Ch 7 HW

Question 1

1. In the revenue and collection cycle, the order of the activities in the cycle is best illustrated by
   A. Credit granting, billing customers, delivering goods, cash receipts.
   B. Delivering goods, billing customer, credit granting, collection activities.
   C. Customer ordering, delivering goods, credit granting, billing customers.
   D. Processing customer orders, granting credit, delivering goods, and billing customers.

Answer 1

Processing customer orders, granting credit, delivering goods, and billing customers.

Question 2

2. Prenumbering invoices, shipping documents, and sales orders is a practice to achieve which of the following assertions?
A. Accuracy.
B. Completeness.
C. Presentation or disclosure.
D. Occurrence.

Answer 2

Completeness.

Question 3

3. An internal control questionnaire for evaluating the occurrence objective of revenues would not include which of the following questions?
   A. Are customer statements mailed monthly by the accounts receivable department?
   B. Are returned goods checked against necessary reports?
   C. Are direct confirmations of receivables obtained periodically by the internal auditor?
   D. Is customer credit approved before orders are shipped?

Answer 3

Is customer credit approved before orders are shipped?

Question 4

4. The positive form of confirmation is best used when
   A. Internal control is considered effective.
   B. Account balances are relatively large.
   C. Account balances are small in amount, but large in number.
   D. Accounts are not in dispute.

Answer 4

Account balances are relatively large.

Question 5

5. Which of the following is not an alternative procedure when a confirmation is not received?
   A. Examine client correspondence with the customer.
   B. Examine customer purchase orders.
   C. Examine payments received before the end of the period.
   D. Examine sales invoices and vouch them to underlying shipping documents

Answer 5

Examine payments received before the end of the period

Question 6

6. A person who has access to both cash and accounts receivable records may be able to take cash receipts by
A. A kiting operation.
B. Overstating cash receipts.
C. A lapping operation.
D. Underfooting the bank reconciliation.

Answer 6

A lapping operation.

Question 7

7. A price list master file contains the product unit prices that are used for billing customers.
   True
   False

Answer 7

True

Question 8

8. The accountants who record cash receipts and credits to customer accounts should not handle the cash.
   True
   False

Answer 8

True

Question 9

9. Credit checks should be performed by the sales department before credit is approved.
   True
   False

Answer 9

False

Question 10

10. The aging information for accounts receivable is typically used in connection with assessing the allowance for doubtful accounts.
    True
    False

Answer 10

True

Question 11

11. A comparison of checks listed on a sample of deposit slips to the detail of customer credits posted to customer accounts receivable can be an audit test for lapping.
    True
    False

Answer 11

True

Question 12

12. If control risk is assessed very low, the substantive audit procedures on account balances must be expanded.
    True
    False

Answer 12

False

Question 13

13. A confirmation procedure scheduled on the year-end date with a large sample of customer account balances is necessary if tests of controls reveal control weaknesses.
    True
    False

Answer 13

True

Question 14

14. Auditors should not place total reliance on controls to the exclusion of other substantive testing procedures.
    True
    False

Answer 14

True

Question 15

15. An objective for an audit is to obtain evidence related to management’s financial statement assertions.
    True
    False

Answer 15

True

Question 16

16. When obtaining evidence about accounts receivable, auditors must put emphasis on the completeness and obligations assertions.
    True
    False

Answer 16

False

Question 17

17. Inquiries of management usually do not provide very convincing evidence about the existence and rights assertions.
    True
    False

Answer 17

True

Question 18

18. A computer generally cannot be used for scanning large files of accounts receivable for unusual credit balances.
    True
    False

Answer 18

False

Question 19

19. The use of confirmations to test accounts receivable is considered a generally accepted audit procedure.
    True
    False

Answer 19

True

Question 20

20. Confirmations yield evidence about existence and the gross valuation of a receivable balance.
    True
    False

Answer 20

True