Question 1

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 2

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 3

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

Accepted Answer

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

Question 4

The most difficult type of cash embezzlement for the auditor to detect is when the cash is stolen before it can be recorded in the cash receipts journal.

Accepted Answer

A) True 
 B)False

Question 5

Generally,when is the earliest point in the sales and collection cycle in which revenue can be recognized?

Accepted Answer

A)  When the sale is approved 
B)  When the credit approval process is finalized 
C)  When the cash is collected 
D)  When the goods have been shipped

Question 6

Explain what lapping means,and discuss the internal control deficiency that allows it to occur.Also discuss the procedures the auditor can perform to detect lapping.

Accepted Answer

The answer of Explain what lapping means,and discuss the internal...

Question 7

Transaction-related audit objectives are essentially the same for processing credit memos as for sales with certain differences.Which of the following are two key differences?

Accepted Answer

A)  Risk and emphasis on the completeness objective. 
B)  Materiality and emphasis on the accuracy objective 
C)  Risk and emphasis on the classification objective 
D)  Materiality and emphasis on the occurrence objective

Question 8

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 9

When designing audit procedures,tracing of source documents to the customers subsidiary ledger and subsequently to the general ledger is done to satisfy what assertion?

Accepted Answer

A)  Valuation 
B)  Cutoff 
C)  Completeness 
D)  Classification

Question 10

Customer billing is a critical process which auditors must understand.What are the most important aspects of billing and what are the related objectives?

Accepted Answer

The answer of Customer billing is a critical process which...

Question 11

For each of the following potential misstatements,provide one potential audit test that could be used to detect the misstatement.
• Sales included in the journals for which there was no shipment
• Sale recorded more than once
• Shipments made to nonexistent customers and recorded as sales

Accepted Answer

The answer of For each of the following potential misstatements,provide...

Question 12

Which one of the following statements is true? In deciding on substantive tests of transactions:

Accepted Answer

A)  some procedures are commonly employed on every audit regardless of the circumstances. 
B)  all procedures are dependent on the adequacy of the controls and the results of the tests of controls. 
C)  results obtained in the prior year's audit will not affect the procedures used this year. 
D)  the materiality of the item will not influence the choice of procedures used.

Question 13

________ tests are for omitted transactions,while ________ tests are for nonexistent transactions.

Accepted Answer

A)  Tracing, vouching 
B)  Vouching, tracing 
C)  Verifying, tracking 
D)  Tracking, verifying

Question 14

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 15

Prenumbered documents are intended to help:

Accepted Answer

A)   
B)   
C)   
D)

Question 16

Which of the following would least concern an auditor regarding the lack of a specific authorization to conduct the sales transaction?

Accepted Answer

A)  Granting of credit 
B)  Shipment of goods 
C)  Determination of discounts 
D)  Selling of goods for cash

Question 17

Credit should be approved before a customer's order is received.

Accepted Answer

A) True 
 B)False

Question 18

The sales and collection cycle applies to businesses that transfer goods to customers or provides services to businesses.

Accepted Answer

A) True 
 B)False

Question 19

What event initiates a transaction in the sales and collection cycle?

Accepted Answer

A)  Receipt of cash 
B)  Delivery of product to a customer 
C)  Identification of a new customer 
D)  Customer request for goods

Question 20

A sales invoice is a document that usually indicates credit approval.

Accepted Answer

A) True 
 B)False

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

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

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

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

The most difficult type of cash embezzlement for the auditor to detect is when the cash is stolen before it can be recorded in the cash receipts journal.

Generally,when is the earliest point in the sales and collection cycle in which revenue can be recognized?

Explain what lapping means,and discuss the internal control deficiency that allows it to occur.Also discuss the procedures the auditor can perform to detect lapping.

Transaction-related audit objectives are essentially the same for processing credit memos as for sales with certain differences.Which of the following are two key differences?

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?

When designing audit procedures,tracing of source documents to the customers subsidiary ledger and subsequently to the general ledger is done to satisfy what assertion?

Customer billing is a critical process which auditors must understand.What are the most important aspects of billing and what are the related objectives?

For each of the following potential misstatements,provide one potential audit test that could be used to detect the misstatement. • Sales included in the journals for which there was no shipment • Sale recorded more than once • Shipments made to nonexistent customers and recorded as sales

Which one of the following statements is true? In deciding on substantive tests of transactions:

tests are for omitted transactions,while tests are for nonexistent transactions.

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

Prenumbered documents are intended to help:

Which of the following would least concern an auditor regarding the lack of a specific authorization to conduct the sales transaction?

Credit should be approved before a customer's order is received.

The sales and collection cycle applies to businesses that transfer goods to customers or provides services to businesses.

What event initiates a transaction in the sales and collection cycle?

A sales invoice is a document that usually indicates credit approval.