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Jimmy's Corner Grocery Store, Inc. is an audit client. Sales occur in the following ways:

1. Customers come to the store, shop, and go through the checkout area. They may pay with cash, check, credit card, food stamps, WIC (Women, Infants, and Children) instruments (a federal program), or may charge it to an open account. Jimmy believes there are some customers who get down on their luck, and he would rather that they charge it to an account that they will never pay rather than just steal from him.

2. Customers fax in an order directly to the deli counter, where the order is prepared. (This is primarily for the lunchtime crowd.) A delivery person takes it to the customer location. Most times the delivery person collects cash, but sometimes it is charged to a credit card or the customer gives a personal or company check.

3. Customers phone in an order for store personnel to pick and pack. When the order is ready, the order is picked up by a taxi driver, who delivers the order to the customer and collects payment and whatever taxi charge and driver's tip are involved. The taxi driver is then supposed to return to the store with the store's payment.

Required:

a. What internal controls over sales and collections should the client have in order to be sufficient for you to rely upon in your performance of the total audit?

b. What audit steps should you perform to test whether the controls over sales and collections do exist and are working?

c. What audit steps should you perform to test whether the balances of the sales, accounts receivable, bad debts expense, and allowance for bad debts accounts are fairly presented?

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