Question

In light of the risks that encompass the revenue recognition cycle:

·    What account balances are included in a revenue and collection cycle?

·    What specific control procedures should be in place and operating in internal control governing revenue recognition and cash accounting?

Answer 1

Explanation:

1. The account balances which are included in the revenue and collection cycle are as follows :
•Sales account
•Debtors account
•Cash / bank account.

2. The intenal controls procedures the must be put in place to prevent any misappropriation in revenue recognition and cash collection are as follows :

A. Segegration of duties : A single person should not be allowed to make entries and collect cash.The duties should be segegrated among different employees and must be complimentary to each other.

B. Prior approval : Cash entries and receipts issued to customers must be approved by the finance manager before issue.

C. Access to sales register should be limited and sales persons should be resticted form access to sales register.