Chapter 14-MC

A ________ is a document for communicating the description, quantity, and related information for goods ordered by a customer. A) sales order B) customer order C) vendor invoice D) sales invoice

A

A document sent to each customer showing his or her beginning accounts receivable balance and the amount and date of each sale, cash payment received, any debit or credit memo issued, and the ending balance is the A) accounts receivable subsidiary ledger. B) monthly statement. C) remittance advice. D) sales invoice

B

Most companies recognize sales revenue when A) sales are invoiced. B) payment is received from the customer. C) goods are shipped. D) the customer's order is received.

C

A ________ indicates a reduction in the amount due from a customer because of returned goods or an allowance. A) bill of lading B) sales invoice C) credit memo D) monthly statement

C

A ________ is a document that indicates a request for merchandise by a customer. A) sales invoice B) vendor invoice C) customer order D) sales order

C

Before goods are shipped on account, a properly authorized person must A) prepare the sales invoice. B) approve the journal entry. C) approve the customer's credit. D) verify that the unit price is accurate

C

In many audits, no substantive tests of transactions are made for the ________ assertion on the grounds that understatement of sales is not a concern. A) accuracy B) existence C) completeness D) none of the above

C

Some companies have customers send payments directly to an address maintained by a bank. This is called a(n) ________ system. A) direct deposit B) funds transfer C) lockbox D) interbank transfer

C

The most difficult type of cash embezzlement for auditors to detect is when it occurs A) after the merchandise has been shipped. B) before the merchandise has been shipped. C) before the cash is recorded in the cash receipts journal or other cash listing. D) after the cash is recorded in the cash receipts journal or other cash listing.

C

The most significant effect of the results of the tests of controls and substantive tests of transactions in the sales and collection cycle is on A) bad debt expense. B) the analytical tests to be performed. C) the confirmation of accounts receivable. D) the impact of processing cash receipts.

C

When designing audit procedures, tracing of source documents to the customers subsidiary ledger and subsequently to the general ledger is done to satisfy what assertion? A) valuation B) cutoff C) completeness D) classification

C

When posting items sold on account from the sales journal A) Details of the journal are posted to Journal totals are posted to The sales account The general ledger B) Details of the journal are posted to Journal totals are posted to The sales account The accounts receivable subsidiary ledger C) Details of the journal are posted to Journal totals are posted to The accounts receivable master file The general ledger D) Details of the journal are posted to Journal totals are posted to The accounts receivable account in the general ledger The sales account in the general ledger

C

Which of the following is a business function related to sales returns and allowances? A) processing customer orders B) writing off uncollectible accounts C) processing and recording credit memos D) granting credit

C

Which of the following is not a business function within the "Sales" class of transactions? A) processing customer orders B) granting credit C) processing and recording sales returns and allowances D) shipping goods

C

Which of the following tests of controls is useful to test the transaction-related audit objective of posting and summarization? A) Observe whether monthly statements are sent. B) Observe unrecorded cash at a point in time. C) Observe whether the accountant reconciles the bank account. D) Observe endorsement of incoming checks.

A

Which one of the following statements is true? In deciding on substantive tests of transactions A) some procedures are commonly employed on every audit regardless of the circumstances. B) all procedures are dependent on the adequacy of the controls and the results of the tests of controls. C) results obtained in the prior year's audit will not affect the procedures used this year. D) the materiality of the item will not influence the choice of procedures used.

A

Which one the following procedures performed for the billing function provides evidence for the completeness assertion? A) making sure that all shipments have been billed B) making sure that no shipment has been billed more than twice C) making sure that each shipment is billed at the correct amount D) making sure that each shipment is billed to the proper customer

A

________ tests are for omitted transactions, while ________ tests are for nonexistent transactions. A) Tracing; vouching B) Vouching; tracing C) Verifying; tracking D) Tracking; verifying

A

An audit procedure that compares the name, amount, and dates shown on remittance advices with cash receipts journal entries and with related duplicate deposit slips would be effective in detecting A) kiting. B) lapping. C) unauthorized write-offs of customers as uncollectible accounts. D) sales without proper credit authorization.

B

An effective procedure to test for unfilled shipments is to trace from the A) sales journal to the shipping documents. B) shipping documents to the sales journal. C) sales journal to the accounts receivable ledger. D) sales journal to the general ledger sales account

B

The document that accompanies the customer's payment is the A) credit memo. B) remittance advice. C) vendor invoice. D) monthly statement

B

To test for recorded sales for which there were no actual shipments, the auditor vouches from the A) bill of lading to the sales journal. B) sales journal to the shipping documents. C) sales journal to the accounts receivable subsidiary ledger. D) bill of lading to the supporting customer order and sales order.

B

In the accounts receivable master file, the length of time the account has been due can be useful to the client and the auditor in preparing the A) trial balance. B) working trial balance. C) accounts receivable trial balance. D) aged accounts receivable trial balance

D

The total of the individual account balances in the accounts receivable master file should equal the A) total sales for the period. B) balance of the sales account in the general ledger. C) total sales less the total cash received for the period. D) balance of the accounts receivable account in the general ledger.

D

When assessing planned control risk for sales, A) the key internal controls and deficiencies for sales will be the same for every company. B) the audit objectives for sales will differ from company to company. C) a flowchart is required to help assess control risk for sales. D) assessing control risk for sales is a highly subjective decision.

D

Which accounts are involved in the sales class of transactions? A) accounts receivable and sales returns and allowances B) cash and allowance for uncollectible accounts C) sales allowances and accounts receivable D) accounts receivable and sales

D

Which of the following is an account that is not affected by the sales and collection cycle? A) cash B) accounts receivable C) allowance for doubtful accounts D) accounts payable

D

Which of the following is not an important aspect of billing? A) All shipments made have been billed. B) No shipment has been billed more than once. C) Each customer is billed for the proper amount. D) Credit is approved to customers for sales on account

D

Which of the following is the appropriate point at which the auditor deems authorization to be critical? A) Credit granting Price authorization Shipment of goods Yes Yes Yes B) Credit granting Price authorization Shipment of goods Yes No Yes C) Credit granting Price authorization Shipment of goods No Yes No D) Credit granting Price authorization Shipment of goods Yes No No

A

A ________ is a list prepared when cash is received by someone who has no responsibility for recording sales, accounts receivable, or cash, and who has no access to the accounting records. A) prelisting of cash receipts. B) sales invoice. C) packing ticket. D) vendor invoice.

A

As a test of control, the auditor examines sales invoices for supporting documents. The relevant transaction-related audit objective is A) accuracy. B) occurrence. C) classification. D) timing.

A

Cash receipts from sales on account have been misappropriated. Which of the following acts would conceal this fraud and be least likely to be detected by an auditor? A) understating the sales journal by not recording cash sales B) overstating the accounts receivable control account by intentionally misstating prices charged for goods sold C) overstating the accounts receivable subsidiary ledger by not recording payments made by customers D) understating the cash receipts journal by purposely recording incorrect amounts

A

For a firm that practices good internal controls in the sales and collections cycle, the function of indicating credit approval should be recorded on which of the following documents? A) sales order B) sales invoice C) customer order D) remittance advice

A

Prenumbered documents are intended to help A) Prevent the failure to bill or record sales Prevent duplicate billings or recordings of sales Yes Yes B) Prevent the failure to bill or record sales Prevent duplicate billings or recordings of sales No No C) Prevent the failure to bill or record sales Prevent duplicate billings or recordings of sales Yes No D) Prevent the failure to bill or record sales Prevent duplicate billings or recordings of sales No Yes

A

The accurate recording of sales transactions concerns all of the following except for A) proper credit authorization. B) shipping the amount of goods ordered. C) accurately billing for the amount of goods shipped. D) accurately recording the amount billed in the accounting records

A

The auditor's objectives for the sales and cash collections activities when the client is primarily an e-commerce business as compared to a "brick and mortar" business are A) unchanged. B) expanded. C) mitigated. D) decreased.

A

The document used to indicate to the customer the amount of a sale and payment due date is the A) sales invoice. B) bill of lading. C) purchase order. D) sales order.

A

When dealing with the processing and recording of cash receipts, A) the most important concern is the theft of cash. B) theft can only occur before the receipts are entered into the records. C) cash receipts should be deposited at least monthly. D) the monthly statement is used to prepare the cash receipts journal

A

When sales invoices are automatically calculated and posted by a computer, the auditor may be able to reduce substantive tests of transactions for which, if any, assertion? A) accuracy B) existence C) completeness D) none of the above

A

Which document or record is used in the write-off of uncollectible accounts classes of transactions? A) general journal B) remittance advice C) sales transaction file D) sales order

A

Which of the following is not a key control for sales and cash receipts? A) active board of directors B) adequate separation of duties C) internal verification procedures D) adequate documents and records

A

In many audits of sales transactions substantive tests of transactions can be reduced in determining the completeness objective because A) understatements of assets and income are a greater concern than overstatements. B) overstatements of assets and income are a greater concern than understatements. C) it doesn't matter if income is understated because the savings on income tax offsets the reduced revenue and net income is correct. D) the unrecorded sales cause a reduction of accounts receivable; therefore, the ratios of the two financial statements will not be misleading.

B

One type of shipping document is the ________, which is a written contract between the carrier and the seller of the receipt and shipment of goods. A) sales order B) bill of lading C) sales invoice D) customer order

B

Prenumbered documents will only be useful for control purposes if A) a different numerical sequence is used for each company. B) the sequence is accounted for periodically. C) employees are allowed to use documents out of numerical sequence. D) the same numerical sequence is used each accounting period.

B

Smith Manufacturing Company's accounts receivable clerk has a friend who is also a customer of Smith Manufacturing. The accounts receivable clerk has issued fictitious credit memos to his friend for goods supposedly returned. The most effective procedure for preventing this activity is to A) prenumber and account for all credit memorandums. B) require receiving reports that provide evidence of returned inventory items to support all credit memorandums before they are approved. C) have independent sales and accounts receivable departments. D) mail monthly statements to customers.

B

The audit procedure referred to as proof of cash receipts is particularly useful to test A) time lags in making deposits. B) whether all recorded cash receipts have been deposited in the bank. C) whether there are cash receipts that have not been recorded in the journals. D) the client's reconciliation between cash receipts and bank deposits

B

The auditor traces items from the source documents to the journals in order to accumulate audit evidence that will satisfy the A) existence objective. B) completeness objective. C) ownership objective. D) valuation objective.

B

The auditor's primary concern in performing audit procedures of the write-off of uncollectible accounts relates to the risk that the client writes off customer accounts that have already been collected. The primary control for preventing this fraud is A) examining authorized credit memos. B) examining the uncollectible account authorization form. C) examining debit memos. D) examining the vouchers payable register.

B

To determine that sales are accurately recorded, the unit prices on the duplicate sales invoices are normally compared with A) the original invoices. B) an approved master price list. C) the amounts recorded in the sales journal for that transaction. D) the amounts posted to the customer's account in the accounts receivable master file.

B

What critical event must take place before goods can be shipped in order to assure payment can be reasonably expected? A) determination of correct delivery address B) credit approval C) matching of shipping document with sales invoice D) receipt of sales order from the customer

B

When an employee who is authorized to make customer entries in the accounts receivable subsidiary ledger purposefully enters cash received into the wrong customer's account that employee may be suspected of A) kiting. B) lapping. C) floating. D) shorting.

B

When assessing risk control, the auditor must do all of the following except A) assess control risk for each objective by evaluating the controls and deficiencies for each objective. B) perform the detailed test of balances. C) identify the key internal controls and deficiencies. D) associate the key controls and deficiencies with the objectives.

B

When designing tests of controls and substantive tests of transactions for cash receipts, it is important to remember that A) the test of controls are designed to test for monetary misstatements. B) auditors use the same methodology for designing tests of controls and substantive tests of transactions for cash receipts as they use for sales. C) the tests of controls are not dependent on the controls the auditor identifies. D) the tests of controls is not dependent on whether the company being audited is publicly traded.

B

Which of the following is a correct statement regarding the shipment of goods? A) The shipping document must be in paper form. B) The shipping document is used to update the perpetual inventory records. C) Only one copy of the shipping document is needed. D) All of the above are correct statements.

B

Which of the following test of controls is useful to test the completeness objective for cash receipts? A) Compare shipping documents with sales records. B) Observe endorsement of incoming checks. C) Examine evidence that the receivable master file is reconciled to the general ledger. D) Observe if the client reconciles the bank account.

B

Which of the following would offer the best protection for a company that wishes to prevent a reoccurrence of a previously detected "lapping" problem with trade accounts receivable? A) Separate duties so that the bookkeeper in charge of the general ledger has no access to incoming mail. B) Separate duties so that no employee has access to both checks from customers and currency from daily cash receipts. C) Have a mandatory vacation policy for employees who both handle cash and enter cash receipts into the system. D) Request that customer's payment checks be made payable to the company and addressed to the treasurer.

C

Which one of the following would the auditor consider to be an incompatible operation if the cashier receives remittances from the mail room? A) The cashier prepares the daily deposit. B) The cashier makes the daily deposit at a local bank. C) The cashier posts the receipts to the accounts receivable subsidiary ledger cards. D) The cashier endorses the checks.

C

Which type of misstatement is always a fraud? A) sales included in the journals for which no shipment was made B) sales to related parties, such as officers and subsidiaries C) shipments made to nonexistent customers and recorded as sales D) sales recorded more than once.

C

Who is generally responsible for opening receipts when a company uses a lockbox to speed the handling of cash receipts? A) company personnel B) temporary employees in the town where the lockbox is located C) bank employees D) company controller

C

An auditor needs to determine whether all customers of an electric utility company are being billed. The auditor should test from the A) sales register to the accounts receivable ledger. B) sales register to the meter department records. C) accounts receivable ledger to the sales register. D) meter department records to the sales register

D

Except for two key differences, the transaction-related audit objectives are essentially the same for the processing of credit memos as they are for sales. Which of the following are the two key differences? A) risk and emphasis on the completeness objective B) materiality and emphasis on the accuracy objective C) risk and emphasis on the classification objective D) materiality and emphasis on the occurrence objective

D

What event initiates a transaction in the sales and collection cycle? A) receipt of cash B) delivery of product to a customer C) identification of a new customer D) customer request for goods or services

D

Which of the following is an accurate statement relating to separation of duties? A) Management should deny cash access to anyone responsible for entering sales and cash receipts transaction information into the computer. B) All disagreements on the monthly statements should be directed to a designated person who has no responsibility for handling cash or recording sales or accounts receivable. C) The credit granting function should be separate from the sales function. D) All of the above are accurate statements.

D

Which of the following is not one of the five classes of transactions included in the sales and collection cycle? A) sales returns and allowances B) write-off of uncollectible accounts C) bad debt expense D) interest income

D

Which of the following would least concern an auditor regarding the lack of a specific authorization to conduct the sales transaction? A) granting of credit B) shipment of goods C) determination of discounts D) selling of goods for cash

D

Which one of the following best describes the auditors responsibilities regarding appropriate authorizations in the sales/collections cycle? A) Credit must be authorized before the sale. B) Goods must be shipped after the authorization C) Prices must be authorized. D) All of the above should be of concern to the auditor.

D