Audit Chapter 14 Arens

Front 1

Which of the following procedures would ordinarily be best expected to find unrecorded sales?
a. Compare shipping documents with sales records.
b. Apply gross profit rates to inventory disposed of during the period.
c. Trace payments received subsequent to the balance sheet date.
d. Send accounts receivable confirmation requests

Back 1

Compare shipping documents with sales records.

Front 2

Pre-numbered documents will only be useful for control purposes if:
a. a different numerical sequence is used for each company.
b. the sequence is accounted for periodically.
c. employees are allowed to use documents out of numerical sequence.
d. the same numerical sequence is used each accounting period.

Back 2

the sequence is accounted for periodically

Front 3

An effective procedure to test for unbilled shipments is to trace from the:
a. sales journal to the shipping documents.
b. shipping documents to the sales journal.
c. sales journal to the accounts receivable ledger.
d. sales journal to the general ledger sales account.

Back 3

shipping documents to the sales journal

Front 4

Which one of the following statements is true? In deciding on substantive tests of transactions:
a. some procedures are commonly employed on every audit regardless of the circumstances.
b. all procedures are dependent on the adequacy of the controls and the results of the tests of controls.
c. results obtained in the prior year’s audit will not affect the procedures used this year.
d. the materiality of the item will not influence the choice of procedures used.

Back 4

some procedures are commonly employed on every audit regardless of the circumstances

Front 5

Management’s assertions for sales and collection activities are _____ when sales are generated via e-commerce activities.
a. unchanged
b. expanded
c. mitigated
d. decreased

Back 5

Unchanged

Front 6

For most firms, the function of indicating credit approval is recorded on the:
a. sales order.
b. sales invoice.
c. customer order.
d. remittance advice

Back 6

Sales Order

Front 7

T/F
Credit should be approved before goods are shipped to a customer

Back 7

True

Front 8

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

Back 8

False

Front 9

T/F
For good internal control, the credit-granting function should be separate from the sales function

Back 9

True

Front 10

T/F
The prelisting of cash receipts should be prepared by the individual who has primary responsibility for the recording of cash receipts

Back 10

False

Front 11

T/F
Management’s assertions for sales and collection activities remain the same whether sales are generated through traditional or e-commerce activities

Back 11

True

Front 12

A schedule prepared by an independent person when cash is received. It is used to verify whether cash received was recorded and deposited at the correct amounts and on a timely basis.
g. Monthly statement
h. Remittance advice
i. Prelisting of cash receipts
j. Credit memo

Back 12

Prelisting of cash receipts

Front 13

A document indicating a reduction in the amount due from a customer because of returned goods or an allowance granted.
g. Monthly statement
h. Remittance advice
i. Prelisting of cash receipts
j. Credit memo

Back 13

Credit memo

Front 14

A document prepared to initiate shipment of goods, indicating the description of the merchandise, the quantity shipped, and other relevant data. It is a written contract between the carrier and seller of the receipt and shipment of goods
a. Customer order form
b. Sales order
c. Bill of lading
d. Sales invoice

Back 14

Bill of lading

Front 15

An internal document for communicating the description, quantity, and related information for goods ordered by a customer. This is frequently used to indicate credit approval and authorization for shipment
a. Customer order form
b. Sales order
c. Bill of lading
d. Sales invoice

Back 15

Sales order

Front 16

A document that accompanies the sales invoice mailed to the customer and which can be returned to the seller with the cash payment
g. Monthly statement
h. Remittance advice
i. Prelisting of cash receipts
j. Credit memo

Back 16

Remittance advice

Front 17

A document used internally to indicate authority to write-off an account receivable as uncollectible.
h. Remittance advice
i. Prelisting of cash receipts
j. Credit memo
k. Uncollectible account authorization form

Back 17

Uncollectible account authorization form

Front 18

A document indicating the description and quantity of goods sold, the price, freight charges, insurance, terms, and other relevant data
a. Customer order form
b. Sales order
c. Bill of lading
d. Sales invoice

Back 18

Sales invoice

Front 19

There are __________ classes of transactions in the sales and collection cycle.
a.3
b.4
c.2
d.5

Back 19

5

Front 20

The decisions and processes necessary for the transfer of the ownership of goods and services to the customers after they are made available for sale refers to the:
a. Payroll and Personnel cycle
b. Acquisition and payment cycle
c. Inventory and warehousing cycle
d. Sales and collection cycle

Back 20

Sales and collection cycle

Front 21

A ___________ system is when customers make payments directly to an address maintained by a bank.
Control
Regulated
Lockbox
Depository

Back 21

Lock Box

Front 22

Proper authorization for sales includes:
Approval before shipping
Credit terms approval
Credit approval
All of the above

Back 22

All of the Above-
Approval before shipping
Credit terms approval
Credit approval

Front 23

Which of the following is an example of a control for the audit objective that deals with recording sales correctly for the amount of goods shipped?
a. Reconciliation of accounts receivable master file with general ledger.
b. Authorized shipping documents
c. Pre-numbered shipping documents
d. Periodic statements sent to customers

Back 23

Periodic statements sent to customers

Front 24

Vouching refers to moving from the journals back to the source documents, which is a test for:
a. Occurrence
b. Ordering
c. Completeness
d. All of the above

Back 24

Occurrence

Front 25

Which of the following is an example of a control for the audit objective that deals with making sure the cash receipts are deposited and recorded at the amount received?
a. Comparison of cash receipt totals to a summary report
b. Independent bank reconciliation
c. Recording cash on a daily basis
d. Restrictively endorsed check

Back 25

Independent bank reconciliation

Front 26

______________ test is a useful procedure to determine whether all recorded cash receipts have been deposited in the bank account.
a. Proof of cash receipts
b. Proof of sales receipts
c. Proof of book expense
d. Proof of collections

Back 26

Proof of cash receipts

Front 27

Periodic aging of accounts receivable is a control to reduce:
a. Theft of fixed assets
b. Sales returns and allowances
c. Un-collectable accounts
d. Theft of inventory

Back 27

Un-collectable accounts

Front 28

The testing of controls and substantive tests of transactions in the sales and collection cycle affects the:
a. Confirmation of long-term debt
b. Confirmation of accounts receivable
c. Confirmation of accounts payable
d. Confirmation of fixed assets

Back 28

Confirmation of accounts receivable

Front 29

T/F
Estimation of bad debt expenses should be considered during the audit of sales.

Back 29

True

Front 30

T/F
A sales invoice is a document sent by mail or electronically to each customer indicating the beginning balance of their accounts receivable.

Back 30

False

Front 31

T/F
A company should expect to collect 100% of their sales.

Back 31

False

Front 32

T/F
An example of internal controls for sales is pre-numbered documents.

Back 32

True

Front 33

T/F
If an auditor discovers shipments to non-existent customers that are recorded as sales, this is an example of an error.

Back 33

False

Front 34

T/F
An audit program should always be performed exactly as the audit program was designed.

Back 34

False

Front 35

T/F
Deferring cash receipts of one customer to cover shortages of another customer is an example of lapping of accounts receivable.

Back 35

True

Front 36

T/F
Making sure that customer's checks are restrictively endorsed is an internal control to safe guard cash received.

Back 36

True

Front 37

T/F
A company's accountant should perform regular reconciles of the company's bank accounts.

Back 37

True

Front 38

T/F
Inherent risk is usually set high by an auditor for the realizable value of accounts receivable objectives.

Back 38

True

Front 39

When a customer fails to include a remittance advice with a payment, it is common for the person opening the mail to prepare one. Consequently the mail should be opened by which of the following employees?
a. Credit manager
b. Sales manager
c. AR clerk
d. receptionist

Back 39

receptionist

Front 40

A key internal control in the sales and collection cycle is the separation of duties between cash handling and record keeping. The objective most directly associated with this control is to verify that?
a. cash receipts recorded in the cash receipts journal are reasonable
b. cash receipts are correctly classified
c. recorded cash receipts result from a legitimate transaction
d. existing cash receipts are recorded

Back 40

existing cash receipts are recorded

Front 41

Company personnel account for the sequence of shipping documents and verify that an entry for each shipment is included in the sales journal. This control relates most directly to the sales transaction-related audit objective
a. occurrence
b. accuracy
c. completeness
d. timing

Back 41

completeness

Front 42

Prevent the misstatement-

A manufacturing company received a substantial sales return in the last month of the year, but the credit memo for the return was not prepared until after the auditors completed their testing. The returned merchandise was included in the physical inventory.
a. aged trial balance of accounts receivable is prepared.
b. credit memos are prenumbered and all numbers are accounted for
c. a reconciliation of the trial balance of the customers' accounts with the general ledger control is prepared periodically
d. receiving reports are prepared for all materials received and such reports accounted for on a regular basis.

Back 42

receiving reports are prepared for all materials received and such reports accounted for on a regular basis.

Front 43

Prevent misstatements-
Which of the following controls most likely will be effective in offsetting the tendency of sales personnel to maximize sales volume at the expense of high debt write-off's?
a. employees responsible for authorizing sales and bad debt write-off are denied access to cash.
b. shipping documents and sales invoices are matched by an employee who does not have the authority to write off bad debt
c. Employees involved in the credit granting function are separated from the sales function
d. Subsidiary a/r records are reconciled to the control account by an employee independent of the authorization of credit

Back 43

Employees involved in the credit granting function are separated from the sales function

Front 44

Prevent the misstatement-
A sales invoice for $5,200 was computed correctly, but by mistake, was key-entered as $2,500 to the sales journal and to the A/R master file. The customer remitted only $2,500, the amount on his monthly statement.
a. prelisting and predetermined totals are used to control postings
b. sales invoices, numbers, prices, discounts, extensions, and footings are independently checked.
c. the customers' monthly statement are verified and mailed by a responsible person other than the bookkeeper who prepared them.
d. Unauthorized remittance deductions made by customers or other matters in the dispute are investigated promptly by a person independent of the A/R function

Back 44

Prelistings and predetermined totals are used to control postings

Front 45

Prevent Misstatements-
Copies of sales invoices show different unit prices for apparently identical items.
a. all sales invoices are checked as to all details ofter their preparation.
b. differences reported by customers are satisfactorily investigated.
c. statistical sales data are compiled and reconciled with recorded sales
d. All sales invoices are compared with the customers' purchase orders

Back 45

All sales invoices are checked as to all details after their preparation

Front 46

An auditor is preforming substantive test of transactions for sales. One step is to trace a sample of debit entries from the a/r master file back to the supporting duplicate sales invoices. What will the auditor intend to establish by this step?
a. sales invoices represent existing sales
b. all sales have been recorded
c. all sales invoices have been correctly posted to customer accounts
d. debit entries in the a/r master file are correctly supported by the sales invoices

Back 46

debit entries in the a/r master file are correctly supported by the sales invoices

Front 47

To verify that all sales transactions have been recorded, a substantive test of transactions should be completed on a representative sample drawn from
a. entries in the sale journal
b. the billing clerks' file of sales orders
c. a file of duplicate copies of sales invoices for which all prenumbered forms in the series have been accounted for
d. the shipping clerk's file of duplicate copies of bills of lading

Back 47

the shipping clerk's file of duplicate copies of bills of lading

Front 48

Which audit procedure is most effective in testing credit sales for overstatement?
a. trace a sample of postings from the sales journal to the sales account in the general ledger.
b. vouch a sample of recorded sales from the sales journal to the shipping documents
c. prepare an aging of A/R
d. Trace a sample of initial sales orders to the sales recorded in the sales journal

Back 48

vouch a sample of recorded sales from the sales journal to the shipping documents