Exam 14: Audit of the Sales and Collection Cycle: Tests of Controls

The auditor's primary concern in performing audit procedures of the write-off of uncollectible accounts relates to the risk that the client writes off customer accounts that have already been collected. The primary control for preventing this fraud is

(Multiple Choice)

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Question 21

When posting items sold on account from the sales journal

(Multiple Choice)

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Question 22

To determine that sales are accurately recorded, the unit prices on the duplicate sales invoices are normally compared with

(Multiple Choice)

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Question 23

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

(Multiple Choice)

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Question 24

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

(True/False)

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Question 25

Before goods are shipped on account, a properly authorized person must

(Multiple Choice)

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Question 26

Match seven of the terms for documents and records (a-k) with the descriptions provided below (1-7).

A document or electronic record indicating the description and quantity of goods sold, the price, freight charges, insurance, terms, and other relevant data.

remittance advice

A list prepared when cash is received by someone who has no responsibility for recording sales, accounts receivable, or cash, and has no access to the accounting records. It is used to verify whether cash received was recorded and deposited at the correct amounts and on a timely basis.

customer order form

A document used internally to indicate authority to write-off an account receivable as uncollectible.

sales invoice

Correct Answer:

Verified

A document or electronic record indicating the description and quantity of goods sold, the price, freight charges, insurance, terms, and other relevant data.

A list prepared when cash is received by someone who has no responsibility for recording sales, accounts receivable, or cash, and has no access to the accounting records. It is used to verify whether cash received was recorded and deposited at the correct amounts and on a timely basis.

A document used internally to indicate authority to write-off an account receivable as uncollectible.

A document for communicating the description, quantity, and related information for goods ordered by a customer. This is frequently used to indicate credit approval and authorization for shipment.

A document mailed to the customer and typically returned to the seller with the cash payment.

A document indicating a reduction in the amount due from a customer because of returned goods or an allowance.

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.

(Matching)

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Question 27

You are an audit manager for Rodgers & Co. and have recently taken on a new client, Manufacturing Company. You are in the initial stages of planning the audit and have decided to start gathering information about the sales/collection cycle of the business. List below the classes of transactions that you need to gather audit evidence for in designing your audit procedures.

(Essay)

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Question 28

If a design test of controls for sales is, for example, testing internal controls are working to electronically indicate approval for customer orders after they have been approved for credit, the test of control is to examine the customer order for proper approval.

(True/False)

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Question 29

The document used to indicate to the customer the amount of a sale and payment due date is the

(Multiple Choice)

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Question 30

The theft of cash can occur before receipts are entered in the records or after they are entered in the records.

(True/False)

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Question 31

Who is generally responsible for opening receipts when a company uses a lockbox to speed the handling of cash receipts?

(Multiple Choice)

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Question 32

The auditor traces items from the source documents to the journals in order to accumulate audit evidence that will satisfy the

(Multiple Choice)

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Question 33

The preparation of a sales invoice is the final step in the sales and collection cycle.

(True/False)

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Question 34

A sales invoice is a document that usually indicates credit approval.

(True/False)

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Question 35

An essential part of the auditor's responsibility in auditing cash receipts is to identify deficiencies in internal control that increase the likelihood of fraud.

(True/False)

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Question 36

Which of the following test of controls is useful to test the completeness objective for cash receipts?

(Multiple Choice)

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Question 37

Most companies recognize sales revenue when

(Multiple Choice)

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Question 38

For each key control, one or more tests of controls must be designed to verify its effectiveness.

(True/False)

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Question 39

In planning the audit, an auditor takes three basic steps in determining the audit procedures to be performed for any business cycle or class of transactions in order to gather audit evidence concerning possible misstatement due to error or fraud. List those three basic steps below.

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Question 40

Exam 14: Audit of the Sales and Collection Cycle: Tests of Controls

The auditor's primary concern in performing audit procedures of the write-off of uncollectible accounts relates to the risk that the client writes off customer accounts that have already been collected. The primary control for preventing this fraud is

When posting items sold on account from the sales journal

To determine that sales are accurately recorded, the unit prices on the duplicate sales invoices are normally compared with

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

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

Before goods are shipped on account, a properly authorized person must

If a design test of controls for sales is, for example, testing internal controls are working to electronically indicate approval for customer orders after they have been approved for credit, the test of control is to examine the customer order for proper approval.

The document used to indicate to the customer the amount of a sale and payment due date is the

The theft of cash can occur before receipts are entered in the records or after they are entered in the records.

Who is generally responsible for opening receipts when a company uses a lockbox to speed the handling of cash receipts?

The auditor traces items from the source documents to the journals in order to accumulate audit evidence that will satisfy the

The preparation of a sales invoice is the final step in the sales and collection cycle.

A sales invoice is a document that usually indicates credit approval.

An essential part of the auditor's responsibility in auditing cash receipts is to identify deficiencies in internal control that increase the likelihood of fraud.

Which of the following test of controls is useful to test the completeness objective for cash receipts?

Most companies recognize sales revenue when

For each key control, one or more tests of controls must be designed to verify its effectiveness.

In planning the audit, an auditor takes three basic steps in determining the audit procedures to be performed for any business cycle or class of transactions in order to gather audit evidence concerning possible misstatement due to error or fraud. List those three basic steps below.

The Demand for Audit and Other Assurance Services

The CPA Profession

Audit Reports

Professional Ethics

Legal Liability

Audit Responsibilities and Objectives

Audit Evidence

Audit Planning and Materiality

Assessing the Risk of Material Misstatement

Fraud Auditing

Internal Control and Coso Framework

Assessing Control Risk and Reporting on Internal Controls

Overall Audit Strategy and Audit Program

Audit Sampling for Tests of Controls and Substantive Tests of Transactions

Completing the Tests in the Sales and Collection Cycle: Accounts Receivable

Audit Sampling for Tests of Details of Balances

Audit of the Acquisition and Payment Cycle: Tests of Controls, Substantive Tests of Transactions, and Accounts Payable

Completing the Tests in the Acquisition and Payment Cycle: Verification of Selected Accounts

Audit of the Payroll and Personnel Cycle

Audit of the Inventory and Warehousing Cycle

Audit of the Capital Acquisition and Repayment Cycle

Audit of Cash and Financial Instruments

Completing the Audit

Other Assurance Services

Internal and Governmental Financial Auditing and Operational Auditing

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