Question

Please help me with number 3.1 and 3.2

QUESTION 3 20 marks You are the newly appointed bookkeeper of Pula Plumbing (Pty) Ltd. The previous bookkeeper did not have a good accounting system in place. You learned at university about risk and control activities to mitigate the risks for the various business cycles, and you want to apply your knowledge to Pula Plumbing (Pty) Ltd. RISKS IN THE REVENUE CYCLE You start by focusing on the risks applicable to the revenue and receipt cycle. You want to identify the risks only in the receiving of customer orders function, and the invoicing and recording functions of the revenue cycle. REQUIRED Marks 3.1 Describe the risks associated with receiving customer orders in the revenue cycle. (6) 3.2 Describe the risks associated with the invoicing and recording of sales in the revenue cycle. (14)

Answer 1

Revenue Cycle Risks:

Risks associated with receiving customer orders in the revenue cycle:

Common risks associated with the revenue cycle include the authorization or accuracy of sales contracts with clients. You must ensure prices are quoted correctly following your sales pricing policy.

Selling to uncreditworthy customers

shipping wrong items or wrong inaccurate recording

Misappropriation of cash receipts and inventory

Unauthorized access to records and reports.

Risks associated with invoicing and recording of sales in revenue cycle:

Transaction Authorization-remittance list controls against theft of checks and remittance advices as they flow thru system.
-Supervision-mail room point of risk, individual has access to cash (Asset) and Remittance advice (record of transaction
-Access Controls-warehouse security, depositing cash in bank, using safe for cash, locking drawers and safe in cash receipts
-Segregation of duties-custody of asset and record keeping
1. Cash receipts function (custody of cash asset) should be separated from AR function that records payment in customer records (could steal check and write off aR)
2. cash receipts shouldnt have access to general ledger account
3. Inv warehouse personnel who have custody of inventory shoudlnt be responsivle for inv records