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ACC-420 > Chapter 14 > Flashcards

Chapter 14 Flashcards

1
Q

The key activities that an organization must complete to execute and record business transactions for sales, cash receipts, sales returns and allowances, write-off of uncollectible accounts, and bad debt expense

A

Business functions for the Sales and Collection Cycle

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2
Q

sales, cash receipts, sales returns and allowances, write-off of uncollectible accounts, and bad debt expense

A

Classes if Transactions in the Sales and Collection Cycle

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3
Q

The audit procedures resulting from the auditor’s decision about the appropriate audit procedures for each audit objective. Used to prepare a performance format audit program

A

Design format audit program

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4
Q

The starting point for testing the occurrence and completeness transaction-related audit objectives. Vouching from journals to source documents tests for occurrence and tracing from source documents to journals tests for completeness

A

Direction of Testing

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5
Q

The postponement of entries for the collection of receivables to conceal an existing cash shortage

A

Lapping of Accounts Receivable

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6
Q

The audit procedures for a class of transactions organized in the format in which they will be performed. Prepared from a design format audit program

A

Performance Format Audit Program

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7
Q

An audit procedure to test whether all recorded cash receipts have been deposited in the bank account by reconciling the total cash receipts recorded in the cash receipts journal for a given period with the actual deposits made to the bank

A

Proof of Cash Receipts

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8
Q

Involves the decisions and processes necessary for the transfer of the ownership of goods and services to customers after they are made available for sale; it begins with a request by a customer and ends with the conversion of material of material or service into accounts receivables and then into cash

A

Sales and Collections Cycle

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9
Q

Accounts for sales class of transactions

A

Sales and Accounts Receivable

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10
Q

Business functions for sales class of transactions

A

Processing customer orders, granting credit, shipping goods, and billing customers and recording sales

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11
Q

Documents and Records for the sales class of transactions

A

Customer Order and Sales Order

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12
Q

Accounts for the Cash Receipts class of transactions

A

Cash in bank and Accounts Receivable

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13
Q

Business Functions for the Cash Receipts class of transactions

A

Processing and recording cash receipts

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14
Q

Documents and Records for the Cash Receipts class of transactions

A

Remittance Advice and Prelisting of cash receipts

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15
Q

Accounts for Sales Returns and Allowances class of transactions

A

Sales returns and allowances and accounts receivable

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16
Q

Business functions for the Sales Returns and Allowances class of transactions

A

Processing and recording sales returns and allowances

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17
Q

Documents and records for the sales returns and allowances class of transactions

A

Credit Memo and Sales returns and allowances journal

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18
Q

Accounts for the Write-off of uncollectible accounts class of transactions

A

Accounts receivable and allowance for uncollectible accounts

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19
Q

Business functions for the Write-off of uncollectible accounts class of transactions

A

Writing off uncollectible accounts receivable

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20
Q

Documents and records for the Write-off of uncollectible accounts class of transactions

A

Uncollectible account authorization form and general journal

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21
Q

Accounts for the Bad Debt Expense class of transactions

A

Bad debt expense and allowance for uncollectible accounts

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22
Q

Business functions for the Bad Debt Expense class of transactions

A

Providing for bad debts

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23
Q

Documents and records for the Bad Debt Expense class of transactions

A

General Journal

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24
Q

The Most important aspects of billing are

A

All shipments made have been billed (completeness), No shipment has been billed more than once (occurrence), and Each one is billed for the proper amount (accuracy)

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25
Q

How is a transaction file organized

A

By Chronological order

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26
Q

How is a journal or listing organized?

A

By general ledger accounts

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27
Q

How is a master filed organized?

A

By individual customers’ accounts

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28
Q

Copy of a customer’s portion of the accounts receivable master file that works as an internal control

A

Monthly statement

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29
Q

Four steps four understanding internal control to assess control risk

A

1) Use the 6 transaction related audit objectives as framework
2) Identify key controls and key deficiencies
3) Associate key controls and deficiencies with the objectives
4) Assess control risk for each objective by evaluating the controls and substantive tests

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30
Q

To prevent fraud, management should

A

deny cash access to anyone responsible for entering sales and cash receipts

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31
Q

The credit-granting function should be

A

separated from the sales function

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32
Q

Personnel responsible for doing internal comparisons should be

A

independent for those entering the original data

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33
Q

The auditor is concerned about authorization at three key points:

A

1) Credit must be properly authorized before a sale takes place
2) Goods should be shipped only after proper authorization
3) Prices, including basic terms, freight, and discounts, must be authorized

34
Q

The first two authorizations are

A

meant to prevent the loss of company assets

35
Q

Price authorization is meant to

A

ensure that the sale is billed at the price set by the company

36
Q

Prenumbering is meant to prevent both

A

failure o bill or record sales and the occurrence of duplicate billings and records

37
Q

Transaction related audit objectives for sales

A

Occurrence, completeness, accuracy, posting and summarization, classification, and timing

38
Q

Key existing controls for occurrence for sales

A

Statements are sent to customers each month

39
Q

Test of controls for occurrence for sales

A

Observe whether monthly statements are sent

40
Q

Deficiencies for occurrence for sales

A

Lack of internal verification for the possibility of sales invoices being recorded more than once

41
Q

Substantive tests of transactions for occurrence for sales

A

Account for a sequences of sales invoices

42
Q

Key existing controls for completeness for sales

A

Shipping documents are prenumbered and accounted for weekly

43
Q

Tests of controls for completeness for sales

A

Account for sequence of shipping documents

44
Q

Substantive Tests of transaction for completeness for sales

A

Trace selected shipping documents to the sales journal to be sure that each one is included

45
Q

Key existing controls for accuracy for sales

A

Statements are sent to customers each month

46
Q

Test of Controls for accuracy for sales

A

Observe whether monthly statements are sent

47
Q

Substantive tests of transactions for accuracy for sales

A

Trace entries in sales journal to sales invoices

48
Q

Key existing controls for posting and summarization for sales

A

Statements are sent to customers each month

49
Q

Test of Controls for posting and summarization for sales

A

Observe whether monthly statements are sent

50
Q

Substantive tests of transactions for posting and summarization for sales

A

Use audit software to foot and cross-foot the sales journal and trace totals to the general ledger

51
Q

Key existing controls for classification for sales

A

Account classifications are internally verified

52
Q

Test of Controls for classification for sales

A

Examine document package for internal verification

53
Q

Substantive tests of transactions for classification for sales

A

Examine duplicate sales invoice for proper account classification

54
Q

Key existing controls for timing for sales

A

Shipping documents are prenumbered and accounted for weekly by the accountant

55
Q

Test of Controls for timing for sales

A

Account for a sequence of shipping documents

56
Q

Deficiencies for timing for sales

A

There is a lack of control to test for timely recording

57
Q

Substantive test of transactions for timing for sales

A

Compare date of recording of sale in sales journal with duplicate sales invoice and bill of lading

58
Q

Auditor concerns for occurrence objective

A

1) Sales included in the journals for which no shipment was made
2) Sales recorded more than once
3) Shipments made to nonexistent customers and recorded as sales

59
Q

Tracing tests for

A

Omitted transactions (completeness objective)

60
Q

Vouching tests for

A

Nonexistent transactions (occurrence objective)

61
Q

Auditor concerns for accuracy objective

A

Shipping the amount of goods ordered, accurately billing the amount of goods shipped, and accurately recording the amount billed in the accounting records

62
Q

The most difficult type of cash embezzlement to detect is when

A

it occurs before the cash is recorded in the cash receipts journal or other cash listings

63
Q

Key existing controls for occurrence for Cash receipts

A

Accountant independently reconciles bank account

64
Q

Test of controls for occurrence for Cash receipts

A

Observe whether accountant reconciles bank account

65
Q

Substantive tests of transactions for occurrence for Cash receipts

A

Prepare proof of cash receipts

66
Q

Key existing controls for completeness for Cash receipts

A

Prelisting of cash receipts is prepared

67
Q

Test of controls for completeness for Cash receipts

A

Observe prelisting of cash receipts

68
Q

Deficiencies for completeness for Cash receipts

A

Prelisting of cash is not used to verify recorded cash receipts

69
Q

Substantive tests of transactions for completeness for Cash receipts

A

Compare the prelisting with the duplicate deposit slip

70
Q

Key existing controls for accuracy for Cash receipts

A

Accountant independently reconciles bank account

71
Q

Test of controls for accuracy for Cash receipts

A

Observe whether accountant reconciles bank account

72
Q

Substantive tests of transactions for accuracy for Cash receipts

A

Prepare proof of cash receipts

73
Q

Key existing controls for posting and summerarization for Cash receipts

A

Statements sent to customers each month

74
Q

Test of controls for posting and summerarization for Cash receipts

A

Observe whether monthly statements are sent

75
Q

Substantive tests of transactions for posting and summarization for Cash receipts

A

Use audit software to foot and cross-foot the sales journal and trace totals to the general journal

76
Q

Key existing controls for classification for Cash receipts

A

Cash receipts transactions are internally verified

77
Q

Test of controls for classification for Cash receipts

A

Examine evidence of internal verification

78
Q

Substantive tests of transactions for classification for Cash receipts

A

Examine prelisting for proper account classification

79
Q

Key existing controls for timing for Cash receipts

A

Procedures require recording of cash on a daily basis

80
Q

Test of controls for timing for Cash receipts

A

Observe unrecorded cash at a point in time

81
Q

Substantive tests of transactions for timing for Cash receipts

A

Compare date of deposit per bank statement to the dates in the cash receipts journal and prelisting of cash receipts

ACC-420 (16 decks)

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