Chapter 11

Question 1

aged trial balance

Answer 1

a listing of individual customers’ accounts classified by the number of days subsequent to billing, by age, a preliminary step in estimating the collectibility of accounts receivable

Question 2

bill and hold transactions

Answer 2

transactions where sales of merchandise are billed to customers prior to delivery with the goods being held by the seller. can overstate revenues and net income if they do not meet specific requirements for recognition as sales

Question 3

channel stuffing

Answer 3

a marketing practice that suppliers sometimes use to boost sales by inducing customers to buy substantially more inventory than they can promptly resell (booking tomorrows inventory today in order to window dress the financial statements)

Question 4

confirmation request

Answer 4

a request sent to a confirming party requesting that the confirming party consider the accuracy of information included in that request (positive = response or negative = none)

Question 5

confirming party

Answer 5

the individual who responds to the confirmation request

Question 6

external confirmation

Answer 6

audit evidence obtained by the auditors as a direct written response to the auditors from a third party

Question 7

interim audit work

Answer 7

those audit procedures that are performed before the balance sheet date, facilitate earlier issuance of the audit report and to spread the auditors’ work more uniformly over the year

Question 8

negative confirmation request

Answer 8

a request that the confirming party respond directly to the auditors indicating where the confirming party disagrees with the information in the request

Question 9

pledging of receivables

Answer 9

to assign to a bank, factor, finance company, or other lender an exclusive claim against accounts receivable as security for a debt

Question 10

positive confirmation request

Answer 10

a request that the confirming party respond directly to the auditor providing the requested information or indicating whether the confirming party agrees or disagrees with the information in the request

Question 11

side agreements

Answer 11

formal or informal modifications of normal terms and conditions of sales transactions to entice customers to accept delivery of goods or services

Question 12

window dressing

Answer 12

action taken by the client shortly before the balance sheet date to improve the financial picture presented in the financial statements