ACT 803 FINAL STUDY GUDE

Chapter 19: Audit of the Acquisition and Payment Cycle: * Be able to identify accounts that will likely be affected by weak internal I/C.

ACCOUNTS PAYABLE flows into:
-cash in bank / Raw material purchases
-purchase R&A / PPE
-purchase disc / Prepaid Expenses

….which then flows into Manufacturing/Selling/Admin Expense Control Accounts

CLASSES OF TRANSACTIONS/ACCOUNTS Acquisitions: Cash Disbursements: * Inventory -Cash in bank (from cash disbursements) * Property, plant, and equipment -Accounts Payable * Prepaid expenses -Purchase Discounts * Leasehold improvements * Accounts payable * Manufacturing expenses * Selling and administrative expenses

Processing Purchase Orders:
-Purchase requisition
-Purchase order

Receiving Goods and Services
-Receiving Report

Recognizing Liability:
-Vendor’s invoice
-Debit memo
-Voucher
-Acquisitions transaction file
-Acquisitions Journal/lisintg
-AP master file
-AP trial balance
-Vendor’s statement

Processing and recording Cash Disbursements:
-Check
-Cash disb. Transaction file
-Cash disb. Journal/lisiting

* For both the acquisition/expenditure and cash disbursement cycles, just refresh your understanding of the flow charts and be able to do the following: * Identify internal controls * Identify the objective/purpose of the I/C * Describe how the I/C is supposed to work * Describe how to perform test of internal controls (including where you would select the sample) * What a deviation would look like
INTERNAL CONTROLS
-Authorization of purchases
-Separation of asset custody with other functions
-Timely recording, independent review of transactions
-Authorization of payments

CONTROL EXAMPLES
Recorded acquisitions are for goods/services received (occurrence)
Existing