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

An effective procedure to test for unbilled shipments is to trace from the:

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:

Match seven of the terms for documents and records (a-k) with the descriptions provided below (1-7): 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 memo k. Uncollectible account authorization form ________ 1. 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. ________ 2. A document indicating a reduction in the amount due from a customer because of returned goods or an allowance. ________ 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. 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. ________ 5. A document mailed to the customer and typically returned to the seller with the cash payment. ________ 6. A document used internally to indicate authority to write-off an account receivable as uncollectible. ________ 7. A document or electronic record indicating the description and quantity of goods sold, the price, freight charges, insurance, terms, and other relevant data.

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

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

In many audits, no substantive tests of transactions are made for the ________ assertion on the grounds that understatement of sales is not a concern.

To prevent fraud, management should deny cash access to anyone responsible for:

What critical event must take place before goods can be shipped in order to assure payment can be reasonably expected?

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

An auditor needs to determine whether all customers of an electric utility company are being billed. The auditor should test from the:

The total of the individual account balances in the accounts receivable subsidiary ledger should equal the:

Which one of the following would the auditor consider to be an incompatible operation if the cashier receives remittances from the mailroom?

When assessing planned control risk for sales, the auditor is concerned about proper authorization at three key points. Discuss each of these three points.

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

You are part of the audit team that is auditing Hillsburg Hardware Co. and you have been assigned to the sales and collection business process. You are testing whether the cash received has been recorded in the cash receipts journal. (completeness objective /assertion). List two tests of controls and at least one test of transactions that you would do to satisfy yourself regarding the completeness assertion.

For effective internal control, it is important that sales be recorded as soon after the customer order is received as possible to prevent the unintentional omission of transactions from the records and to make sure that sales are recorded in the proper period.

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.

The prelisting of cash receipts should be prepared by the individual who has primary responsibility for the recording of cash receipts.

When auditing sales returns and allowances, the emphasis is normally on testing the completeness objective.

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?