Question 1

For the most part, the audit of the sales and collection cycle:

Accepted Answer

A)  cannot be performed until the audit of cash is completed. 
B)  must be performed first so that the audit of the other cycles can rely on the data. 
C)  must be performed simultaneously with the audit of the purchases and disbursements cycle. 
D)  can be performed independently of the audit of other cycles. 
A)  cannot be performed until the audit of cash is completed. 
B)  must be performed first so that the audit of the other cycles can rely on the data. 
C)  must be performed simultaneously with the audit of the purchases and disbursements cycle. 
D)  can be performed independently of the audit of other cycles.

Question 2

Discuss what is meant by 'proof of cash receipts' and explain its purpose.

Accepted Answer

A proof of cash receipts is an audit pro

Question 3

Which one of the following statements is TRUE? In deciding on substantive tests of transactions:

Accepted Answer

A)  the materiality of the item will NOT influence the choice of procedures used. 
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)  some procedures are commonly employed on every audit regardless of the circumstances. 
A)  the materiality of the item will NOT influence the choice of procedures used. 
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)  some procedures are commonly employed on every audit regardless of the circumstances.

Question 4

The auditor traces items from the journals back to the source documents in order to satisfy the:

Accepted Answer

A)  completeness objective. 
B)  existence objective. 
C)  valuation objective. 
D)  ownership objective. 
A)  completeness objective. 
B)  existence objective. 
C)  valuation objective. 
D)  ownership objective.

Question 5

Distinguish between bad debt expense (including the provision for doubtful debts)and the write-off of bad debts.

Accepted Answer

The bad debt expense is a provision for

Question 6

To test for nonexistent transactions, the direction of audit testing should be from the:

Accepted Answer

A)  journal entries. 
B)  ledger entries. 
C)  source documents. 
D)  externally generated documents. 
A)  journal entries. 
B)  ledger entries. 
C)  source documents. 
D)  externally generated documents.

Question 7

The inclusion of invalid sales in the client's accounting records leads to an:

Accepted Answer

A)  understatement of assets and overstatement of income. 
B)  understatement of assets and income. 
C)  overstatement of assets and income. 
D)  overstatement of assets and understatement of income. 
A)  understatement of assets and overstatement of income. 
B)  understatement of assets and income. 
C)  overstatement of assets and income. 
D)  overstatement of assets and understatement of income.

Question 8

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, credit notes issued, and the ending balance is the:

Accepted Answer

A)  sales invoice. 
B)  monthly statement. 
C)  accounts receivable subsidiary ledger. 
D)  remittance advice. 
A)  sales invoice. 
B)  monthly statement. 
C)  accounts receivable subsidiary ledger. 
D)  remittance advice.

Question 9

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

Accepted Answer

A) True 
 B)False

Question 10

For most firms, the function of indicating credit approval is recorded on the:

Accepted Answer

A)  sales order. 
B)  customer order. 
C)  remittance advice. 
D)  sales invoice. 
A)  sales order. 
B)  customer order. 
C)  remittance advice. 
D)  sales invoice.

Question 11

Which of the following documents is mainly related to sales and returns?

Accepted Answer

A)  customer order 
B)  credit note 
C)  cash receipt 
D)  all of the above 
A)  customer order 
B)  credit note 
C)  cash receipt 
D)  all of the above

Question 12

When testing the existence objective for sales, the direction of tests should be from the journals back to supporting documents.

Accepted Answer

A) True 
 B)False

Question 13

Lapping of accounts receivable is the postponement of entries for the collection of receivables.

Accepted Answer

A) True 
 B)False

Question 14

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

Accepted Answer

A) True 
 B)False

Question 15

The receipt of a customer order from a customer is the starting point for the entire sales and collection cycle.

Accepted Answer

A) True 
 B)False

Question 16

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

Accepted Answer

A)  the account balances are accurate. 
B)  there are monetary errors or irregularities in the transactions. 
C)  the internal control system is working. 
D)  the transactions this year are reasonable compared to prior years. 
A)  the account balances are accurate. 
B)  there are monetary errors or irregularities in the transactions. 
C)  the internal control system is working. 
D)  the transactions this year are reasonable compared to prior years.

Question 17

The objective of prenumbering of documents is to:

Accepted Answer

A)  prevent failure to record a sale or bill. 
B)  prevent the issue of duplicate bills. 
C)  ensure documents are correctly completed. 
D)  both A and B 
A)  prevent failure to record a sale or bill. 
B)  prevent the issue of duplicate bills. 
C)  ensure documents are correctly completed. 
D)  both A and B

Question 18

The audit procedure referred to as proof of cash receipts is useful to test:

Accepted Answer

A)  whether all recorded cash receipts have been deposited in the bank. 
B)  time lags in making deposits. 
C)  whether there are cash receipts that have not been recorded in the journals. 
D)  all of the above 
A)  whether all recorded cash receipts have been deposited in the bank. 
B)  time lags in making deposits. 
C)  whether there are cash receipts that have not been recorded in the journals. 
D)  all of the above

Question 19

Which of the following business functions is mainly related to the sales and returns allowances account?

Accepted Answer

A)  processing and recording sales returns and allowances 
B)  granting credit 
C)  billing customers 
D)  all of the above 
A)  processing and recording sales returns and allowances 
B)  granting credit 
C)  billing customers 
D)  all of the above

Question 20

State the six specific transaction-related audit objectives for cash receipts and describe one common substantive test of transactions for each objective.

Accepted Answer

The six specific transaction-related aud

For the most part, the audit of the sales and collection cycle:

Discuss what is meant by 'proof of cash receipts' and explain its purpose.

Which one of the following statements is TRUE? In deciding on substantive tests of transactions:

The auditor traces items from the journals back to the source documents in order to satisfy the:

Distinguish between bad debt expense (including the provision for doubtful debts)and the write-off of bad debts.

To test for nonexistent transactions, the direction of audit testing should be from the:

The inclusion of invalid sales in the client's accounting records leads to an:

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, credit notes issued, and the ending balance is the:

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

For most firms, the function of indicating credit approval is recorded on the:

Which of the following documents is mainly related to sales and returns?

When testing the existence objective for sales, the direction of tests should be from the journals back to supporting documents.

Lapping of accounts receivable is the postponement of entries for the collection of receivables.

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

The receipt of a customer order from a customer is the starting point for the entire sales and collection cycle.

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

The objective of prenumbering of documents is to:

The audit procedure referred to as proof of cash receipts is useful to test:

Which of the following business functions is mainly related to the sales and returns allowances account?

State the six specific transaction-related audit objectives for cash receipts and describe one common substantive test of transactions for each objective.

Demand for audit and assurance services

Auditors’ legal environment

Audit quality and ethics

Audit responsibilities and objectives

Audit evidence

Audit planning and documentation

Materiality and risk

Internal control and control risk

Fraud auditing

The impact of information technology on the audit process

Overall audit plan and audit program

Completing tests in the sales and collection cycle: Accounts receivable

Audit sampling

Audit of transaction cycles and financial statement balances I

Audit of transaction cycles and financial statement balances II

Completing the audit

Audit reporting

Other auditing and assurance engagements

Filters

Exam 12: Audit of the sales and collection cycle: Tests of controls and substantive tests of transactions

For the most part, the audit of the sales and collection cycle:

Discuss what is meant by 'proof of cash receipts' and explain its purpose.

Which one of the following statements is TRUE? In deciding on substantive tests of transactions:

The auditor traces items from the journals back to the source documents in order to satisfy the:

Distinguish between bad debt expense (including the provision for doubtful debts)and the write-off of bad debts.

To test for nonexistent transactions, the direction of audit testing should be from the:

The inclusion of invalid sales in the client's accounting records leads to an:

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, credit notes issued, and the ending balance is the:

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

For most firms, the function of indicating credit approval is recorded on the:

Which of the following documents is mainly related to sales and returns?

When testing the existence objective for sales, the direction of tests should be from the journals back to supporting documents.

Lapping of accounts receivable is the postponement of entries for the collection of receivables.

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

The receipt of a customer order from a customer is the starting point for the entire sales and collection cycle.

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

The objective of prenumbering of documents is to:

The audit procedure referred to as proof of cash receipts is useful to test:

Which of the following business functions is mainly related to the sales and returns allowances account?

State the six specific transaction-related audit objectives for cash receipts and describe one common substantive test of transactions for each objective.

Demand for audit and assurance services

Auditors’ legal environment

Audit quality and ethics

Audit responsibilities and objectives

Audit evidence

Audit planning and documentation

Materiality and risk

Internal control and control risk

Fraud auditing

The impact of information technology on the audit process

Overall audit plan and audit program

Completing tests in the sales and collection cycle: Accounts receivable

Audit sampling

Audit of transaction cycles and financial statement balances I

Audit of transaction cycles and financial statement balances II

Completing the audit

Audit reporting

Other auditing and assurance engagements

Filters