an account receivable. I want to make sure this receivable actually exists, and the sale actually occurred. That means going this way. So you can see, tracing is this way, from the source into the books. Vouching is from the books back to the source. We're going to go over this a few more times, but I just want to plant the seed in your head now, so you understand tracing, vouching. Tracing, source into books. Vouching, books back to source.