Auditing Ch. 14 Quiz

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) the sequence is accounted for periodically.

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) whether all recorded cash receipts have been deposited in the bank.

Sales should be recorded, at the earliest, when: A) the order is received. B) the order is received and credit is approved. C) credit is approved and it is verified that there is enough inventory to fill the order. D) the shipment takes place.

D) the shipment takes place.

Credit memos are normally issued for what purpose(s)? A) To adjust the customers balance to the amount owed to the company. B) To assist in the aging of accounts receivable. C) To reduce customer frustration and sales losses. D) To inform the customer of the balance due

A) To adjust the customers balance to the amount owed to the company.

The ________ is a contract between a carrier (e.g., a trucking company) and the seller of goods that dictates the details surrounding the shipment of goods. A) bill of lading B) sales invoice C) picking ticket D) remittance advice

A) bill of lading

Which of the following documents is not commonly associated with the "cash receipts" class of transactions? A) Remittance advice B) Sales order C) Prelisting of cash receipts D) Cash receipts journal or listing

B) Sales order

Most companies recognize sales revenue when: A) sales are invoiced. B) goods are received by the customer. C) goods are shipped. D) Both B and C are correct, depending upon the company's revenue recognition policies.

C) goods are shipped.

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) Interest Income

Which of the following is not an account affected by the sales and collection cycle? A) Cash B) Accounts receivable C) Allowance for doubtful accounts D) Sales of Accounts Receivables

D) Sales of Accounts Receivables

Which one of the following would the auditor consider to be an incompatible operation if the cashier receives remittances from the mailroom? 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) The cashier posts the receipts to the accounts receivable subsidiary ledger cards.

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) approve the customer's credit.

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) bank employees

In designing audit procedures for the sales returns and allowances account, the auditor would primarily rely on the following accounts, except for: A) sales returns and allowances transaction file. B) accounts receivable master file. C) cash receipts journal. D) sales returns and allowances will be recorded in all of the above.

C) cash receipts journal.

Preparation of a proof of cash would not be useful in discovering differences between the actual and reported cash balances if the differences were due to: A) deposits in transit. B) collections on the company's behalf by the bank which are deposited directly to the company's account. C) cash receipts that were not recorded in the relevant accounting records. D) service charges.

C) cash receipts that were not recorded in the relevant accounting records.

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) completeness

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) completeness

The document that requires adjustments to the customers subsidiary ledger account is the: A) bill of lading. B) sales invoice. C) credit memo. D) monthly statement.

C) credit memo.

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

D) customer request for goods

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) meter department records to the sales register.

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

A) B, C, and D should all be of concern to the auditor.

Which of the following audit procedures would normally be best expected to test the completeness objective (assertion) for sales? A) Compare shipping documents with sales records. B) Apply gross profit rates to inventory disposed of during the period. C) Trace payments received subsequent to the balance sheet date. D) Send accounts receivable confirmation requests

A) Compare shipping documents with sales records.

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

A) Credit granting: yes Price authorization: yes Shipment of goods: yes

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) Making sure that all shipments have been billed.

Proper separation of duties is useful to prevent various types of misstatements. Which of the following is not an essential separation of duties? A) Persons having access to cash should also be responsible for recording sales, accounts receivable, and cash. B) Separate the credit-granting function from the sales function. C) Personnel doing internal comparisons should be independent of those entering the original data. D) Anyone responsible for entering sales and cash receipts transactions information into the computer should be denied access to cash.

A) Persons having access to cash should also be responsible for recording sales, accounts receivable, and cash.

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

A) Tracing, vouching

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

A) Prevent the failure to bill or record sales: yes Prevent duplicate billings or recordings of sales: yes

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) Understating the sales journal by not recording cash sales.

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) accuracy

Generally, audit evidence gathered from the sales and collection cycle is combined with evidence: A) as the evidence accumulation process proceeds. B) only when all fieldwork processes of the engagement are completed. C) only after the audit of the sales and collection cycle is concluded. D) after the conclusion of both the cash cycle and the sales and collection cycle.

A) as the evidence accumulation process proceeds.

One key internal control to prevent fictitious transactions in the sales and collection cycle is: A) assign a specific customer number for each customer in the computer files. B) to account for the integrity of the numerical sequence of sales orders. C) to include the sales price list of all products in the computer files. D) having bank reconciliations prepared by one who is independent of the treasury function.

A) assign a specific customer number for each customer in the computer files.

A document that initiates shipment of goods and indicates the description of the merchandise, the quantity shipped, and customer name and address is the: A) bill of lading. B) sales invoice. C) picking ticket. D) vendor invoice.

A) bill of lading.

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) sales invoice.

A ________ is a document that is matched with the customer order to assure that the correct quantity and type of goods are shipped. A) sales order B) customer order C) vendor invoice D) sales invoice

A) sales order

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) sales order

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) some procedures are commonly employed on every audit regardless of the circumstances.

In determining the level of audit efficiency, once the auditor has identified the key internal controls and identified any deficiencies in order to determine the level of control risk appropriate for a private company client, it is appropriate to decide whether: A) substantive tests can be reduced sufficiently to justify costs of performing tests of controls. B) substantive tests can be increased sufficiently to justify costs of performing tests of controls. C) tests of controls can be increased sufficiently to justify costs of performing substantive tests. D) tests of controls can be reduced sufficiently to justify costs of performing substantive tests.

A) substantive tests can be reduced sufficiently to justify costs of performing tests of controls.

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

A) unchanged.

An effective procedure to test for unbilled 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) shipping documents to the sales journal.

Which one of the following is of the least concern to the auditor when designing substantive tests of transactions for the sales/collection cycle? A) Sales being included in the journal for which no shipment was made. B) Sales to related parties, such as officers and subsidiaries. C) Sales recorded more than once. D) Shipments being made to nonexistent customers and recorded as sales.

B) Sales to related parties, such as officers and subsidiaries.

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) an approved master price list.

A document prepared to initiate shipment of the goods sold by an independent shipper is the: A) sales order. B) bill of lading. C) sales invoice. D) customer order.

B) bill of lading.

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) completeness objective.

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) credit approval

The auditor's primary concern in performing audit procedures of the write-off of uncollectible accounts relates to the risk that the client writes offs 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) examining the uncollectible account authorization form.

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

B) lapping.

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

B) lapping.

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) monthly statement.

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) overstatements of assets and income are a greater concern than understatements.

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

B) remittance advice.

Smith Manufacturing Company's accounts receivable clerk has a friend who is also a Smith's customer. 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) require receiving reports that provide evidence of returned inventory items to support all credit memorandums before they are approved.

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) sales journal to the shipping documents.

When posting items from the sales journal, details of the journal and journal totals are posted to which items? A) Details of the journal are posted to: sales account Journal totals are posted to: general ledger B) Details of the journal are posted to: sales account Journal totals are posted to: accounts receivable subsidiary ledger C) Details of the journal are posted to: accounts receivable master file Journal totals are posted to: general ledger D) Details of the journal are posted to: accounts receivable account in the general ledger Journal totals are posted to: sales account in the general ledger

C) Details of the journal are posted to: accounts receivable master file Journal totals are posted to: general ledger

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) Segregate duties so that the bookkeeper in charge of the general ledger has no access to incoming mail. B) Segregate duties so that no employee has access to both checks from customers and currency from daily cash receipts. C) Have customers send payments directly to the company's depository bank. D) Request that customer's payment checks be made payable to the company and addressed to the treasurer.

C) Have customers send payments directly to the company's depository bank.

Which of the following procedures performed for the billing function may provide evidence that the accounts receivable subsidiary ledger is in agreement with the accounts receivable control account? 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.

C) Making sure that each shipment is billed at the correct amount.

To prevent fraud, management should deny cash access to anyone responsible for: A) Opening mail from customers: yes Entering sales transactions: yes Entering cash receipts transactions: yes B) Opening mail from customers: no Entering sales transactions: no Entering cash receipts transactions: yes C) Opening mail from customers: no Entering sales transactions: yes Entering cash receipts transactions: yes D) Opening mail from customers: yes Entering sales transactions: no Entering cash receipts transactions: no

C) Opening mail from customers: no Entering sales transactions: yes Entering cash receipts transactions: yes

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) customer order

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

C) lockbox

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) processing and recording sales returns and allowances

In the accounts receivable subsidiary ledger 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) aged accounts receivable trial balance.

The total of the individual account balances in the accounts receivable subsidiary ledger 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) balance of the accounts receivable account in the general ledger.

The document that the accounting staff will use as the primary basis for recording sales transactions and updating the customers accounts receivable subsidiary ledger is the: A) sales order. B) bill of lading. C) sales journal. D) sales invoice.

D) sales invoice.

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) selling of goods for cash

In the sales and collection cycle when is, generally, the earliest point at which revenue can be recognized? A) sales approval B) credit approval C) cash collection D) shipment of goods

D) shipment of goods

The auditor would expect that an account receivable from a customer would be written off by the client when which of the following occurs: A) the customer files for bankruptcy. B) the account is at least six months old. C) a collection agency cannot inspire customer to pay the debt. D) the client company concludes that an amount is no longer collectible.

D) the client company concludes that an amount is no longer collectible.