Question 1

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 2

A ________ is a document that indicates a request for merchandise by a customer.

Accepted Answer

A) sales invoice 
B) vendor invoice 
C) customer order 
D) sales order

Question 3

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

Accepted Answer

A) sales returns and allowances 
B) write-off of uncollectible accounts 
C) bad debt expense 
D) interest income

Question 4

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

Accepted Answer

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

Question 5

Which of the following is an accurate statement relating to separation of duties?

Accepted Answer

A) Management should deny cash access to anyone responsible for entering sales and cash receipts transaction information into the computer. 
B) All disagreements on the monthly statements should be directed to a designated person who has no responsibility for handling cash or recording sales or accounts receivable. 
C) The credit granting function should be separate from the sales function. 
D) All of the above are accurate statements.

Question 6

Smith Manufacturing Company's accounts receivable clerk has a friend who is also a customer of Smith Manufacturing.The accounts receivable clerk has issued fictitious credit memos to his friend for goods supposedly returned.The most effective procedure for preventing this activity is to

Accepted Answer

A) prenumber and account for all credit memorandums. 
B) require receiving reports that provide evidence of returned inventory items to support all credit memorandums before they are approved. 
C) have independent sales and accounts receivable departments. 
D) mail monthly statements to customers.

Question 7

A ________ is a list prepared when cash is received by someone who has no responsibility for recording sales,accounts receivable,or cash,and who has no access to the accounting records.

Accepted Answer

A) prelisting of cash receipts. 
B) sales invoice. 
C) packing ticket. 
D) vendor invoice.

Question 8

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

Accepted Answer

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

Question 9

To test for recorded sales for which there were no actual shipments,the auditor vouches from the

Accepted Answer

A) bill of lading to the sales journal. 
B) sales journal to the shipping documents. 
C) sales journal to the accounts receivable subsidiary ledger. 
D) bill of lading to the supporting customer order and sales order.

Question 10

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

Accepted Answer

A) bill of lading 
B) sales invoice 
C) credit memo 
D) monthly statement

Question 11

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?

Accepted Answer

A) accuracy 
B) existence 
C) completeness 
D) none of the above

Question 12

An audit procedure that compares the name,amount,and dates shown on remittance advices with cash receipts journal entries and with related duplicate deposit slips would be effective in detecting

Accepted Answer

A) kiting. 
B) lapping. 
C) unauthorized write-offs of customers as uncollectible accounts. 
D) sales without proper credit authorization.

Question 13

In a lockbox system,bank employees are responsible for opening cash receipts and maintaining records of all payments made by customers at the lockbox address.

Accepted Answer

A) True 
 B)False

Question 14

The estimation of bad debts expense relates to the write-off of uncollectible accounts.

Accepted Answer

A) True 
 B)False

Question 15

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

Accepted Answer

A) True 
 B)False

Question 16

When dealing with the processing and recording of cash receipts,

Accepted Answer

A) the most important concern is the theft of cash. 
B) theft can only occur before the receipts are entered into the records. 
C) cash receipts should be deposited at least monthly. 
D) the monthly statement is used to prepare the cash receipts journal.

Question 17

The sales and collection cycle applies to businesses that sell goods to customers or provide services to customers.

Accepted Answer

A) True 
 B)False

Question 18

Auditing standard indicate that if the auditor identifies a significant risk at the assertion level,the auditor is not required to perform substantive procedures.

Accepted Answer

A) True 
 B)False

Question 19

When posting items sold on account from the sales journal

Accepted Answer

A)   
B)   
C)   
D)

Question 20

You are part of the audit team that is auditing Hillsburg Hardware Co.and you have been assigned to the sales and collection cycle.You are testing whether the cash receipts are deposited and recorded at the amounts received (accuracy objective).List two tests of controls and one test of transactions that you would do to satisfy yourself regarding the accuracy objective.

Accepted Answer

The answer of You are part of the audit team...

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

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

A ________ is a document that indicates a request for merchandise by a customer.

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

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

Which of the following is an accurate statement relating to separation of duties?

Smith Manufacturing Company's accounts receivable clerk has a friend who is also a customer of Smith Manufacturing.The accounts receivable clerk has issued fictitious credit memos to his friend for goods supposedly returned.The most effective procedure for preventing this activity is to

A ________ is a list prepared when cash is received by someone who has no responsibility for recording sales,accounts receivable,or cash,and who has no access to the accounting records.

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

To test for recorded sales for which there were no actual shipments,the auditor vouches from the

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

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?

An audit procedure that compares the name,amount,and dates shown on remittance advices with cash receipts journal entries and with related duplicate deposit slips would be effective in detecting

In a lockbox system,bank employees are responsible for opening cash receipts and maintaining records of all payments made by customers at the lockbox address.

The estimation of bad debts expense relates to the write-off of uncollectible accounts.

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

When dealing with the processing and recording of cash receipts,

The sales and collection cycle applies to businesses that sell goods to customers or provide services to customers.

Auditing standard indicate that if the auditor identifies a significant risk at the assertion level,the auditor is not required to perform substantive procedures.

When posting items sold on account from the sales journal