Purchases-Payables-Inventory Cycle 2 Flashcards
What is an appropriate population to provide evidence about the completeness assertion for accounts payable?
Vendors with whom the entity has previously done business
What procedure is Least likely to be performed before the balance sheet date?
Confirmation of accounts payable
Why?: Because Accounts Payable is best tested at year end (e.g. satisfy the “completeness” assertion)
What audit procedure will tell me whether accounts payable are valued properly?
Vouching accounts payable to supporting documentation
E.g. Vouching accounts payable to the :
- supporting documentation,
- invoice; and
- purchase order
How could I best verify debits made to perpetual inventory records of a nonmanufacturing firm?
By examining the purchase Invoices
E.g. States the;
- Items purchased
- amount due
- payment terms; and
- Documents the inventory cost
How would I test whether payments were for goods actually ordered?
Vouch a sample of cash disbursements to the purchase orders
What is a Consignment?
A shipment of inventory by the entity owner to a sales agent (the consignee),
-who sells the goods and then pays the consignor
What would indicate that client goods have been shipped on consignment?
Large debits to accounts receivable and small periodic credits
How would I calculate the inventory turnover ratio?
Inventory turnover equals cost of goods sold divided by average inventory
E.g. Provides a measure of how many times inventory requires replacement
How do Accrued liabilities differ from Accounts Payable?
Accrued liabilities usually pertain to services of a continuing nature;
whereas accounts payable are the result of completed transactions
I can best find Unrecorded liabilities during my review of what documents?
Unpaid bills
E.g. “Unvouchered invoices”
What Audit Procedures are “more likely” to detect unrecorded liabilities?
- Reading of the minutes of meetings of the board of directors
- Analyzing and re-computing interest expense
- Mailing a standard bank confirmation form
What would NOT detect an unrecorded liability?
Analysis and recomputation of depreciation expense
Why? Because liabilities are not part of the depreciation recording process
What is another term for “Accounts Payable?”
Trades Payable
E.g. Represent the most significant current liability of most firms
What inventory method allows counts to be made at interim dates?
The perpetual inventory method
E.g. Allows inventory counts to be made at interim dates if records are well kept
How would I figure out if all merchandise the client was billed for was received?
By tracing vendor invoices to the related receiving reports
