Chapter 14 Multiple Choice

An auditor wishes to test completeness assertion for sales. Which of the following audit tests would most likely accomplish this objective? (1) select a sample of shipments occurring during the year and trace each one to inclusion in sales journal (2) compare accounts receivable turnover in the current year to that achieved in the prior year (3) use common size analysis to compare recorded sales to sales recorded by other companies in the same industry (4) select large individual sales recorded during the year and review supporting documentation

1

The accounting system automatically obtains the unit price based on scans of bar codes for merchandise sold. This control is more relevant to which transaction related objective for sales? (1) accuracy (2) occurrence (3) completeness (4) posting and summarization

1

Which of the following procedures most likely represents an internal control designed to reduce the risk of errors in the billing process? (1) comparing control totals for shipping documents with corresponding totals for sales invoices (2) matching receiving documents with approved sales orders before invoice preparation (3) reconciling the control totals for sales invoices with the accounts receivable subsidiary ledger (4) requiring customers that purchase on account to be approved by the credit department

1

Shipments occurring in December 2016 did not get recorded until the first few days of January 2017. (1) the system automatically assigns bill of lading numbers and ensures no duplicates are issued (2) as goods leave the shipping dock, the system generates bill of lading and associated sales invoice, which is automatically recorded in the sales journal (3) the accounting system requires entry of a valid bill of lading number provided by the shipping department before a sales transaction is accepted for entry (4) the system prevents the creation of a bill of lading without a customer order dated prior to shipping date

2

The accounting system will not post a sales transaction to the sales journal without a valid bill of lading number. This control is more relevant to which transaction related objective for sales? (1) accuracy (2) occurrence (3) completeness (4) posting and summarization

2

Tracing shipping documents to sales invoices provides evidence that (1) sales billed to customers were actually shipped (2) shipments to customers were properly invoiced (3) shipments to customers were recorded as sales (4) all goods ordered by customers were shipped

2

Which audit procedure is most effective in testing credit sales for overstatement? (1) trace a sample of postings from the sales journal to the sales account in the general ledger (2) vouch a sample of recorded sales from the sales journal to shipping documents (3) prepare an aging of accounts receivable (4) trace a sample of initial sales orders to sales recorded in the sales journal

2

Which of the following controls most likely will be effective in offsetting the tendency of sales personnel to maximize sales volume at the expense of high bad debt write offs? (1) employees responsible for authorizing sales and bad debt write offs are denies access to cash (2) employees involved in the credit granting function are separated from the sales function (3) shipping documents and sales invoices are matched by an employee who does not have the authority to write off bad debts (4) subsidiary accounts receivable records are reconciled to the control account by an employee independent of the authorization of credit

2

A sales invoice for $5,200 was computed correctly but, by mistake, was entered as $2,500 to the sales journal and posted to the accounts receivable master file. The customer remitted only $2,500, the amount on his monthly statement. (1) sales invoice number, prices, discounts, extensions, and footings are independently checked (2) the customers' monthly statements are verified and mailed by a responsible person other than the bookkeeper who prepared them (3) prelistings and predetermined totals are used to control postings (4) unauthorized remittance deductions made by customers or other matters in dispute are investigated promptly by a person independent of accounts receivable function

3

To determine whether internal control relative to the revenue cycle of a wholesaling entity is operating effectively in minimizing the failure to prepare sales invoices, an auditor would most likely select a sample of transactions from the population represented by the (1) sales order file (2) customer order file (3) shipping document file (4) sales invoice file

3

Which of the following controls would be most effective in detecting a failure to record cash received from customers paying on their accounts? (1) a person in accounting reconciles the bank deposit to the cash receipts journal (2) transactions recorded in the cash receipts journal are posted on a real time basis to the accounts receivable master file (3) monthly statements are sent to customers and any discrepancies are resolved by someone independent of cash handling and accounting (4) deposits of cash received are made daily

3

An auditor is performing substantive tests of transactions for sales. One step is to trace a sample of debit entries from the accounts receivable master file back to the supporting duplicate sales invoices. What will the auditor intend to establish by this step? (1) sales invoices representing existing sales (2) all sales have been recorded (3) all sales invoices have been correctly posted to customer accounts (4) debit entries in the accounts receivable master file are correctly supported by sales invoices

4