AUD-CH14

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

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

An effective procedure to test the existence objective for sales is to vouch sales journal entries to copies of sales orders, shipping documents, and sales invoices. A) True B) False

A

Credit memos are normally issued to: A) adjust the customers balance to the amount owed to the company because of returned goods or an allowance. B) assist in the aging of accounts receivable. C) reduce customer frustration and sales losses. D) inform the customer of the balance due.

A

Credit should be approved before goods are shipped to a customer. A) True B) False

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

For each significant internal control deficiency identified by the auditor, he or she should design one or more tests of controls to assess the extent of the deficiency and its effect on the financial statements. A) True B) False

A

In a lockbox system, bank employees are responsible for opening cash receipts and maintaining records of all payments made by customers at the lockbox address. A) True B) False

A

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

Management's assertions for sales and collection activities remain the same whether sales are generated through traditional or e-commerce activities. A) True B) False

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

Sales should be billed and recorded as soon as possible after the shipment takes place. A) True B) False

A

Sales transactions are the result of the following five functions in the sales and collection cycle: processing customer orders, granting credit, shipping goods, billing customers, and recording sales. A) True B) False

A

Separation of duties in the sales/collection cycle should mandate that the credit-granting function be separate from the sales function. A) True B) False

A

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

The appropriate test of controls for separation of duties are ordinarily restricted to the auditor's observations of activities and discussions with personnel. A) True B) False

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 "bricks 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

The overall objective in the audit of the sales and collection cycle is to evaluate whether the account balances affected by the cycle are fairly presented in accordance with accounting standards. A) True B) False

A

The receipt of a customer order from a customer is the starting point for the entire sales and collection cycle. A) True B) False

A

The sales and collection cycle applies to businesses that transfer goods to customers or provides services to businesses. A) True B) False

A

The sales journal is generated from the sales transaction file. A) True B) False

A

The shipping point is critical because it is the first point at which company assets are released to another party. A) True B) False

A

Violations of the existence objective for sales are of greater concern to the auditor than violations of the completeness objective. A) True B) False

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 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

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

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

A bill of lading is a special type of sales invoice used when goods are shipped interstate. A) True B) False

B

A bill of lading is a written contract between the seller and the buyer. A) True B) False

B

A credit memo is a document used internally that indicates authority to write-off an account receivable as uncollectible. A) True B) False

B

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

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

A sales invoice is a document that usually indicates credit approval. A) True B) False

B

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

Credit should be approved before a customer's order is received. A) True B) False

B

If a company uses a periodic inventory system, the shipping records are used to update the inventory quantities. A) True B) False

B

In converting from a design format audit program to a performance format audit program, procedures are combined. A) True B) False

B

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

Misstatements involving the completeness objective for sales lead to overstatements of assets and income. A) True B) False

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

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.

B

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

B

The prelisting of cash receipts should be prepared by the individual who has primary responsibility for the recording of cash receipts. A) True B) False

B

The preparation of a sales invoice is the final step in the sales and collection cycle. A) True B) False

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

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

Tracing from source documents to the journal is useful for testing the existence objective. A) True B) False

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 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 processing and recording cash receipts, an important fact to consider is: A) the most important concern is depositing cash at least twice daily. B) the most important concern is the possibility of theft. C) theft can occur only after the receipts are entered in the records. D) it the customer fails to include a remittance advice, the check should be returned to the customer.

B

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

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

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

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 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

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 from the sales journal, details of the journal and journal totals are posted to which items? 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 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

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

Generally, when is the earliest point in the sales and collection cycle in which revenue can be recognized? A) When the sale is approved B) When the credit approval process is finalized C) When the cash is collected D) When the goods have been shipped

D

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

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 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

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

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

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 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 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