Sales and Purchases Cutoff Tests
Along with Richard Derick and the rest of the audit team, you observed Bronys Bikes December 31,
20X9 physical inventory. Derick is satisfied with the inventory-taking procedures and has considerable
confidence in the reliability of the ending inventory quantities. He is concerned, however, with the
methods used to value the ending inventories (especially the disposition of unfavorable budget
variances) and with possible misstatements relating to sales and purchases cutoff. With regard to
cutoff, Derick is particularly interested in learning why customers could not confirm details of sales
transactions recorded by Bronys Bikes on December 31, 20X9. In response to the confirmation and
cutoff concerns, he has asked you to examine the appropriate books of original entry and underlying
documentation for a few days before and after the balance sheet date. Specifically, Derick is interested
in the following:
1. Were purchases and sales recorded in the proper accounting period?
2. Were purchases that were recorded at year end included in the physical inventory?
3. Were all materials and purchased parts that were included in inventory recorded as purchases?
4. Were the finished goods inventory accounts properly relieved for all recorded sales?
You download Bronys Bikes December voucher register and sales summary. These are partially
reproduced in Exhibits BB.13 (Link) and BB.14 (Link) referred to in Module II and are included in the
Excel file Brony's Bikes Module II Exhibits 7 to 16.xlsx (Link). Using these as a focal point, you requested
that the client provide you with the documentation supporting certain of the recorded transactions.
You now are prepared to record any necessary audit adjustments and reclassifications.
Requirements
1. Using the downloaded Excel data, retrieve the file labeled 20X9 Cutoff. (Link) Study WP 6.4,
Inventory Cutoff, and compare it with the voucher register and sales summary portions reproduced in
Exhibits BB.13 and BB.14. Comment on any cutoff misstatements that you detect and determine their
effect on net income. Do the misstatements appear to be intentional or unintentional? Explain.
2. Draft any audit adjustments suggested by the analysis performed in requirement (1). (Remember
that Bronys Bikes maintains perpetual inventory records and adjusts its perpetual inventory to the
physical inventory through the appropriate Cost of Goods Sold accounts.)
Brony's Bikes inventory Cutoff December 31, 20X0 ,PURCHASES CUTOFF , INVENTORY DATE. RECEIVING ..-DATE SHPPED. INCLUDED --.--. FREGHT-TERMS -EXCLUDED:--.CO St. -....... . RECORDED. -.VOUCHER N6 . .. . . . REPORTN -.-- DATE-RECEIVE :12a86 24S7...112488 --....i 123172oxs 12/31720Xg 124 6 12457 1227120xs 2/28120x0 ied-.....saab 900- -.......... $982,200 12 so zoxo ro i tir atl i , :12a87 12/3120XBsfilp.polnInclded -1231/20X FOB ship.Polnt...- : 13120YO --.-.2P20YO 1/2/206i... 24612:1 2-13001 6215002 FOB shlp. polnExcluded51,879,000 (1) $438,870 (2) Exclded :(1) Voucher 12460 was for the purchase of raw materlais Voucher 12461 was forthe purchase of parts SALES NVOCE. NUMBR NVENTORY INCLUDED EXCLUDED "DATE. SHIPPED . . . . . : DATE RECORDED : . FREGHt TERMS . : . . . SELLING-PRICE . COST FOB shlp. po FOB shlp. poln FOB S $205,436 exclded $679,040Inclded 12)30/20xb 53004 55005 53006 12/2 123120YO 73/20 111,342excluded $595,364 Included 260,700 Included $94,633': excluded inciuded 5376.453 included $606,022 Included FoB shlp. polnt 3775200 $122,900 $4880001....51,018.356 FOB FOB shlp. polnt 12)31120xb 12/31/20xO YO $1,322,800 FoB'shlp. polnt 5788,211 Al adjustments of perpetual to physical inventoris have been made through "Cost of Goods Sold. Examined the folowing documents for a few days before and after the balance sheet date to determine that transactfons were recorded in th ri e proper accounting pe re Sales lnvolces Lading Aii sales are shlpped "FOB shipping point.* Examined freight invoicesfor ncomingshipments to locate possible goods In transit for which title had passed before year-end. .Audit Adjustments 2020 Accounts Pay To record vouchers 12458 and 12450 representing Trade parts Inventorles recelved and Included In December 20X9 inventory, but not recorded untii January, 20Y0 Audit Adjustment 4 310 Raw Materlals inventory 2020 Accounts Payable-Trade record inventory In transit at 1231x9. Audit Ad[ustment 5 100 Sales-Grand Prix Touring Bik 4200 Sales-Phoenlx Touring Blke 4300 Saies-Pke's Peak Mountaln Bike 4400 Sales-Himalaya Mountain Bike 4500 Sales-Walstlner Statlonary Blke 1201 Accounts Recelvable-Trade To reverse the foliowi ng sales recorded in 2XS:' shippe In' 20V*lgoods were incuded In 1230 linventory!:. involeNumber : Amour.f 00 2200: 43004004500 33003 53004 33006 3007 33000 $322 $466,740 223,060 $410,650 $32,500 $87,600 S77.20 $445,760 S773,200 $358,700 $1,322,800' $55,800 $0 $62,375 760 700 550 $20,565 $44,860 $122,400... 522.30 $88,500 580 $3,760,330 $1,230,620 $230,435 $1,937,430$253,050 Brony's Bikes inventory Cutoff December 31, 20X0 ,PURCHASES CUTOFF , INVENTORY DATE. RECEIVING ..-DATE SHPPED. INCLUDED --.--. FREGHT-TERMS -EXCLUDED:--.CO St. -....... . RECORDED. -.VOUCHER N6 . .. . . . REPORTN -.-- DATE-RECEIVE :12a86 24S7...112488 --....i 123172oxs 12/31720Xg 124 6 12457 1227120xs 2/28120x0 ied-.....saab 900- -.......... $982,200 12 so zoxo ro i tir atl i , :12a87 12/3120XBsfilp.polnInclded -1231/20X FOB ship.Polnt...- : 13120YO --.-.2P20YO 1/2/206i... 24612:1 2-13001 6215002 FOB shlp. polnExcluded51,879,000 (1) $438,870 (2) Exclded :(1) Voucher 12460 was for the purchase of raw materlais Voucher 12461 was forthe purchase of parts SALES NVOCE. NUMBR NVENTORY INCLUDED EXCLUDED "DATE. SHIPPED . . . . . : DATE RECORDED : . FREGHt TERMS . : . . . SELLING-PRICE . COST FOB shlp. po FOB shlp. poln FOB S $205,436 exclded $679,040Inclded 12)30/20xb 53004 55005 53006 12/2 123120YO 73/20 111,342excluded $595,364 Included 260,700 Included $94,633': excluded inciuded 5376.453 included $606,022 Included FoB shlp. polnt 3775200 $122,900 $4880001....51,018.356 FOB FOB shlp. polnt 12)31120xb 12/31/20xO YO $1,322,800 FoB'shlp. polnt 5788,211 Al adjustments of perpetual to physical inventoris have been made through "Cost of Goods Sold. Examined the folowing documents for a few days before and after the balance sheet date to determine that transactfons were recorded in th ri e proper accounting pe re Sales lnvolces Lading Aii sales are shlpped "FOB shipping point.* Examined freight invoicesfor ncomingshipments to locate possible goods In transit for which title had passed before year-end. .Audit Adjustments 2020 Accounts Pay To record vouchers 12458 and 12450 representing Trade parts Inventorles recelved and Included In December 20X9 inventory, but not recorded untii January, 20Y0 Audit Adjustment 4 310 Raw Materlals inventory 2020 Accounts Payable-Trade record inventory In transit at 1231x9. Audit Ad[ustment 5 100 Sales-Grand Prix Touring Bik 4200 Sales-Phoenlx Touring Blke 4300 Saies-Pke's Peak Mountaln Bike 4400 Sales-Himalaya Mountain Bike 4500 Sales-Walstlner Statlonary Blke 1201 Accounts Recelvable-Trade To reverse the foliowi ng sales recorded in 2XS:' shippe In' 20V*lgoods were incuded In 1230 linventory!:. involeNumber : Amour.f 00 2200: 43004004500 33003 53004 33006 3007 33000 $322 $466,740 223,060 $410,650 $32,500 $87,600 S77.20 $445,760 S773,200 $358,700 $1,322,800' $55,800 $0 $62,375 760 700 550 $20,565 $44,860 $122,400... 522.30 $88,500 580 $3,760,330 $1,230,620 $230,435 $1,937,430$253,050
