Question 1

Match seven of the terms for documents and records (a-k)with the descriptions provided below (1-7):

-A document used internally to indicate authority to write-off an account receivable as uncollectible.

Accepted Answer

A)  customer order form
B)  sales order
C)  bill of lading
D)  sales invoice
E)  summary sales reportF) accounts receivable master fileG) monthly statementH) remittance adviceI) prelisting of cash receiptsJ) credit memoK) uncollectible account authorization form J

Question 2

________ tests are for omitted transactions,while ________ tests are for nonexistent transactions.

Accepted Answer

A)  Tracing;vouching
B)  Vouching;tracing
C)  Verifying;tracking
D)  Tracking;verifying A

Question 3

The shipping point is critical because it is the first point at which company assets are released to another party.

Accepted Answer

A) True 
 B)False  True

Question 4

The most difficult type of cash embezzlement for auditors to detect is when it occurs

Accepted Answer

A)  after the merchandise has been shipped.
B)  before the merchandise has been shipped.
C)  before the cash is recorded in the cash receipts journal or other cash listing.
D)  after the cash is recorded in the cash receipts journal or other cash listing.

Question 5

Some companies have customers send payments directly to an address maintained by a bank.This is called a(n)________ system.

Accepted Answer

A)  direct deposit
B)  funds transfer
C)  lockbox
D)  interbank transfer

Question 6

Sales transactions are the result of the following five functions in the sales and collection cycle: processing customer orders,granting credit,shipping goods,billing customers,and recording sales.

Accepted Answer

A) True 
 B)False

Question 7

Which of the following would offer the best protection for a company that wishes to prevent a reoccurrence of a previously detected "lapping" problem with trade accounts receivable?

Accepted Answer

A)  Separate duties so that the bookkeeper in charge of the general ledger has no access to incoming mail.
B)  Separate duties so that no employee has access to both checks from customers and currency from daily cash receipts.
C)  Have a mandatory vacation policy for employees who both handle cash and enter cash receipts into the system.
D)  Request that customer's payment checks be made payable to the company and addressed to the treasurer.

Question 8

Match seven of the terms for documents and records (a-k)with the descriptions provided below (1-7):

-A document mailed to the customer and typically returned to the seller with the cash payment.

Accepted Answer

A)  customer order form
B)  sales order
C)  bill of lading
D)  sales invoice
E)  summary sales reportF) accounts receivable master fileG) monthly statementH) remittance adviceI) prelisting of cash receiptsJ) credit memoK) uncollectible account authorization form

Question 9

The document used to indicate to the customer the amount of a sale and payment due date is the

Accepted Answer

A)  sales invoice.
B)  bill of lading.
C)  purchase order.
D)  sales order.

Question 10

Who is generally responsible for opening receipts when a company uses a lockbox to speed the handling of cash receipts?

Accepted Answer

A)  company personnel
B)  temporary employees in the town where the lockbox is located
C)  bank employees
D)  company controller

Question 11

Most companies recognize sales revenue when

Accepted Answer

A)  sales are invoiced.
B)  payment is received from the customer.
C)  goods are shipped.
D)  the customer's order is received.

Question 12

Which accounts are involved in the sales class of transactions?

Accepted Answer

A)  accounts receivable and sales returns and allowances
B)  cash and allowance for uncollectible accounts
C)  sales allowances and accounts receivable
D)  accounts receivable and sales

Question 13

Cash receipts from sales on account have been misappropriated.Which of the following acts would conceal this fraud and be least likely to be detected by an auditor?

Accepted Answer

A)  understating the sales journal by not recording cash sales
B)  overstating the accounts receivable control account by intentionally misstating prices charged for goods sold
C)  overstating the accounts receivable subsidiary ledger by not recording payments made by customers
D)  understating the cash receipts journal by purposely recording incorrect amounts

Question 14

The theft of cash can occur before receipts are entered in the records or after they are entered in the records.

Accepted Answer

A) True 
 B)False

Question 15

An effective procedure to test for unfilled shipments is to trace from the

Accepted Answer

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.

Question 16

Credit should be approved before goods are shipped to a customer.

Accepted Answer

A) True 
 B)False

Question 17

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

Accepted Answer

A) True 
 B)False

Question 18

Which of the following is not a key control for sales and cash receipts?

Accepted Answer

A)  active board of directors
B)  adequate separation of duties
C)  internal verification procedures
D)  adequate documents and records

Question 19

For each key control,one or more tests of controls must be designed to verify its effectiveness.

Accepted Answer

A) True 
 B)False

Question 20

Violations of the occurrence/existence objective for sales are of greater concern to the auditor than violations of the completeness objective.

Accepted Answer

A) True 
 B)False

Exam 14: Audit of the Sales and Collection Cycle: Tests of Controls

Match seven of the terms for documents and records (a-k) with the descriptions provided below (1-7) : -A document used internally to indicate authority to write-off an account receivable as uncollectible.

tests are for omitted transactions,while tests are for nonexistent transactions.

The shipping point is critical because it is the first point at which company assets are released to another party.

The most difficult type of cash embezzlement for auditors to detect is when it occurs

Some companies have customers send payments directly to an address maintained by a bank.This is called a(n) ________ system.

Sales transactions are the result of the following five functions in the sales and collection cycle: processing customer orders,granting credit,shipping goods,billing customers,and recording sales.

Which of the following would offer the best protection for a company that wishes to prevent a reoccurrence of a previously detected "lapping" problem with trade accounts receivable?

Match seven of the terms for documents and records (a-k) with the descriptions provided below (1-7) : -A document mailed to the customer and typically returned to the seller with the cash payment.

The document used to indicate to the customer the amount of a sale and payment due date is the

Who is generally responsible for opening receipts when a company uses a lockbox to speed the handling of cash receipts?

Most companies recognize sales revenue when

Which accounts are involved in the sales class of transactions?

Cash receipts from sales on account have been misappropriated.Which of the following acts would conceal this fraud and be least likely to be detected by an auditor?

The theft of cash can occur before receipts are entered in the records or after they are entered in the records.

An effective procedure to test for unfilled shipments is to trace from the

Credit should be approved before goods are shipped to a customer.

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

Which of the following is not a key control for sales and cash receipts?

For each key control,one or more tests of controls must be designed to verify its effectiveness.

Violations of the occurrence/existence objective for sales are of greater concern to the auditor than violations of the completeness objective.