ACCT 431 CHAPTER 14: Audit of the Sales and Collection Cycle: Tests of Controls and Substantive Tests of Transactions
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Course
ACCT 431 (ACCT431)
Institution
Pontifical Catholic Of Puerto Rico
Auditing and Assurance Services, 15e (Arens)
Chapter 14 Audit of the Sales and Collection Cycle: Tests of Controls and Substantive
Tests of Transactions
Learning Objective 14-1
1) Which of the following is an account that is not affected by the sales and collection cycle?
A) Cash
B) Accounts ...
15e arens chapter 14 audit of the sales and collection cycle tests of controls and substantive tests of transactions learning objective 14 1 1 which of the followi
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ACCT 431 (ACCT431)
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ACCT 431 CHAPTER 14
Audit of the Sales and Collection Cycle: Tests of Controls and Substantive Tests of
Transactions
Learning Objective 14-1
1) Which of the following is an account that is not affected by the sales and collection cycle?
A) Cash
B) Accounts receivable
C) Allowance for doubtful accounts
D) Accounts payable
Answer: D
Terms: Sales and collection cycle
Diff: Easy
Objective: LO 14-1
AACSB: Reflective thinking skills
2) The auditor's objectives for the sales and cash collections activities when the client
is primarily an e-commerce business as compared to a "bricks and mortar" business
are:
A) unchanged.
B) expanded.
C) mitigated.
D) decreased.
Answer: A
Terms: Auditor objectives for sales and cash collections
Diff: Moderate
Objective: LO 14-1
AACSB: Analytic skills
3) The overall objective in the audit of the sales and collection cycle is to evaluate whether
the account balances affected by the cycle are fairly presented in accordance with accounting
standards.
A) True
B) False
Answer: A
Terms: Objective in audit of sales and collection cycle; Account balances fairly presented
Diff: Easy
Objective: LO 14-1
AACSB: Reflective thinking skills
1
,4) The sales and collection cycle applies to businesses that transfer goods to customers
or provides services to businesses.
A) True
B) False
Answer: A
Terms: Sales and collection cycle
Diff: Moderate
Objective: LO 14-1
AACSB: Reflective thinking skills
Learning Objective 14-2
1) Which of the following is not one of the five classes of transactions included in the sales
and collection cycle?
A) Sales returns and allowances
B) Write-off of uncollectible accounts
C) Bad debt expense
D) Interest Income
Answer: D
Terms: Class of transactions; Sales and collection cycle
Diff: Easy
Objective: LO 14-2
AACSB: Reflective thinking skills
2) What event initiates a transaction in the sales and collection cycle?
A) Receipt of cash
B) Delivery of product to a customer
C) Identification of a new customer
D) Customer request for
goods Answer: D
Terms: Initiates transaction in sales and collection cycle
Diff: Easy
Objective: LO 14-2
AACSB: Reflective thinking skills
3) A is a document that indicates a request for merchandise by a customer.
A) sales invoice
B) vendor invoice
C) customer order
D) sales order
Answer: C
Terms: Document indicates request for merchandise
Diff: Easy
Objective: LO 14-2
AACSB: Reflective thinking skills
2
,4) A is a document that is matched with the customer order to assure that the correct
quantity and type of goods are shipped.
A) sales order
B) customer order
C) vendor invoice
D) sales invoice
Answer: A
Terms: Document matched with customer order
Diff: Easy
Objective: LO 14-2
AACSB: Reflective thinking skills
5) What critical event must take place before goods can be shipped in order to assure payment
can be reasonably expected?
A) Determination of correct delivery address
B) Credit approval
C) Matching of shipping document with sales invoice
D) Receipt of sales order from the customer
Answer: B
Terms: Event must take place in order to assure payment
Diff: Easy
Objective: LO 14-2
AACSB: Reflective thinking skills
6) Before goods are shipped on account, a properly authorized person must:
A) prepare the sales invoice.
B) approve the journal entry.
C) approve the customer's credit.
D) verify that the unit price is accurate.
Answer: C
Terms: Goods shipped on account; Properly authorized person
Diff: Easy
Objective: LO 14-2
AACSB: Reflective thinking skills
7) A document prepared to initiate shipment of the goods sold by an independent shipper is the:
A) sales order.
B) bill of lading.
C) sales invoice.
D) customer order.
Answer: B
Terms: Document prepared to initiate shipment of goods
Diff: Easy
Objective: LO 14-2
AACSB: Reflective thinking skills
3
, 8) The document used to indicate to the customer the amount of a sale and payment due date
is the:
A) sales invoice.
B) bill of lading.
C) purchase order.
D) sales order.
Answer: A
Terms: Document used to indicate amount of sale and payment due date
Diff: Easy
Objective: LO 14-2
AACSB: Reflective thinking skills
9) Generally, when is the earliest point in the sales and collection cycle in which revenue can
be recognized?
A) When the sale is approved
B) When the credit approval process is finalized
C) When the cash is collected
D) When the goods have been shipped
Answer: D
Terms: Sales and collection cycle; revenue recognized
Diff: Easy
Objective: LO 14-2
AACSB: Reflective thinking skills
10) Most companies recognize sales revenue when:
A) sales are invoiced.
B) payment is received from the customer.
C) goods are shipped.
D) the customer's order is
received. Answer: C
Terms: Recognize sales revenue
Diff: Easy
Objective: LO 14-2
AACSB: Reflective thinking skills
11) Which of the following is not a business function within the "Sales" class of transactions?
A) Processing customer orders
B) Granting credit
C) Processing and recording sales returns and allowances
D) Shipping
goods Answer: C
Terms: Business function within the sales class of transactions
Diff: Easy
Objective: LO 14-2
AACSB: Reflective thinking skills
4
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