Question 1

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

Accepted Answer

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

Question 2

Management's assertions for sales and collection activities remain the same whether sales are generated through traditional or e-commerce activities.

Accepted Answer

A) True 
 B)False

Question 3

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

Accepted Answer

A) Company personnel 
B) Temporary employees in the town where the lockbox is located 
C) Bank employees 
D) Company controller

Question 4

A document prepared to initiate shipment of the goods sold by an independent shipper is the:

Accepted Answer

A) sales order. 
B) bill of lading. 
C) sales invoice. 
D) customer order.

Question 5

The auditor's objectives for the sales and cash collections activities when the client is primarily an e-commerce business as compared to a "bricks and mortar" business are:

Accepted Answer

A) unchanged. 
B) expanded. 
C) mitigated. 
D) decreased.

Question 6

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

Accepted Answer

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

Question 7

Which one of the following best describes the auditors responsibilities regarding appropriate authorizations in the sales/collections cycle?

Accepted Answer

A) B, C, and D should all be of concern to the auditor. 
B) Credit must be authorized before the sale. 
C) Goods must be shipped after the authorization. 
D) Prices must be authorized.

Question 8

For a firm that practices good internal controls in the sales and collections cycle, the function of indicating credit approval should be recorded on which of the following documents?

Accepted Answer

A) Sales order 
B) Sales invoice 
C) Customer order 
D) Remittance advice

Question 9

A document that initiates shipment of goods and indicates the description of the merchandise, the quantity shipped, and customer name and address is the:

Accepted Answer

A) bill of lading. 
B) sales invoice. 
C) picking ticket. 
D) vendor invoice.

Question 10

For each significant internal control deficiency identified by the auditor, he or she should design one or more tests of controls to assess the extent of the deficiency and its effect on the financial statements.

Accepted Answer

A) True 
 B)False

Question 11

Cash receipts from sales on account have been misappropriated.Which of the following acts would conceal this fraud and be least likely to be detected by an auditor?

Accepted Answer

A) Understating the sales journal by not recording cash sales 
B) Overstating the accounts receivable control account by intentionally misstating prices charged for goods sold 
C) Overstating the accounts receivable subsidiary ledger by not recording payments made by customers 
D) Understating the cash receipts journal by purposely recording incorrect amounts

Question 12

The sales journal is generated from the sales transaction file.

Accepted Answer

A) True 
 B)False

Question 13

If a company uses a periodic inventory system, the shipping records are used to update the inventory quantities.

Accepted Answer

A) True 
 B)False

Question 14

Which of the following is not a business function within the "Sales" class of transactions?

Accepted Answer

A) Processing customer orders 
B) Granting credit 
C) Processing and recording sales returns and allowances 
D) Shipping goods

Question 15

The transaction-related audit objectives and the client's methods of controlling misstatements are essentially the same for credit memos as for sales with the exception of two differences.What are the two differences from the auditor's perspective?

Accepted Answer

The answer of The transaction-related audit objectives and the client's...

Question 16

Sales should be billed and recorded as soon as possible after the shipment takes place.

Accepted Answer

A) True 
 B)False

Question 17

Match between columns
                        Premises: A document indicating a reduction in the amount due from a customer because of returned goods or an allowance.
A document mailed to the customer and typically returned to the seller with the cash payment.
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 or electronic record indicating the description and quantity of goods sold, the price, freight charges, insurance, terms, and other relevant data.
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.
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.

Accepted Answer

The Answer of Sales order and Customer order form and is...

Question 18

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

Accepted Answer

A) the original invoices. 
B) an approved master price list. 
C) the amounts recorded in the sales journal for that transaction. 
D) the amounts posted to the customer's account in the accounts receivable master file.

Question 19

An effective procedure to test the existence objective for sales is to vouch sales journal entries to copies of sales orders, shipping documents, and sales invoices.

Accepted Answer

A) True 
 B)False

Question 20

When assessing planned control risk for sales:

Accepted Answer

A) the key internal controls and deficiencies for sales will be the same for every company. 
B) the audit objectives for sales will differ from company to company. 
C) a flowchart is required to help assess control risk for sales. 
D) assessing control risk for sales is a highly subjective decision.

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

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

Management's assertions for sales and collection activities remain the same whether sales are generated through traditional or e-commerce activities.

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

A document prepared to initiate shipment of the goods sold by an independent shipper is the:

The auditor's objectives for the sales and cash collections activities when the client is primarily an e-commerce business as compared to a "bricks and mortar" business are:

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

Which one of the following best describes the auditors responsibilities regarding appropriate authorizations in the sales/collections cycle?

For a firm that practices good internal controls in the sales and collections cycle, the function of indicating credit approval should be recorded on which of the following documents?

A document that initiates shipment of goods and indicates the description of the merchandise, the quantity shipped, and customer name and address is the:

For each significant internal control deficiency identified by the auditor, he or she should design one or more tests of controls to assess the extent of the deficiency and its effect on the financial statements.

Cash receipts from sales on account have been misappropriated.Which of the following acts would conceal this fraud and be least likely to be detected by an auditor?

The sales journal is generated from the sales transaction file.

If a company uses a periodic inventory system, the shipping records are used to update the inventory quantities.

Which of the following is not a business function within the "Sales" class of transactions?

The transaction-related audit objectives and the client's methods of controlling misstatements are essentially the same for credit memos as for sales with the exception of two differences.What are the two differences from the auditor's perspective?

Sales should be billed and recorded as soon as possible after the shipment takes place.

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

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

An effective procedure to test the existence objective for sales is to vouch sales journal entries to copies of sales orders, shipping documents, and sales invoices.

When assessing planned control risk for sales: