Audit of Cycle: Acquisition and Payment; Payroll and Personnel; Inventory and Warehousing; Sales and Collection Flashcards
The overall objective in the audit of the acquisition and payment cycle is:
*to ensure the reliability of the affected accounts.
*to ensure the accuracy of the affected accounts.
*to evaluate whether the affected accounts are fairly stated in accordance with accounting standards.
*to evaluate whether fraudulent payments were made.
*to evaluate whether the affected accounts are fairly stated in accordance with accounting standards.
During your audit of Williams Company you are trying to determine whether all accounts payable were recorded in the proper period. Which assertion are you gathering evidence for?
*Occurrence
*Completeness
*Cutoff
*Rights and Obligations
Cutoff
What typically initiates the acquisitions and payment cycle?
*issuance of a purchase requisition or request for purchase of goods/services
*issuance of payment to vendor
*approval of a new vendor
*purchase requisition
issuance of a purchase requisition or request for purchase of goods/services; or
purchase requisition
What typically ends the acquisitions and payment cycle?
*issuance of a purchase requisition or request for purchase of goods/services
*issuance of a payment to a vendor
*approval of a new vendor
*purchase requisition
issuance of a payment to a vendor
Which of the following accounts is not included in the acquisitions class of transactions?
*Inventory
*Prepaid expenses
*Purchase discounts
*Accounts payable
Purchase discounts
A document indicating a reduction in the amount owed to a vendor because of returned goods is:
*a debit memo.
*a credit memo.
*a receiving report.
*a contractual adjustment form.
a debit memo.
A document used by organizations to establish a formal means of recording and controlling acquisitions which usually contains a package of documents about the acquisition is the:
*voucher.
*purchase order.
*receiving report.
*purchase requisition
voucher
The computer-generated file which records acquisitions, disbursements and allowances for each vendor is the:
*Accounts payable master file.
*Cash disbursements file.
*Acquisitions transaction file.
*Purchase approval file.
Accounts payable master file.
Which of the following business functions is not considered to be part of the acquisitions class of transactions?
*Processing purchase orders
*Recognizing liabilities
*Receiving goods and services
*Processing cash disbursements
Processing cash disbursements
Smaller privately held companies may not maintain an accounts payable master file by vendor. These companies pay on the basis of:
*vendors’ monthly statements.
*individual vendors’ invoices.
*the accounts payable account in the general ledger.
*dunning le ers.
individual vendors’ invoices.
After a purchase requisition is approved, a ________ must be initiated to purchase the goods or services.
*purchase order
*vendor order
*call order
*vendor invoice
purchase order
A document generally received from the vendor which indicates a reduction in the amount owed due to the company granting an allowance is:
*vendor invoice.
*debit memo.
*credit adjustment form.
*credit memo.
debit memo.
Absent disputed amounts and minor timing differences, the vendor’s statements should reconcile to the:
*acquisition journal.
*accounts payable master file.
*cash disbursements amount for purchases.
*vouchers payable amount for vendors.
accounts payable master file.
You have been assigned to the accounts payable transaction cycle as part of your auditing responsibilities. You have decided to vouch a sample of entries in the accounts payable master file to supporting documents. Which assertion is this test of controls most likely to support?
*Accuracy
*Classification
*Completeness
*Occurrence
Occurrence
An auditor is gathering evidence on the completeness assertion. To do so she performs a test to verify that all goods received by the company have been recorded properly. The document population for this test would consist of all:
*Vendor Invoices
*Purchase Orders
*Receiving Reports
*Cash Disbursements for Accounts Payables
Receiving Reports
The accounts payable accounting clerk erroneously recorded the same purchase twice. Which of the following internal control tests would most likely act as a detective control?
*recalculating the purchases journal
*tracing from the purchases journal to the general ledger
*vouching from the general ledger to the purchases journal
*reconciling the vendor’s statements to the accounts payable subsidiary ledger
reconciling the vendor’s statements to the accounts payable subsidiary ledger
An auditor has been assigned to perform tests of controls for a client’s cash disbursement system. Client files are kept electronically with no paper audit trail. In this case the auditor would need to rely on which of the following audit procedures?
*Analytical procedures and Inquiry
*Confirmations and Inquiry
*Observation and Inquiry
*Reperformance and Inquiry
Observation and Inquiry
A wri tten purchase order is a contractual document that is:
*an offer to buy.
*not enforceable if it is not in writing.
*a binding agreement between purchaser and vendor.
*an acceptance of a vendor’s catalog offer to sell.
an offer to buy
Which one of the following duties should not be assigned the purchases department?
*finding the lowest cost vendor
*reviewing vendors’ catalog descriptions and prices for standardized items
*designing the purchase order form
*authorizing the acquisition of goods
authorizing the acquisition of goods
The accounts payable department usually has responsibility for approving acquisitions for payment by comparing the details on the:
*vendor’s invoice and the receiving report.
*vendor’s invoice and the purchase requisition.
*purchase order, receiving report, and vendor’s invoice.
*purchase requisition, purchase order, and receiving report.
purchase order, receiving report, and vendor’s invoice.
A substantive test for accounts payable that would be used to provide evidence regarding the occurrence assertion would be to:
*agree a sample of vouchers to authorized purchase orders.
*recalculate the accuracy of the vouchers and the authorized purchase orders.
*trace vouchers to the client’s purchases journal.
*vouch a sample of vouchers from the cash disbursements register to accounts payable.
trace vouchers to the client’s purchases journal.
A company’s internal control procedures over the acquisition cycle should prevent the preparation of a voucher for goods that have not yet been received. Which of the following is the best procedure to assure vouchers are not prepared for goods not received?
*purchase order and vendor invoice are matched to the receiving report
*compare goods received with goods ordered
*perform sample test counts of items when received
*compare the requisition for goods with the purchase order
purchase order and vendor invoice are matched to the receiving report
Which of the following is not a key control in the acquisition and payment cycle?
*Authorization of purchases
*Authorization of credit
*Timely recording and independent review of transactions
*Authorization of payments
Authorization of credit
Which of the following departments is most likely responsible for pay rate changes and changes in deductible amounts for employees?
*General Accounting
*Human Resources
*Treasury
*Controller
Human Resources
The payroll and personnel cycle ends with which of the following events?
*interviewing job candidates
*hiring a new employee
*existing employees submi ing requests for payment for work performed
*issuance of paychecks
issuance of paychecks
Which of the following includes all payroll transactions processed by the accounting system for a given period of time?
*payroll journal
*payroll transaction file
*time report
*payroll summary
payroll transaction file
An imprest payroll account that has a significant balance may indicate the presence of:
*employees have not yet deposited or cashed payroll checks.
*fraudulent transfer of funds by the company.
*lack of controls over payroll distribution.
*the company is overpaying its employees.
employees have not yet deposited or cashed payroll checks.
Records that include data about employees such as employment date, performance ratings and pay rates are the:
*human resource records.
*employee screening forms.
*summary payroll reports.
*employee folders.
human resource records.
The computer file used for recording payroll transactions for each employee and maintaining total wages paid for the year to date is the:
*payroll transaction file.
*payroll master file.
*payroll bank account reconciliation.
*payroll tax returns.
payroll master file.
The file for recording each payroll transaction for each employee and maintaining total employee wages paid for the year to date is the:
*payroll master file.
*summary payroll report.
*payroll journal.
*job time ticket.
payroll master file.
The total of the individual employee earnings in the payroll master file should equal the total:
*balance of gross payroll in general ledger accounts.
*of the checks drawn to employees for payroll.
*gross payroll plus the total contributed by the employer for payroll taxes.
*gross pay for the current week’s payroll.
balance of gross payroll in general ledger accounts.
Which department should be authorized to add and delete employees from the payroll or change pay rates and deductions?
*the supervising department
*the accounting department
*the human resources department
*the treasurer’s department
the human resources department
The auditor, in auditing payroll, wants to determine that the individuals included in her sample were employees of the company for the period under review. What is the auditor’s best source of evidence?
*Examination of Human Resource Records
*Examination of the Payroll Master File
*Examination of the Payroll Transaction File *Examination of the Payroll Tax Records
Examination of Human Resource Records
Which of the following statements is false?
*The payroll cycle consists of one class of transactions.
*Balance sheet accounts related to payroll are generally more significant than related transactions. *Internal controls over payroll are effective for most companies.
*Small companies usually have effective controls over payroll.
Balance sheet accounts related to payroll are generally more significant than related transactions.
Which of the following would have the least amount of importance regarding controls over the processing of payroll?
*The person authorized to sign paychecks should not be otherwise involved in the preparation of the payroll.
*A check-signing machine should not be used to replace a manual signature.
*Distribution of pay checks should be performed by someone who is not involved in the other payroll functions.
*Unclaimed paychecks should be immediately returned for redeposit.
A check-signing machine should not be used to replace a manual signature.
Which of the following types of audit procedures is ordinarily emphasized the least when auditing payroll?
*Tests of controls
*Tests of transactions
*Analytical procedures
*Tests of details of balances
Tests of details of balances
An auditor is vouching a sample of hourly employees from the payroll master file to approved time clock or time sheet data in order to provide evidence that:
*employees work the number of hours for which they are paid.
*payments are made at the contractual rate.
*product cost information is accurate.
*segregation of duties is present between the payroll function and the payment function for cash disbursements.
employees work the number of hours for which they are paid.
The payroll and personnel cycle begins with which of the following events?
*interviewing job candidates
*hiring a new employee
*existing employees submi ing requests for payment for work performed
*issuance of paychecks
hiring a new employee
Which of the following best describes the systems of internal control for payroll for large companies ?
*loosely structured but well controlled
*loosely structured and loosely controlled
*highly structured and well controlled
*highly structured but loosely controlled
highly structured and well controlled
Which of the following internal control objectives is likely to be the most important in the audit of the payroll cycle?
*Payroll transactions are properly disclosed and presented in the notes to the financial statements.
*Payroll transactions are processed by an outside service provider.
*Recorded transactions represent valid payments.
*Recorded transactions are recorded in the proper accounting period.
Recorded transactions represent valid payments.
In audits of companies in which payroll is a significant portion of inventory, the improper account classification of payroll can:
Increase inventory asset valuations; Decrease inventory asset valuations.
*Yes;Yes
*No;No
*Yes;No
*No;Yes
Yes;Yes
To minimize the opportunity for fraud, unclaimed salary checks should be:
*deposited in a special bank account.
*kept in the payroll department.
*left with the employee’s supervisor.
*held for the employee in the personnel department.
deposited in a special bank account.
Which of the following audit procedures would be most useful in testing the cut-off audit objective for payroll-related liabilities?
*Review documentation for proper classification between long and short term liabilities.
*Compare the clients accrual of payroll liabilities with the payroll tax return.
*Examine payment tax returns to determine that the expense was recorded in the correct period.
*Examine subsequent cash disbursements to determine when the liabilities for payroll were paid.
Examine payment tax returns to determine that the expense was recorded in the correct period.
When examining payroll transactions, an auditor is primarily concerned with the possibility of:
*incorrect summaries of employee time records.
*overpayments and unauthorized payments.
*under withholding of amounts required to be withheld.
*posting of gross payroll amounts to incorrect salary expense accounts.
overpayments and unauthorized payments.
For which of the following functions is the use of prenumbered documents least important?
*Use of prenumbered time cards in the payroll function.
*Use of prenumbered sales invoices in the sales function.
*Use of prenumbered receiving reports in the acquisitions function.
*Use of prenumbered deposit slips in the cash receipts function.
Use of prenumbered time cards in the payroll function.
Which of the following audit procedures would be the most effective in testing for nonexistent employees?
*Trace transactions recorded in the payroll journal to the HR department to determine employment status.
*Examine cancelled checks for proper endorsement.
*Recalculate net pay .
*Reconcile the disbursements in the payroll journal with the disbursements on the payroll bank statements.
Trace transactions recorded in the payroll journal to the HR department to determine employment status.
No individual with access to time cards, payroll records, or checks should also be permi ed access to:
*the computer.
*job time tickets.
*personnel records.
*the canceled check file.
personnel records.
Many companies use outside payroll services to process payroll. Which of the following regarding the auditors responsibilities is most correct regarding their reliance on the internal controls of these outside payroll services?
*must
*cannot
*rarely
*can often
can often
You are responsible for the audit of payroll. You have assessed control risk as low for the payroll transactions. Substantive tests of payroll would most likely be limited to analytical procedures and:
*tracing employee time records to the payroll transaction file.
*recomputing an entire payroll period and compare to the client’s records.
*tracing amounts in the payroll transaction file to the payroll master file.
*recalculating payroll accruals.
recalculating payroll accruals.
The careful and timely preparation of all payroll tax returns is necessary to avoid penalties and criminal charges. The most important control in the timely preparation of these returns is:
*computerized preparation of tax returns.
*a well-defined set of policies that indicate when each form must be filed.
*independent verification of computer output by a competent individual.
*a Gaant chart.
a well-defined set of policies that indicate when each form must be filed.
Which of the following types of audit tests is usually emphasized due to a lack of independent third-party evidence related to payroll transactions?
*Analytical procedures
*Tests of details of balances
*Tests of controls
*Each of the above is emphasized.
Tests of controls
The most important means of verifying account balances in the payroll and personnel cycle are:
*tests of controls and substantive tests of transactions.
*analytical procedures and tests of controls.
*analytical procedures and substantive tests of transactions.
*tests of controls and tests of details of balances.
tests of controls and substantive tests of transactions.
If an auditor wishes to test the completeness transaction-related audit objective in the payroll and personnel cycle, which of the following would be a reasonable test of control?
*Account for a sequence of payroll checks.
*Examine procedures manual and observe the recording of transactions.
*Examine payroll records for indication of pay rate approval.
*Reconcile the payroll bank account.
Account for a sequence of payroll checks.
Receipt of ordered materials by the receiving department will generate the completion of a form called the:
*bill of lading.
*receiving report.
*materials requisition.
*inventory acquisition summary.
receiving report.
Which of the following would you normally characterize as a difficult and complex account to audit?
*property, plant and equipment
*cash
*inventory
*prepaid insurance
inventory
Inventory is a complex area to audit for all but which of the following reasons?
*Inventory is often in different locations.
*There are several acceptable valuation methods and some entities use different methods for different types of inventory.
*Inventory is often the largest account in working capital.
*Inventory valuation includes few estimates.
Inventory valuation includes few estimates.
In most manufacturing companies, the inventory and warehousing cycle begins with the:
*receipt of a customer’s order.
*completion of production of a customer’s order.
*initiation of production of a customer’s order.
*acquisition of raw materials for production of an order.
acquisition of raw materials for production of an order.
________ accumulate costs by individual jobs as material is issued into production and labor costs are incurred.
*Just-in-time production systems
*Job order cost systems
*Process cost systems
*Manufacturing systems
Job order cost systems
In performing audit tests of the client’s cost accounting system, the auditor is primarily concerned with which of the following?
*System is functioning properly in providing costing and pricing information for management.
*Costs have been properly assigned to finished goods, work-in-process, and cost of goods sold.
*Inventory counts agree with the client’s accounting records.
*The client’s cost accounting system is designed on the basis on acceptable cost accounting systems.
Costs have been properly assigned to finished goods, work-in-process, and cost of goods sold.
Master files, worksheets, and reports that accumulate material, labor, and overhead as the costs are incurred are:
*accounting systems.
*storeroom documents.
*cost accounting records.
*finished goods inventory records.
cost accounting records.
The main difference between job order and process costing systems is that:
*one accumulates costs by materials issued and the other by labor incurred.
*one accumulates costs by individual jobs and the other by particular processes.
*one emphasizes costs accumulated in completed products and the other emphasizes costs associated with work-in-process.
*one emphasizes costs adding value to the product and the other emphasizes costs incurred because of waste, scrap, and obsolescence.
one accumulates costs by individual jobs and the other by particular processes.
The auditor’s main concerns in verifying transfers of inventory do not include whether:
*recorded transfers exist.
*transfers represent appropriate uses of company resources.
*all actual transfers are recorded.
*the details of the transfer are accurately recorded.
transfers represent appropriate uses of company resources.
The audit tests to verify that the client is using an inventory method which is generally accepted and to verify that physical counts were correctly summarized are performed during the audit of the:
*acquisition and payments cycle.
*payroll and personnel cycle.
*inventory and warehousing cycle.
*sales and collection cycle.
inventory and warehousing cycle.
Handling the receipt of ordered goods is a part of the ________ cycle.
*purchasing
*acquisition and payment
*inventory
*inventory and warehousing
acquisition and payment
Which of the following is not a function within the inventory and warehousing cycle?
*process the goods
*store raw materials
*ship finished goods
*process invoices for shipped goods
process invoices for shipped goods
The inventory and warehousing cycle can be thought of as having two separate but closely related systems, one involving the actual physical flow of goods, and the other the:
*related documentation.
*storage of the goods.
*internal control over those goods.
*prevention of waste, obsolescence, and theft.
related documentation.
Auditors test the quantity of materials charged to work-in-process by tracing these quantities to:
*cost ledgers.
*perpetual inventory records.
*receiving reports.
*material requisitions.
material requisitions.
Auditor tests of the physical controls over raw materials, work in process, and finished goods are generally limited to:
*observation and confirmation.
*observation and inquiry.
*inquiry and reconciliation.
*observation and reconciliation.
observation and inquiry.
Almost all companies need physical controls over their assets to prevent loss. Which of the following is not an example of such a control?
*perpetual inventory master files
*segregated, limited-access storage areas
*custody of assets assigned to specific responsible individuals
*approved prenumbered documents for authorizing movement of inventory
perpetual inventory master files
Which department within a manufacturing company is often responsible for the review of production and scrap reports?
*Purchasing
*Accounts Payable
*Accounting
*Production
Production
Johnson Co.’s physical count of inventories was lower than the inventory quantities shown in its perpetual records. This situation could be the result of the failure to record:
*sales.
*sales returns.
*purchases.
*purchase discounts.
sales
Which of the following controls would be appropriate regarding the release of materials from a stockroom?
*Production employees request materials be delivered to their work areas as they need them.
*Stockroom employees deliver materials to work areas throughout the day to maintain acceptable levels of safety stock — no wri en records are maintained.
*Production employees submit approved requisition forms to the stockroom for materials needed.
*Production employer in need of materials should personally pick up needed materials from the stockroom.
Production employees submit approved requisition forms to the stockroom for materials needed.
To assure proper segregation of duties, who should maintain the perpetual inventory master files?
*production personnel
*inventory storeroom personnel
*inventory receiving personnel
*accounting department personnel
accounting department personnel
In any company involved in manufacturing, an adequate cost accounting internal control system is necessary to indicate the relative profitability of the various products for management planning and control and to:
*determine variances from standards.
*determine variances from budgets.
*value inventories for financial statement purposes.
*value inventories for audit verification.
value inventories for financial statement purposes.
A well-designed computerized system of perpetual inventory master files includes information about the:
*units of inventory purchased, sold, and on hand.
*unit costs of inventory purchased, sold, and on hand.
*units of raw materials, work-in-process, and finished goods.
*units and unit costs of inventory purchased, sold, and on hand.
units and unit costs of inventory purchased, sold, and on hand.
Which of the following is a significant audit concern related to the transfer of inventory from one location to another?
*recorded transfers occurred
*transfers were properly transported
*transfers were properly planned
*transfers represent efficient movement of assets
recorded transfers occurred
The auditor’s tests of the adequacy of the physical controls over raw materials, work-in-process, and finished goods are usually restricted to:
*observation and inquiry.
*documentation and observation.
*documentation and confirmation.
*documentation and inquiry.
observation and inquiry.
A major difficulty in the verification of inventory cost records for the purpose of inventory valuation is in determining the reasonableness of:
*direct labor’s hourly rate.
*raw materials per unit cost.
*cost allocations.
*number of direct labor hours applied.
cost allocations.
Auditor tests of physical controls over raw materials, work-in-process, and finished goods are performed by: Examination; Observation;Inquiry
*Yes; No; Yes
*No; Yes; No
*Yes; Yes; No
*No; Yes; Yes
No; Yes; Yes
If the perpetual inventory master files show lower quantities of inventory than the physical count, an explanation of the difference might be unrecorded:
*sales.
*sales discounts.
*purchases.
*purchase discounts.
purchases.
Cost accounting controls are those related to the physical inventory and the consequent costs from the point at which:
*materials are ordered for purchase until the finished product is sold.
*the customer’s order is received until the finished product is shipped.
*raw materials are requisitioned until the finished product is sent to storage.
*raw materials are requisitioned until the finished product is completely manufactured
raw materials are requisitioned until the finished product is sent to storage.
Hardy Company mass-produces eight different products. The controller who is interested in strengthening internal controls over the accounting for materials used in production would be most likely to implement a(n):
*perpetual inventory system.
*job order cost accounting system.
*economic order quantity system.
*separation of duties among production personnel.
perpetual inventory system.
Which of the following is an internal control weakness for a company whose inventory of supplies consists of a large number of individual items?
*The cycle basis is used for physical counts.
*Supplies of relatively li le value are expensed when purchased.
*Perpetual inventory records are maintained only for items of significant value.
*The storekeeper is responsible for maintenance of perpetual inventory records.
The storekeeper is responsible for maintenance of perpetual inventory records.
You are auditing the inventory account and are concerned about the possibility of an inventory overstatement. What is the best audit procedure to detect damaged inventory?
*observe the condition of inventory during the client’s physical count
*compare the condition of inventory from the previous year’s count to the current year
*compare inventory turnover from the previous year’s inventory to the current year’s inventory
*reconcile the inventory counts to the cost accounting records
observe the condition of inventory during the client’s physical count
The audit procedure “observe the client taking a physical inventory count and test the count” is sufficient to determine all of the following except:
*whether recorded inventory actually exists.
*whether recorded inventory was properly valued by the client.
*whether recorded inventory was properly counted by the client.
*whether client inventory instruction had properly been followed.
whether recorded inventory was properly valued by the client.
There must be a periodic physical count by the client of the inventory items on hand:
*only if the client uses the LIFO method.
*only if the client uses a lower-of-cost-or-market method.
*regardless of the client’s inventory valuation method.
*only if the client uses either the LIFO or FIFO method.
regardless of the client’s inventory valuation method.
If the auditor concludes that physical controls over inventory are so inadequate that the inventory will be difficult to count, the auditor should ordinarily:
*withdraw from the engagement.
*issue a qualified audit report.
*conduct expanded observation tests of physical inventory.
*hire a specialist to assist the auditor.
conduct expanded observation tests of physical inventory.
From which of the following evidence-gathering audit procedures would an auditor obtain most assurance concerning the existence of inventories?
*observation of physical inventory counts
*wri tten inventory representations from management
*confirmation of inventories in a public warehouse *auditor’s recomputation of inventory extensions
observation of physical inventory counts
Which of the following is the best audit procedure for the discovery of damaged merchandise in a client’s ending inventory?
*Compare the physical quantities of slow-moving items with corresponding quantities of the prior year.
*Observe merchandise and raw materials during the client’s physical inventory count.
*Review the management’s inventory representation le er for accuracy.
*Test overall fairness of inventory values by comparing the company’s turnover ratio with the industry average.
Observe merchandise and raw materials during the client’s physical inventory count.
It is frequently possible to test the physical inventory prior to the balance sheet date when:
*there are accurate perpetual inventory master files.
*year-end sales are small.
*the internal control system is no be er at year-end than at an earlier point in time.
*the client counts inventory at interim dates.
there are accurate perpetual inventory master files.
Tests of the perpetual inventory master files for the purpose of reducing the tests of physical inventory or changing their timing are done through the use of:
*inquiry.
*observation.
*confirmation.
*documentation.
documentation
Which one of the following analytical procedures would be most useful in alerting the auditor to the possibility of obsolete inventory?
*Compare gross margin percentage with previous years’.
*Compare unit costs of inventory with previous years’.
*Compare inventory turnover ratio with previous years’.
*Compare current year manufacturing costs with previous years’.
Compare inventory turnover ratio with previous years’.
Which of the following statements is correct regarding the auditor’s responsibility with respect to the year-end inventory procedures of an audit client?
.The auditor is responsible for reconciling the physical count with the perpetual inventory ma er files.;
.The auditor is responsible for taking and compiling the inventory.;
.The auditor is responsible for observing the physical counting of inventory.
*yes; no; no
*no; no; yes
*yes; no; yes
*no; yes; no
*yes; no; yes
Which of the following is not an account affected by the sales and collection cycle?
*Cash
*Accounts receivable
*Allowance for doubtful accounts
*Sales of Accounts Receivables – factoring, therefore not part of the transaction cycle for sales of goods
Sales of Accounts Receivables – factoring, therefore not part of the transaction cycle for sales of goods
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:
*unchanged.
*expanded.
*mitigated.
*decreased.
unchanged
Which of the following is not one of the five classes of transactions included in the sales and collection cycle?
*Sales returns and allowances
*Write-off of uncollectible accounts
*Bad debt expense
*Interest Income
Interest Income
What event initiates a transaction in the sales and collection cycle?
*receipt of cash
*delivery of product to a customer
*identification of a new customer
*customer request for goods
customer request for goods
A ________ is a document that indicates a request for merchandise by a customer.
*sales invoice
*vendor invoice
*customer order
*sales order
customer order
A ________ is a document that is matched with the customer order to assure that the correct quantity and type of goods are shipped.
*sales order
*customer order
*vendor invoice
*sales invoice
sales order
What critical event must take place before goods can be shipped in order to assure payment can be reasonably expected?
*determination of correct delivery address
*credit approval
*matching of shipping document with sales invoice
* receipt of sales order from the customer
credit approval
Before goods are shipped on account, a properly authorized person must:
*prepare the sales invoice.
*approve the journal entry.
*approve the customer’s credit.
*verify that the unit price is accurate.
approve the customer’s credit.
A document prepared to initiate shipment of the goods sold by an independent shipper is the:
*sales order.
*bill of lading.
*sales invoice.
*customer order.
bill of lading.
The document used to indicate to the customer the amount of a sale and payment due date is the:
*sales invoice.
*bill of lading.
*purchase order.
*sales order.
sales invoice.
In the sales and collection cycle when is, generally, the earliest point at which revenue can be recognized?
*sales approval
*credit approval
*cash collection
*shipment of goods
shipment of goods
Most companies recognize sales revenue when:
*sales are invoiced.
*goods are received by the customer.
*goods are shipped.
*Both goods are received by the customer and goods are shipped are correct, depending upon the company’s revenue recognition policies.
goods are shipped.
Which of the following is not a business function within the “Sales” class of transactions?
*processing customer orders
*granting credit
*processing and recording sales returns and allowances
*shipping goods
processing and recording sales returns and allowances
The total of the individual account balances in the accounts receivable subsidiary ledger should equal the:
*total sales for the period.
*balance of the sales account in the general ledger.
*total sales less the total cash received for the period.
*balance of the accounts receivable account in the general ledger.
balance of the accounts receivable account in the general ledger.
In the accounts receivable subsidiary ledger the length of time the account has been due can be useful to the client and the auditor in preparing the:
*trial balance.
*working trial balance.
*accounts receivable trial balance.
*aged accounts receivable trial balance.
aged accounts receivable trial balance.
A document sent to each customer showing his or her beginning accounts receivable balance and the amount and date of each sale, cash payment received, any debit or credit memo issued, and the ending balance is the:
*accounts receivable subsidiary ledger.
*monthly statement.
*remittance advice
*sales invoice
monthly statement
The document that accompanies the customer’s payment is the:
*credit memo.
*remittance advice
* vendor invoice.
*monthly statement.
remittance advice
The document that requires adjustments to the customers subsidiary ledger account is the:
*bill of lading.
*sales invoice.
*credit memo.
*monthly statement.
credit memo.
A document that initiates shipment of goods and indicates the description of the merchandise, the quantity shipped, and customer name and address is the:
*bill of lading.
*sales invoice.
*picking ticket.
*vendor invoice.
bill of lading.
The ________ is a contract between a carrier (e.g., a trucking company) and the seller of goods that dictates the details surrounding the shipment of goods.
*bill of lading
*sales invoice
*picking ticket
*remittance advice
bill of lading
Some companies have customers send payments directly to a post office box address maintained by a bank. This is called a(n) ________ system.
*direct deposit
*funds transfer
*lockbox
*interbank transfer
lockbox
In designing audit procedures for the sales returns and allowances account, the auditor would primarily rely on the following accounts, except for:
*sales returns and allowances transaction file.
*accounts receivable master file.
*cash receipts journal.
*sales returns and allowances will be recorded in all of the above.
cash receipts journal.
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?
*sales order
*sales invoice
*customer order
*remittance advice
sales order
Who is generally responsible for opening receipts when a company uses a lockbox to speed the handling of cash receipts?
*company personnel
*temporary employees in the town where the lockbox is located
*bank employees
*company controller
bank employees
One key internal control to prevent fictitious transactions in the sales and collection cycle is:
*assign a specific customer number for each customer in the computer files.
*to account for the integrity of the numerical sequence of sales orders.
*to include the sales price list of all products in the computer files.
*having bank reconciliations prepared by one who is independent of the treasury function.
assign a specific customer number for each customer in the computer files.
Which of the following is the appropriate point at which the auditor deems authorization to be critical?Credit granting; Price authorization; Shipment of goods
*yes; yes; yes
*yes; no; yes
*no; yes; no
*yes; no; no
*yes; yes; yes
Sales should be recorded, at the earliest, when:
*the order is received.
*the order is received and credit is approved.
*credit is approved and it is verified that there is enough inventory to fill the order.
*the shipment takes place.
the shipment takes place.
Which of the following would least concern an auditor regarding the lack of a specific authorization to conduct the sales transaction?
*granting of credit
*shipment of goods
*determination of discounts
*selling of goods for cash
selling of goods for cash
Smith Manufacturing Company’s accounts receivable clerk has a friend who is also a Smith’s customer. 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:
*prenumber and account for all credit memorandums.
*require receiving reports that provide evidence of returned inventory items to support all credit
memorandums before they are approved.
*have independent sales and accounts receivable departments.
*mail monthly statements to customers.
require receiving reports that provide evidence of returned inventory items to support all credit
memorandums before they are approved.
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?
*valuation
*cutoff
*completeness
*classification
completeness
Which one of the following would the auditor consider to be an incompatible operation if the cashier receives remi ances from the mailroom?
*The cashier prepares the daily deposit.
*The cashier makes the daily deposit at a local bank.
*The cashier posts the receipts to the accounts receivable subsidiary ledger cards.
*The cashier endorses the checks.
The cashier posts the receipts to the accounts receivable subsidiary ledger cards.
Which of the following documents is not commonly associated with the “cash receipts” class of transactions?
*Remi ance advice
*Sales order
*Prelisting of cash receipts
*Cash receipts journal or listing
Sales order
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?
*accuracy
*existence
*completeness
*none of the above
accuracy
In many audits, no substantive tests of transactions are made for the ________ assertion on the grounds that understatement of sales is not a concern.
*accuracy
*existence
*completeness
*none of the above
completeness
Which one the following procedures performed for the billing function provides evidence for the completeness assertion?
*Making sure that all shipments have been billed.
*Making sure that no shipment has been billed more than twice.
*Making sure that each shipment is billed at the correct amount.
*Making sure that each shipment is billed to the proper customer.
Making sure that all shipments have been billed.
The document that the accounting staff will use as the primary basis for recording sales transactions and updating the customers accounts receivable subsidiary ledger is the:
*sales order.
*bill of lading.
*sales journal.
*sales invoice.
sales invoice.
In determining the level of audit efficiency, once the auditor has identified the key internal controls and identified any deficiencies in order to determine the level of control risk appropriate for a private company client, it is appropriate to decide whether:
*substantive tests can be reduced sufficiently to justify costs of performing tests of controls.
*substantive tests can be increased sufficiently to justify costs of performing tests of controls.
*tests of controls can be increased sufficiently to justify costs of performing substantive tests.
*tests of controls can be reduced sufficiently to justify costs of performing substantive tests.
substantive tests can be reduced sufficiently to justify costs of performing tests of controls.
Which one of the following statements is true? In deciding on substantive tests of transactions:
*some procedures are commonly employed on every audit regardless of the circumstances.
*all procedures are dependent on the adequacy of the controls and the results of the tests of controls. *results obtained in the prior year’s audit will not affect the procedures used this year.
*the materiality of the item will not influence the choice of procedures used.
some procedures are commonly employed on every audit regardless of the circumstances.
To test for recorded sales for which there were no actual shipments, the auditor vouches from the:
*bill of lading to the sales journal.
*sales journal to the shipping documents.
*sales journal to the accounts receivable subsidiary ledger.
*bill of lading to the supporting customer order and sales order.
sales journal to the shipping documents.
An effective procedure to test for unbilled shipments is to trace from the:
*sales journal to the shipping documents.
*shipping documents to the sales journal.
*sales journal to the accounts receivable ledger.
*sales journal to the general ledger sales account.
shipping documents to the sales journal.
The auditor traces items from the source documents to the journals in order to accumulate audit evidence that will satisfy the:
*existence objective.
*completeness objective.
*ownership objective.
*valuation objective.
completeness objective.
In many audits of sales transactions substantive tests of transactions can be reduced in determining the completeness objective because:
*understatements of assets and income are a greater concern than overstatements.
*overstatements of assets and income are a greater concern than understatements.
*it doesn’t ma er if income is understated because the savings on income tax offsets the reduced revenue and net income is correct.
*the unrecorded sales cause a reduction of accounts receivable; therefore, the ratios of the two financial statements will not be misleading.
overstatements of assets and income are a greater concern than understatements.
To determine that sales are accurately recorded, the unit prices on the duplicate sales invoices are normally compared with:
*the original invoices.
*an approved master price list.
*the amounts recorded in the sales journal for that transaction.
*the amounts posted to the customer’s account in the accounts receivable master file.
an approved master price list.
Prenumbered documents are intended to help:
Prevent the failure to bill or record sales; Prevent duplicate billings or or recordings of sales
*yes; yes
*no, no
*yes; no
*no, yes
*yes; yes
Prenumbered documents will only be useful for control purposes if:
*different numerical sequence is used for each company.
*the sequence is accounted for periodically.
*employees are allowed to use documents out of numerical sequence.
*the same numerical sequence is used each accounting period.
the sequence is accounted for periodically.
________ tests are for omi ed transactions, while ________ tests are for nonexistent transactions.
*Tracing, vouching
*Vouching, tracing
*Verifying, tracking
*Tracking, verifying
Tracing, vouching
Which one of the following best describes the auditors responsibilities regarding appropriate authorizations in the sales/collections cycle?
*All below should all be of concern to the auditor.
*Credit must be authorized before the sale.
*Goods must be shipped after the authorization.
*Prices must be authorized.
*All below should all be of concern to the auditor.
Which one of the following is of the least concern to the auditor when designing substantive tests of transactions for the sales/collection cycle?
*Sales being included in the journal for which no shipment was made.
*Sales to related parties, such as officers and subsidiaries.
*Sales recorded more than once.
*Shipments being made to nonexistent customers and recorded as sales.
Sales to related parties, such as officers and subsidiaries.
An auditor needs to determine whether all customers of an electric utility company are being billed. The auditor should test from the:
*sales register to the accounts receivable ledger.
*sales register to the meter department records.
*accounts receivable ledger to the sales register. *meter department records to the sales register.
meter department records to the sales register.
