Internal Control: Revenue Cycle - Lesson 7
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- Опубликовано: 16 окт 2024
- In this video, 3.06 - Internal Control - Revenue Cycle - Lesson 7, Roger Philipp, CPA, CGMA, first discusses several key personnel typically involved in a company’s revenue cycle, including: the purchasing manager, purchasing clerk, receiving clerk, payables clerk, payables manager, treasurer, and employees of the shipping department. An auditor should be familiar with characteristics of the revenue cycle in order to conduct tests of controls within the revenue cycle, including a familiarity with optimal segregation of duties within the revenue cycle.
In analyzing why returned goods not go back to the salespeople, Roger explains how segregation of the duties of authorizing, recording, custody, and comparison (ARCCs) apply to returned goods within the revenue cycle. Why would it be acceptable for the treasurer to approve the write-off of noncollectable receivables, but not the accounts receivable manager? Roger explains this situation, too, in light of the segregation of the duties of authorizing, recording, custody, and comparison within the revenue cycle.
Roger completes this final lesson on the Revenue Cycle with a discussion of management assertions and the audit techniques of tracing and vouching, plus a reminder of a key reason why the revenue cycle is so important to an auditor - there’s a lot of cash in the revenue cycle, which drives up the inherent risk within the revenue cycle.
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Video Transcript Sneak Peek:
If you look, the previous page, it says specific employees. Who is doing what? We've got the sales clerk. They accept orders from customers and prepare the written sales order. That deals with recording. So the sales clerk. It says credit manager, they check the credit. Credit would be authorization. Warehouse clerk, they have custody of the goods, custody. Shipping clerk, custody. Billing clerk, recording. Receivables clerk, posts. General ledger bookkeeper, posts. Mailroom clerk or receptionist, opens the mail. They really shouldn't do anything else in ARCs.
Cashier receives the checks, prepares deposit slip. Cash receipts clerk receives remittance listing. Receiving clerk receives all goods that are being returned and returns them to inventory. If goods get returned, we don't want the goods getting returned to the salesman. Why not? Because if we sell goods, but the person doesn't pay, I still get my commission. It was a good sale. It's not my fault that you didn't check his credit.
But, we sell goods, they return them to me, I put them in the trunk of my car and sell them at the swap meet on Sunday, and then I just tell people, oh, we sold them, but he didn't pay. Uncollectable, let's write it off and I still get my commission. Uh-uh-uh. You've got to make sure-- You ever gone, there's a place called Ikea, right, where you can get the best furniture that lasts like an hour, and then it breaks. First of all, you buy it. It takes you like four days to set it up. Then, you sit in it, and it breaks apart. But it's a fabulous store. It looks fabulous. It looks great. It's got great form, but no substance.
Anyway, so you ever return goods to Ikea? Well, you walk in the door and you have to go to a whole separate area. You get in line, pick a ticket, stand in line, then you get to return it. Notice, it's not going to the person you bought it from, it's a whole different department. The point is, you don't want the goods to be returned to the salesperson. Otherwise, what happens? It'll never get back in inventory.
Then the treasurer approves the credit memo and approves the write-offs. Now, in reality, they're probably not going to do it, but there was a question and it said, which of the following should authorize, or who should authorize the write-off of receivables? The people they listed, the only one listed that could do it was treasurer, because what does the treasurer do? They have checks, they sign the check. They're dealing with cash dispersements not cash receipts. So the treasurer's signing the check.
Incredible. I've been trying to get through this cycle for so long and this guy did it in a few short videos. It really helped that you showed the meaning behind the process and kept bringing it all back to the big picture of what the process is meant to do.
I can now finally understand this topic in its core concepts. Remarkable and informative teaching Roger.
Thanks Keith! We're so glad we were able to help you understand this topic. Thanks for watching!
Very helpful
I LOVE YOUR TEACHING!!!! i'd like u to replace my prof in audit class
Thanks for watching! :)
Thank you Roger, your lessons are useful!
Thanks Toleka! Definitely glad to be helping you out in your studies!
your methods of teaching is great.
Thanks so much Devika! That means a lot to us. Keep up the great work with studying! :)
Thank you for the well explained video!
You're welcome Celentic! Glad we could be helpful!
Fantastic lecture by Roger
Thanks for watching Prasad! We're glad you found this lecture helpful.
Concepts and the understanding of the controls become crystal clear!! Thanks- this makes me considering doing CPA - i would be obliged if you can guide what would be the scope of CPA for an Indian CA? :)
Hi Raj. Thanks for watching. We're glad we could help you understand internal controls better and are glad that you're considering becoming a CPA. Our best recommendation would be to reach out to the State Board of Accountancy for whichever state you would like to become a CPA in. They will be able to tell you what requirements you need to fulfill. Hope that helps!
Thanks a lot! This helps !
i can see completeness in your explanation. many thanks
Thanks Ibrahim! Glad we could help you understand this topic better.