Ch 11 Accounts Receivable, Notes Receivable, and Revenue

Confirmation requests should contain a "business reply" envelope addressed to the auditors at the clients address

False

The department approving a sales transaction should be the shipping department

False, credit department

Accounts receivable that are written off should not be turned over to a collection agency

Fasle

Confirmation of accounts receivable provides some assurance that no lapping or other manipulation affecting accounts receivable is being carried on

True

Material accounts receivable form related parties should be stated separately from other receivables

True

What type of error is the CPA most likely to discover when he/she examines all shipping reports dated in January of 20XX, shipped FOB shipping point, which were recorded in December of 20X0 as credit sales?

A. Accounts receivable are overstated at December 31, 20XO

Which of the following is a likely procedure to test the adequacy of the allowance for doubtful accounts?

A. Examine cash receipts received after year-end

For effective internal control, the billing function should not be performed by the

A. Sales department

Which of the following would be least likely to diminish the validity of evidence obtained through confirmation of accounts receivable?

A. The confirmation requests are sent on the client's letterhead.

Which of the following is most likely to be used in determining a proper amount to be included in the allowance for doubtful accounts?

B. Aging of accounts receivable

Tracing copies of sales invoices to shipping documents will provide evidence that all

B. Billed sales were shipped

Which of the following manipulations would understate receivables on the financial statements

B. Closing the sales journal prior to year-end

Which procedure would be of most assistance to an auditor discovering a large credit sales that has erroneously been recorded twice?

B. Confirming accounts receivable

The confirmation of accounts receivable is most closely associated with

B. Detection risk

Which of the following is not true about the auditor's verification of notes receivables?

B. Inspecting the notes is sufficient evidence of existence of the notes

Which of the following is least like to be typically considered to be an alternate procedure handling nonreplies to accounts receivable confirmation requests?

B. Physically examine items sold

You were surprised to note that approximately 95% of returned positive accounts receivable confirmation requests indicated that the customers thought that they owed a larger balance than the amount that had been printed by your client on the confirmation. This might be explained by the fact that:

B. The cash receipts journal was held open after year end

Your client performed the physical count of inventory as of November 30, one month prior to year-end. Subsequently, your client closed the sales journal on 12/29/xx, two days before year-end, and reported those two days' credit sales in January of the next year. Assuming the client uses a perpetual inventory system, which of the following is most likely to be overstated relating to the year XX financial statements

C. Inventory

To test the existence assertion for recorded receivables, an auditor would select a sample from the

C. Accounts receivable subsidiary ledger

After the CPAs have selected particular accounts receivable for confirmation

C. All requests for confirmation should be mailed in envelopes bearing the CPA firm's return address and should include a return envelope addresses to the CPA firm

The audit working papers often include a client-prepared, aged trial balance of accounts receivables as of the balance sheet date. The aging is best used by the auditors to

C. Estimate credit losses

Tracing recorded sales transactions to the bills of lading provides evidence about the

C. Occurrence of sales transactions

Which of the following is consistent with effective internal controls over sales transactions?

C. The billing department accounts for all shipping documents

Which of the following fraudulent activities most likely could be perpetrated due to the lack of effective controls in the revenue cycle?

C. The write-off receivables by personnel who receive cash permits the misappropriation of cash.

An auditor basically consists of having the auditor form an opinion regarding management's financial statement assertion. The auditor therefore develops general and specific procedures to apply to the accounts and transaction. In a particular case, s/he might do this by

C. Tracing sales invoices to shipping documents to test the occurence of reported sales

Recognizing a loan received as revenue instead of as a liability has a positive effect on the reported financial statements for all the following except:

D. It understates assets

A client might overstate December 31 accounts receivable balances by dating and recording January transactions in December. Such entries recorded in which journal are most likely to achieve this end?

D. Sales

To verify that all sales that have been shipped to customers have been recorded, a test of transactions should be completed on a representative sample drawn from

D. The shipping clerk's file of duplicate copies of bills of lading

An aged trial balance of accounts receivable may provide evidence on the adequacy of the allowance for uncollectible accounts

True

Analytical procedures are used by auditors to gain evidence about the adequacy of the allowance for uncollectible accounts

True

Confirmation of accounts receivable by direct communication with the debtor tests the existence of accounts receivable

True