QUESTIONS:

1. Paper and/ or electronic documents used through the

revenue/receipt cycle are necessary to authorize, execute, and
ship a transaction.
2. The cycle begins when a customer order is sent by fax, mail,
email, telephone, or EDI.
3. Revenue and receipt cycles both encompasses sale of goods
or services
4. Copies of sales are typically sent to customers in the same
form the customer order was received.
5.Customer order identifies goods ordered by a customer ,
including relevant information about price, quantity, payment
terms etc.
6. SHIPPING DOCUMENT: Identifies goods shipped, and
represents contract between the seller and carrier.
7. CREDIT DEPARTMENT Prepare sales order, distribute copies
to credit dept, shipping dept, billing dept, to customer and retain
copy in unfilled order file.
8. Accounts Receivable , GENERAL ACCOUNTI NG, BILLING
should not be segregated to avoid misappropriation of assets.
9. Sales related allowances and adjustments should be made
only in accordance with policies and practices authorized by
management.
10. SHIPPING DOCUMENT: Identifies goods shipped, and
represents contract between the buyer and carrier.
11. Throughout the Revenue and Receipts Cycle, journal entries
are made for sales, including discounts and returns and
allowances, cash receipts, allowances and many more that
affects the revenue and receipts cycle.
12. Test of Control is an audit procedure to test the effectiveness
of a control used by a client entity to prevent or detect material
misstatements.
13. If credit is granted, the goods then are shipped, recorded and
customer are billed.

KEY ANSWERS:
1. FALSE, RECORD
2. FALSE, RECEIVE
3. TRUE
4. TRUE
5. FALSE, SALES ORDER
6. TRUE
7. FALSE, CUSTOMER ORDER DEPARTMENT
8. FALSE, “NOT” – SHOULD BE
9. TRUE
10. FALSE, SELLER
11. TRUE
12. TRUE
13. TRUE
1) When considering internal control it is essential for the auditor to understand the client's policies and
procedures. (T)

2) Flowcharts are used for phases that are not complex such as petty cash. (F)

3) An auditor's documentation is limited to memorandum in the working papers if control is inadequate

from the preliminary review. (T)

4) If control risk is at the maximum and acceptable detection risk is at the minimum, then the extent of
substantive test details at year end is extensive. (T)

5) Test of entity's sales activities usually focus on whether sales are recorded and deposited promptly.
(F)

6) Testing the control of shipping is by tracing sales invoices to inventory records. (F)

7) The very objective of all three test for recording is to determine whether details are summarized,
periodically reconciled and accurately posted. (T)

8) Generally, orders should not be accepted for previously uncollectible account. (T)

9) Lapping is an error that conceals cash shortages resulting from delays in recording of cash collections.
(F)

10) Segregation of duties is the best way to control lapping. (T)

11) If existing controls are not effective, control risk is set to the maximum. (T)
12) In performing transaction walk-through, an auditor could trace a sales transaction from acceptance
of a customer's order to receipt of customers cash. (T)