Exam 12: Audit of the Sales and Collection Cycle: Tests of Controls and Substantive Tests of Transactions

In converting from a performance format audit program to a design format audit program, procedures are combined.

Tests of controls should never be performed using the client's computer system; that is, all tests of control should be performed either using the auditor's computer or performed manually by the auditor.

Footing the sales journal and tracing the totals to the general ledger are tests relating to the accuracy objective for sales.

The objective of prenumbering of documents is to:

The customer's request for merchandise, the customer order, could be in the form of:

The purpose of substantive tests of transactions is to determine whether:

The document which is used to permit the immediate deposit of cash and to improve the control over the custody of assets is the:

The document which accompanies the customer's payment is the:

The business functions mainly related to the sales account include:

Match five of the terms for documents and records (a- k) with the descriptions provided below (1- 5): a. customer order form b. sales order c. bill of lading d. sales invoice e. summary sales report f. accounts receivable master file g. monthly statement h. remittance advice i. prelisting of cash receipts j. credit note k. uncollectible account authorisation form. 1. A schedule prepared by an independent person when cash is received. It is used to verify whether cash received was recorded and deposited at the correct amounts and on a timely basis. 2. A document indicating a reduction in the amount due from a customer because of returned goods or an allowance granted. 3. A document prepared to initiate shipment of goods, indicating the description of the merchandise, the quantity shipped and other relevant data. It is a written contract between the carrier and seller of the receipt and shipment of goods. 4. An internal document for communicating the description, quantity and related information for goods ordered by a customer. This is frequently used to indicate credit approval and authorisation for shipment. 5. A document that accompanies the sales invoice mailed to the customer, which can be returned to the seller with the cash payment.

Misstatements involving the existence objective for sales lead to overstatements of assets and income.

There are five classes of transactions in the sales and collection cycle. Which is NOT one of them?

Documents related to the billing of customers include a bill of lading, sales invoice, uncollectible account authorisation form and remittance advice.

The most difficult type of cash theft for the auditor to detect is that which occurs:

The likely result of a lack of proper authorisation in the sales and collection cycle is:

Including cash sales, every transaction and amount is ultimately included in one of two balance sheet accounts.

A common test is to account for a sequence of various types of documents, such as duplicate sales invoices selected from the sales journal, watching for omitted and duplicate numbers or invoices outside the normal sequence. This test provides evidence of:

Which one of the following is NOT one of the five classes of transactions included in the sales and collection cycle?

The cashier diverted cash received over the counter from a customer to his own use and wrote off the receivable as a bad debt. Select the control that should have prevented the error.

An effective procedure to test the completeness objective for sales is to trace sales journal entries to copies of sales orders, shipping documents and sales invoices.