Question 1

Which of the following is the appropriate point at which the auditor deems authorization to be critical?

Accepted Answer

A)   
B)   
C)   
D)

Question 2

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 3

When auditing sales returns and allowances,the emphasis is normally on testing the completeness objective.

Accepted Answer

A) True 
 B)False

Question 4

A credit memo is a document used internally that indicates authority to write-off an account receivable as uncollectible.

Accepted Answer

A) True 
 B)False

Question 5

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 6

Explain each of the following types of documents and indicate the class of transactions in which they are commonly used.
1.Customer order
2.Shipping document
3.Remittance advice
4.Sales returns and allowance journal
5.Uncollectible account authorization form

Accepted Answer

The answer of Explain each of the following types of...

Question 7

In converting from a design format audit program to a performance format audit program,procedures are combined.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following would offer the best protection for a company that wishes to prevent a reoccurrence of a previously detected "lapping" problem with trade accounts receivable?

Accepted Answer

A)  Segregate duties so that the bookkeeper in charge of the general ledger has no access to incoming mail. 
B)  Segregate duties so that no employee has access to both checks from customers and currency from daily cash receipts. 
C)  Have customers send payments directly to the company's depository bank. 
D)  Request that customer's payment checks be made payable to the company and addressed to the treasurer.

Question 9

The audit procedure referred to as proof of cash receipts is particularly useful to test:

Accepted Answer

A)  time lags in making deposits. 
B)  whether all recorded cash receipts have been deposited in the bank. 
C)  whether there are cash receipts that have not been recorded in the journals. 
D)  the client's reconciliation between cash receipts and bank deposits.

Question 10

Most companies recognize sales revenue when:

Accepted Answer

A)  sales are invoiced. 
B)  payment is received from the customer. 
C)  goods are shipped. 
D)  the customer's order is received.

Question 11

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 12

A bill of lading is a special type of sales invoice used when goods are shipped interstate.

Accepted Answer

A) True 
 B)False

Question 13

The auditor's primary concern in performing audit procedures of the write-off of uncollectible accounts relates to the risk that the client writes offs customer accounts that have already been collected.The primary control for preventing this fraud is:

Accepted Answer

A)  examining authorized credit memos. 
B)  examining the uncollectible account authorization form. 
C)  examining debit memos. 
D)  examining the vouchers payable register.

Question 14

Preparation of a proof of cash would not be useful in discovering differences between the actual and reported cash balances if the differences were due to:

Accepted Answer

A)  deposits in transit. 
B)  collections on the company's behalf by the bank which are deposited directly to the company's account. 
C)  cash receipts that were not recorded in the relevant accounting records. 
D)  service charges.

Question 15

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 16

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 17

Tracing from source documents to the journal is useful for testing the existence objective.

Accepted Answer

A) True 
 B)False

Question 18

A ________ is a document that is matched with the customer order to assure that the correct quantity and type of goods are shipped.

Accepted Answer

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

Question 19

Some companies have customers send payments directly to an address maintained by a bank.This is called a(n)________ system.

Accepted Answer

A)  direct deposit 
B)  funds transfer 
C)  lockbox 
D)  interbank transfer

Question 20

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.

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

Which of the following is the appropriate point at which the auditor deems authorization to be critical?

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

When auditing sales returns and allowances,the emphasis is normally on testing the completeness objective.

A credit memo is a document used internally that indicates authority to write-off an account receivable as uncollectible.

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?

Explain each of the following types of documents and indicate the class of transactions in which they are commonly used. 1.Customer order 2.Shipping document 3.Remittance advice 4.Sales returns and allowance journal 5.Uncollectible account authorization form

In converting from a design format audit program to a performance format audit program,procedures are combined.

Which of the following would offer the best protection for a company that wishes to prevent a reoccurrence of a previously detected "lapping" problem with trade accounts receivable?

The audit procedure referred to as proof of cash receipts is particularly useful to test:

Most companies recognize sales revenue when:

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

A bill of lading is a special type of sales invoice used when goods are shipped interstate.

The auditor's primary concern in performing audit procedures of the write-off of uncollectible accounts relates to the risk that the client writes offs customer accounts that have already been collected.The primary control for preventing this fraud is:

Preparation of a proof of cash would not be useful in discovering differences between the actual and reported cash balances if the differences were due to:

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

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.

Tracing from source documents to the journal is useful for testing the existence objective.

A ________ is a document that is matched with the customer order to assure that the correct quantity and type of goods are shipped.

Some companies have customers send payments directly to an address maintained by a bank.This is called a(n) ________ system.

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