Question 1

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 Australian accounting standards.

Accepted Answer

A) True 
 B)False  True

Question 2

Proper separation of duties is useful to prevent various types of misstatements.Which one of the following is NOT an essential separation of duties?

Accepted Answer

A)   Persons having access to cash should not have access to marketable securities.
B)   Anyone responsible for inputting sales and cash receipts transactions information into the computer should be denied access to cash.
C)   Personnel doing internal comparisons should be independent of those entering the original data.
D)   Separate the credit-granting function from the sales function. A

Question 3

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

Accepted Answer

A) True 
 B)False  False

Question 4

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

Accepted Answer

A)   The cashier posts the receipts to the accounts receivable subsidiary ledger cards.
B)   The cashier makes the daily deposit at a local bank.
C)   The cashier prepares the daily deposit.
D)   The cashier endorses the cheques.

Question 5

Which of the following is a document prepared by the seller for recording the description, quantity, and related information for goods ordered by a customer?

Accepted Answer

A)   bill of lading
B)   remittance advice
C)   sales order
D)   customer order

Question 6

Which one of the following internal control procedures would most likely prevent the concealment of a cash shortage resulting from the improper write-off of a trade account receivable? Write-offs must be

Accepted Answer

A)   authorised by company field sales employees who are in a position to determine the financial standing of the customers.
B)   approved by a responsible officer after review of credit department recommendations and supporting evidence.
C)   supported by an aging schedule showing that only receivables overdue several months have been written off.
D)   approved by the cashier who is in a position to know if the receivables have, in fact, been collected.

Question 7

Discuss the purposes of, and differences between, design format and performance format audit programs.

Accepted Answer

The answer of Discuss the purposes of, and differences between,...

Question 8

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

Accepted Answer

A)   write-off of uncollectible accounts
B)   depreciation expense-store equipment
C)   sales returns and allowances
D)   bad debt expense

Question 9

Tracing an entry from the sales journal to the master file is a posting and summarisation procedure.

Accepted Answer

A) True 
 B)False

Question 10

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 11

Violations of the completeness objective for sales are of greater concern to the auditor than violations of the existence objective.

Accepted Answer

A) True 
 B)False

Question 12

The auditor's primary concern in the audit of the write-off of individual uncollectible accounts receivable is the possibility of embezzlement.

Accepted Answer

A) True 
 B)False

Question 13

It is important that sales be billed and recorded in the journal as soon as possible after:

Accepted Answer

A)   the order is received and credit is approved.
B)   the order is received.
C)   shipment takes place.
D)   credit is approved and it is verified that there is enough inventory to fill the order.

Question 14

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 15

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

Accepted Answer

A) True 
 B)False

Question 16

For each internal control deficiency identified by the auditor, he or she should consider potential misstatements and any compensating controls.

Accepted Answer

A) True 
 B)False

Question 17

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

Accepted Answer

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

Question 18

The total of the individual account balances in the accounts receivable master file equals the:

Accepted Answer

A)   balance of the sales account in the general ledger.
B)   balance of the accounts receivable account in the general ledger.
C)   total sales less the total cash received for the period.
D)   total sales for the period.

Question 19

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

Accepted Answer

A)   company assets by shipping goods to customers who fail to pay for them.
B)   potential revenue by billing sales at an incorrect price.
C)   company assets by shipping goods to fictitious customers.
D)   all of the above

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 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 Australian accounting standards.

Proper separation of duties is useful to prevent various types of misstatements.Which one of the following is NOT an essential separation of duties?

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

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

Which of the following is a document prepared by the seller for recording the description, quantity, and related information for goods ordered by a customer?

Which one of the following internal control procedures would most likely prevent the concealment of a cash shortage resulting from the improper write-off of a trade account receivable? Write-offs must be

Discuss the purposes of, and differences between, design format and performance format audit programs.

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

Tracing an entry from the sales journal to the master file is a posting and summarisation procedure.

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.

Violations of the completeness objective for sales are of greater concern to the auditor than violations of the existence objective.

The auditor's primary concern in the audit of the write-off of individual uncollectible accounts receivable is the possibility of embezzlement.

It is important that sales be billed and recorded in the journal as soon as possible after:

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

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

For each internal control deficiency identified by the auditor, he or she should consider potential misstatements and any compensating controls.

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

The total of the individual account balances in the accounts receivable master file equals the:

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

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