We considered broad "accounting systems" involving the Sales Cycle AND Inventory Observation to illustrate the direction of testing involving the test for overstatement or understatement.

Requirements:

1. Consider THREE ADJACENT pieces of the sales cycle [Sales Order can be used] and discuss the proper direction of testing for Sales for UNDER statement.

2. In an inventory observation, discuss the proper direction for taking test counts to test for OVER statement of inventory.

3. The double-entry accounting system conceptually can be used to gain audit efficiencies. Use journal entries [show the debit and the credit to accounts] and explain how (A) Sales can be tested for overstatement by testing another account; and (B) how Inventory Purchases can tested for understatement by testing another account.

4. What type of evidence can be used to test sales for UNDER statement?

Discuss briefly.

1. Sales for UNDER statement

2. Physical Inventory testing for OVER statement

3A. Journal entries & Discussion. Another account and Sales.

3B. Journal entries & Discussion. Another account and Inventory Purchases

4. Sales for UNDER statement Write Type of Evidence ______

Discuss