Question 1

The business functions mainly related to the cash at bank account include:

Accepted Answer

A)  processing and recording cash receipts. 
B)  granting credit. 
C)  billing customers. 
D)  all of the above

Question 2

The classes of transactions in the sales and collection cycle are sales, cash receipts, sales returns and allowances, and writing off uncollectible accounts.

Accepted Answer

A) True 
 B)False

Question 3

The business functions mainly related to the bad debts expense account include:

Accepted Answer

A)  allowing for bad and doubtful debts. 
B)  granting credit. 
C)  billing customers. 
D)  all of the above

Question 4

The sales and collections cycle consists of eight business functions. The first four functions result in sales transactions. Discuss each of the remaining four business functions that occur after sales transactions and identify the key documents and records involved in each of those four functions.

Accepted Answer

The answer of The sales and collections cycle consists of...

Question 5

The auditor's assessment of control risk is a critical one because it affects the auditor's decisions about:

Accepted Answer

A)  substantive tests of transactions. 
B)  tests of details of balances. 
C)  tests of controls. 
D)  all of the above

Question 6

Explain the audit procedure 'proof of cash receipts'.

Accepted Answer

The answer of Explain the audit procedure 'proof of cash...

Question 7

The sales and collection cycle involves the transfer of ownership of goods to customers and involves the conversion of services into accounts receivable.

Accepted Answer

A) True 
 B)False

Question 8

Accounting information flows through the various accounts in the sales and collection cycle in which order? 1. Sales (cash and sales on account)
2) Cash receipts
3) Providing for doubtful debts
4) Sales returns and allowances
5) Write- off of uncollectible accounts

Accepted Answer

A)  1, 2, 3, 4, 5 
B)  1, 3, 2, 4, 5 
C)  1, 2, 4, 5, 3 
D)  1, 2, 3, 5, 4

Question 9

Auditors can respond to deficiencies in internal control by:

Accepted Answer

A)  expanding the tests of controls. 
B)  reassessing preliminary assessment of control risk. 
C)  expanding substantive tests of transactions. 
D)  all of the above

Question 10

State the six specific transaction- related audit objectives for cash receipts. For each objective, describe one common test of controls.

Accepted Answer

The answer of State the six specific transaction- related audit...

Question 11

Vouching transactions from journals to source documents tests for the objective of:

Accepted Answer

A)  completeness. 
B)  valuation. 
C)  existence. 
D)  accuracy.

Question 12

Which one of the following types of cash defalcation is LEAST likely to be detected by an auditor?

Accepted Answer

A)  That which involves EFT 
B)  That which occurs before the cash is recorded 
C)  Lapping 
D)  That which occurs after the cash is recorded but before it is deposited in the bank

Question 13

The granting of credit is critical because it is the first point in the cycle at which company assets are given up.

Accepted Answer

A) True 
 B)False

Question 14

The prelisting of cash receipts should be prepared by the individual who has no access to cash or to accounting records.

Accepted Answer

A) True 
 B)False

Question 15

The documents mainly related to sales and returns include:

Accepted Answer

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

Question 16

A credit note is a document used internally indicating authority to write off an account receivable as uncollectible.

Accepted Answer

A) True 
 B)False

Question 17

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)  remittance advice. 
C)  monthly statement. 
D)  accounts receivable subsidiary ledger.

Question 18

When designing tests of controls, the emphasis is on testing controls that:

Accepted Answer

A)  are material. 
B)  the auditor intends to rely on to reduce control risk. 
C)  the auditor believes may not be functioning effectively. 
D)  are associated with material account balances.

Question 19

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

Accepted Answer

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

Question 20

Describe the substantive tests of transactions used to test the accuracy objective for sales.

Accepted Answer

The answer of Describe the substantive tests of transactions used...

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

The business functions mainly related to the cash at bank account include:

The classes of transactions in the sales and collection cycle are sales, cash receipts, sales returns and allowances, and writing off uncollectible accounts.

The business functions mainly related to the bad debts expense account include:

The sales and collections cycle consists of eight business functions. The first four functions result in sales transactions. Discuss each of the remaining four business functions that occur after sales transactions and identify the key documents and records involved in each of those four functions.

The auditor's assessment of control risk is a critical one because it affects the auditor's decisions about:

Explain the audit procedure 'proof of cash receipts'.

The sales and collection cycle involves the transfer of ownership of goods to customers and involves the conversion of services into accounts receivable.

Accounting information flows through the various accounts in the sales and collection cycle in which order? 1. Sales (cash and sales on account) 2) Cash receipts 3) Providing for doubtful debts 4) Sales returns and allowances 5) Write- off of uncollectible accounts

Auditors can respond to deficiencies in internal control by:

State the six specific transaction- related audit objectives for cash receipts. For each objective, describe one common test of controls.

Vouching transactions from journals to source documents tests for the objective of:

Which one of the following types of cash defalcation is LEAST likely to be detected by an auditor?

The granting of credit is critical because it is the first point in the cycle at which company assets are given up.

The prelisting of cash receipts should be prepared by the individual who has no access to cash or to accounting records.

The documents mainly related to sales and returns include:

A credit note is a document used internally indicating authority to write off an account receivable as uncollectible.

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:

When designing tests of controls, the emphasis is on testing controls that:

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

Describe the substantive tests of transactions used to test the accuracy objective for sales.