Question 1

Discuss the four business functions that result in sales transactions in a typical sales and collection cycle; for each function, state the key documents and records involved.

Accepted Answer

The four business functions that result ...

Question 2

The cashier diverted cash received over the counter from a customer to his own use and wrote off the receivable as a bad debt.Select the control that should have prevented the error.

Accepted Answer

A)   Journal entries are approved by a responsible official.
B)   Receipts are given directly to the cashier by the person who opens the mail.
C)   Remittance advices, letters, and envelopes that accompany receipts are separated and given directly to the accounting department.
D)   Aging schedules of accounts receivable are prepared periodically and reviewed by a responsible official.E) None of the above
F) B) and C)

Question 3

An effective procedure to test for unbilled shipments is to trace from the:

Accepted Answer

A)   sales journal to the general ledger sales account.
B)   sales journal to the shipping documents.
C)   shipping documents to the sales journal.
D)   sales journal to the accounts receivable ledger.E) B) and C)
F) C) and D)

Question 4

State the five classes of transactions that comprise the sales and collection cycle.

Accepted Answer

The five classes of transactions that co...

Question 5

Vouching transactions from journals to source documents tests for the objective of:

Accepted Answer

A)   valuation.
B)   accuracy.
C)   completeness.
D)   existence.E) All of the above
F) A) and D)

Question 6

The overall objective of the audit of the sales and collection cycle is to evaluate whether:

Accepted Answer

A)   the account balances affected by the cycle are fairly presented in accordance with Australian accounting standards.
B)   the sales account and the accounts receivable account are presented fairly in accordance with generally accepted accounting principles.
C)   the sales account and the accounts receivable account are free of material errors.
D)   the sales account and the accounts receivable account are free of errors.E) All of the above
F) A) and B)

Question 7

Which one of the following is NOT an auditor's concern about a key authorisation point in the sales/collection cycle?

Accepted Answer

A)   The receiving room must have authorisation before releasing items to inventory control.
B)   Credit must be authorised before the sale.
C)   Goods must be shipped after the authorisation.
D)   Prices must be authorised.E) B) and D)
F) A) and B)

Question 8

The preparation of a sales invoice is the final step in the sales and collection cycle.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following is the document which accompanies the customer's payment?

Accepted Answer

A)   remittance advice
B)   credit memo
C)   monthly statement
D)   sales invoiceE) A) and C)
F) A) and B)

Question 10

Which of the following is a document used to indicate to the customer the amount of a sales and payment due date?

Accepted Answer

A)   sales order
B)   sales invoice
C)   purchase order
D)   bill of ladingE) A) and B)
F) None of the above

Question 11

The business functions mainly related to the cash at bank account include:

Accepted Answer

A)   processing and recording cash receipts.
B)   granting credit.
C)   billing customers.
D)   all of the aboveE) A) and C)
F) None of the above

Question 12

The auditor traces items from the source documents to the journals in order to satisfy the:

Accepted Answer

A)   completeness objective.
B)   ownership objective.
C)   valuation objective.
D)   existence objective.E) B) and C)
F) A) and D)

Question 13

Before goods are shipped on account, a properly authorised person must:

Accepted Answer

A)   approve the journal entry.
B)   approve credit.
C)   verify that the unit price is accurate.
D)   prepare the sales invoice.E) A) and B)
F) A) and C)

Question 14

Auditors can respond to deficiencies in internal control by:

Accepted Answer

A)   expanding the tests of controls.
B)   reassessing preliminary assessment of control risk.
C)   expanding substantive tests of transactions.
D)   all of the aboveE) B) and C)
F) All of the above

Question 15

To determine that sales are accurately recorded, the unit prices on the duplicate sales invoices are normally compared with:

Accepted Answer

A)   an approved price list.
B)   the amounts posted to the customer's account in the accounts receivable master file.
C)   the original invoices.
D)   the amounts recorded in the sales journal for that transaction.E) A) and D)
F) All of the above

Question 16

Which of the following is the most important aspect of the billing function?

Accepted Answer

A)   All shipments are billed.
B)   Billing is at the proper amount.
C)   Shipments are not billed more than once.
D)   all of the aboveE) B) and C)
F) None of the above

Question 17

Which of the following business functions is mainly related to the bad debts expense account?

Accepted Answer

A)   allowing for bad and doubtful debts
B)   granting credit
C)   billing customers
D)   all of the aboveE) A) and B)
F) A) and C)

Question 18

Which of the following does the auditor consider when determining the extent of reliance to be placed on internal controls?

Accepted Answer

A)   assessed level of control risk
B)   the costs of increased tests of controls
C)   effectiveness of the internal controls
D)   all of the aboveE) A) and D)
F) B) and C)

Question 19

The customer's request for merchandise, namely the customer order, could be in the form of:

Accepted Answer

A)   an electronic submission through the Internet or other network linkage.
B)   a written request by letter or on a preprinted form.
C)   an oral request over the telephone or through a salesperson.
D)   all of the aboveE) None of the above
F) B) and D)

Question 20

Explain the audit procedure 'proof of cash receipts'.

Accepted Answer

Proof of cash receipts is a useful audit...

Exam 12: Audit of the sales and collection cycle: Tests of controls and substantive tests of transactions

Before goods are shipped on account, a properly authorised person must:

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The customer's request for merchandise, namely the customer order, could be in the form of:

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The cashier diverted cash received over the counter from a customer to his own use and wrote off the receivable as a bad debt.Select the control that should have prevented the error.

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Discuss the four business functions that result in sales transactions in a typical sales and collection cycle; for each function, state the key documents and records involved.

Correct AnswerverifiedThe four business functions that result ...View AnswerShow Answer

State the five classes of transactions that comprise the sales and collection cycle.

Correct AnswerverifiedThe five classes of transactions that co...View AnswerShow Answer

Which of the following business functions is mainly related to the bad debts expense account?

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An effective procedure to test for unbilled shipments is to trace from the:

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Which one of the following is NOT an auditor's concern about a key authorisation point in the sales/collection cycle?

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Which of the following is the document which accompanies the customer's payment?

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The auditor traces items from the source documents to the journals in order to satisfy the:

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Which of the following is a document used to indicate to the customer the amount of a sales and payment due date?

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Vouching transactions from journals to source documents tests for the objective of:

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Which of the following is the most important aspect of the billing function?

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Explain the audit procedure 'proof of cash receipts'.

Correct AnswerverifiedProof of cash receipts is a useful audit...View AnswerShow Answer

The preparation of a sales invoice is the final step in the sales and collection cycle.

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Which of the following does the auditor consider when determining the extent of reliance to be placed on internal controls?

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The overall objective of the audit of the sales and collection cycle is to evaluate whether:

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To determine that sales are accurately recorded, the unit prices on the duplicate sales invoices are normally compared with:

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The business functions mainly related to the cash at bank account include:

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Auditors can respond to deficiencies in internal control by:

Correct AnswerverifiedShow Answer

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The four business functions that result ...
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The five classes of transactions that co...
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Proof of cash receipts is a useful audit...
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