REVENUE AND RECEIPT CYCLE

TEST BANKS

1. Revenue is realized when a product or service is exchanged for cash or a promise to pay cash
or other assets that can be converted into cash.

TRUE or FALSE

2. Revenue must be realized (or realizable) and earned to be recognized.

TRUE or FALSE

3. Channel stuffing is an improper practice used to boost sales by inducing distributors to buy
more inventory than they can promptly resell.

TRUE or FALSE

4. The return of vendor purchases is a part of the revenue process.

TRUE or FALSE

5. The revenue process affects numerous accounts in the financial statements.

TRUE or FALSE

6. Which of the following might be detected by an auditor's review of the client's sales cut-off?

a. Excessive goods returned for credit.

b. Unrecorded sales discounts.
c. Lapping of year end accounts receivable.
d. Inflated sales for the year.

7. Which of the following forms of evidence represents the most competent evidence that a
receivable actually exists?

a. A positive confirmation.
b. A sales invoice.
c. A receiving report.
d. A bill of lading.

8. During the process of confirming receivables as of December 31, 2002, a positive confirmation
was returned indicating the "balance owed as of December 31 was paid on January 9, 2003." The
auditor would most likely

a. Determine whether there were any changes in the account between January 1 and
January 9, 2003.
b. Determine whether a customary trade discount was taken by the customer.
c. Reconfirm the zero balance as of January 10, 2003.
d. Verify that the amount was received.

9. Which of the following analytical audit findings would most likely indicate a possible problem?

a. A material decrease in the receivables turnover.

b. A material increase in inventory turnover.
c. A material decrease in days' sales outstanding.
d. A material increase in the acid test ratio.

10. When the objective of the auditor is to evaluate the appropriateness of adjustments to sales,
the best available evidence would normally be

a. Oral evidence obtained by discussing adjustment-related procedures with controller

personnel.
b. Analytical evidence obtained by comparing sales adjustments to gross sales for a
period of time.
 c. Physical evidence obtained by inspection of goods returned for credit.
d. Documentary evidence obtained by inspecting documents supporting entries to
adjustment accounts.

11. An auditor will most likely detect kiting by

a. Completing an analysis of interbank transfers and obtaining cutoff bank statements

directly from all
banks.
b. Reconciling all bank accounts as of year-end.
c. Reconciling Bank A as of year-end and Bank B at the end of the first week following
year end.
d. Reconciling Bank B as of year-end and Bank A at the end of the first week following
year end.

12. An auditor should perform alternative procedures to substantiate the existence of accounts
receivable when

a. No reply to a positive confirmation request is received.

b. No reply to a negative confirmation request is received.
c. Collectability of the receivables is in doubt.
d. Pledging of the receivables is probable.

13. Two types of accounts receivable confirmation requests are used in practice-positive and
negative. Negative confirmations may be used

a. When internal control over sales and accounts

receivable is weak.
b. Only where the auditor has assessed inherent risk and control risk as low, the auditor
believes that the recipient will review the request, and a large number of small
balances are involved.
c. Only where internal control over sales and accounts receivable is strong.
d. Only where the auditor has assessed inherent risk and control risk as low, the auditor
believes that the recipient will review the request, and a small number of large
balances are involved.

14. When counting cash on hand, the auditor must exercise control over all cash and other
negotiable assets to prevent

a. Theft.
b. Irregular endorsement.
c. Substitution.
d. Deposits in transit.

15. An auditor would primarily rely upon which type of evidential matter when evaluating the
collectability of accounts receivable?

a. Positive confirmation.
b. Negative confirmation.
c. Aged accounts receivable listing.
d. Management's representations.

16. As one of the year-end audit procedures, the auditor instructed the client's personnel to
prepare a standard bank confirmation request for a bank account that had been closed during the
year. After the client's treasurer had signed the request, it was mailed by the assistant treasurer.
What is the major flaw in this audit procedure?

a. The confirmation request was signed by the treasurer.

b. Sending the request was meaningless because the account was closed.
c. The request was mailed by the assistant treasurer.
d. The CPA did not sign the confirmation request before it was mailed.

17. A client who wishes to inflate earnings decides to hold the sales record open beyond year-end
and record Year 2 sales in Year 1. Although the invoices are dated as of year end, the shipments
were made in the following period. Moreover, the goods were included in the ending inventory of
the period under audit. Which of the following auditing procedures would not assist in detecting
this form of fraudulent financial reporting?

a. The auditor confirms accounts receivable on a positive basis as of year end.

b. The auditor examines shipping documents relating to sales recorded during the last
few days of the year.
c. The auditor examines shipping documents relating to sales recorded during the first
few days of the year following the period under audit.
d. The auditor applies analytical procedures that compare gross profit rates and sales
volume by month for the current and preceding years.

18. Which of the substantive field work procedures presented below provides the best evidence
about the completeness of recorded revenues?

a. Reconciling the sales journal to the general ledger control account.

b. Vouching charges made to the accounts receivable subsidiary ledger to supporting
shipping records.
c. Vouching shipping records to the customer order files.
d. Reconciling shipping records to recorded sales.

19. Although most substantive testing is performed during the final audit, some substantive tests
may be done on the interim audit. Which of the following statements concerning the timing of
substantive tests is true?

a. When internal control is weak, extensive substantive testing should be performed

during the interim audit.
b. Substantive testing should be performed during the interim audit only under conditions
of excellent internal control.
c. As a general rule, the auditor performs substantive tests of balances as of the balance
sheet date and tests transactions during the interim audit as well as the final audit.
d. If internal control is weak, the auditor should confirm accounts receivable as of a point
in time at least one month prior to the client's fiscal year end.

20. Smith is engaged in the audit of a cable TV firm which services a rural community. All
receivable balances are small, customers are billed monthly, and internal control is effective. to
determine the validity of the accounts receivable balances at the balance sheet date, Smith would
most likely

a. Send positive confirmation requests.

b. Send negative confirmation requests.
c. Examine evidence of subsequent cash receipts instead of
sending confirmation requests.
d. Use statistical sampling instead of sending
confirmation requests.

21. Once a CPA has determined that accounts receivable have increased because of slow
collection in a "tight money" environment, the CPA would be likely to

a. Increase the balance in the allowance for bad debts account

b. Review the going concern ramifications
c. Require the client to tighten their credit policy
d. Expand tests regarding the collectability of receivables

22. Which of the following is not an issue related to the valuation of accounts receivable?

a. The valuation of revenue that makes up the detail of accounts receivable

b. A proper allowance for doubtful accounts
c. The net realizable value of accounts receivable
d. Proper cut-off
23. In the confirmation of accounts receivable the auditor would most likely

a. Randomly select a representative sample of accounts for confirmation

b. Seek to obtain positive confirmations for at least 50% of the total dollar amount of the
receivables
c. Require confirmation of all receivables from agencies of the federal government
d. Require that confirmation requests be sent within one month of the fiscal year-end

24. Confirmation is most likely to be a relevant form of evidence with regard to assertions about
accounts receivable when the auditor has concerns about the receivables'

a. Valuation
b. Classification
c. Existence
d. Completeness

25. In which of the following circumstances would the use of the negative form of accounts
receivable confirmation most likely be justified?

a. A substantial number of accounts may be in dispute and the accounts receivable balance
arises from sales to a few major customers
b. A substantial number of accounts may be in dispute and the accounts receivable balance
arises from sales to many customers with small balances
c. A small number of accounts may be in dispute and the accounts receivable balance arises
from sales to a few major customers
d. A small number of accounts may be in dispute and the accounts receivable balance arises
from sales to many customers with small balances

26. Which of the following is not an account affected by the sales and collection cycle?

a. Cash
b. Accounts receivable
c. Allowance for doubtful accounts
d. Sales of Accounts Receivables

27. 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.

28. 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

29. The sales and collection cycle applies to businesses that transfer goods to customers or
provides services to businesses.

a. True
b. False

30. 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
31. 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

32. 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

33. 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

34. 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

35. 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.

36. After the auditor has prepared a flowchart of internal control for sales, and cash receipts
transactions and evaluated the design of the system, the auditor would perform tests of controls
on all control procedures

a. Documented in the flowchart.

b. Considered to be deficiencies that might allow errors to enter the accounting system.
c. Considered to be strengths that the auditor plans to rely on in assessing control risk.
d. That would aid in preventing irregularities.

37. Which of the following is not a universal rule for achieving control over cash?

a. Separate the cash-handling and record-keeping functions.

b. Deposit each day’s cash receipts by the end of the day.
c. Have bank reconciliation’s performed by employees who do not handle cash.
d. Decentralize the receiving of cash as much as possible.

38. The least crucial element of control over cash is

a. Separation of cash record keeping from custody of cash.

b. Preparation of the monthly bank reconciliation.
c. Separation of cash receipts from cash disbursements.
d. Batch processing of checks.

39. The use of fidelity bonds protects a company from embezzlement losses and also

a. Minimizes the possibility of employing persons with dubious records in positions of trust.
 b. Protects employees who make unintentional errors form possible monetary damages
resulting from such errors.
c. Allows the company to substitute the fidelity bonds for various parts of internal control.
d. Reduces the company’s need to obtain expensive business interruption insurance.

40. An auditor is reviewing internal control for accounts receivable:

I. The billing function should not be assigned to the person who is responsible for maintaining
accounts receivable records.
II. Responsibility for approval of the write-off of accounts receivable that are uncollectible
should not be assigned to the cashier.

a. Only I is true
b. Only II is true
c. Both I and II are true
d. Neither I nor II is true

41. Which of the following is an effective internal control over accounts receivable?

a. Only persons who handle cash receipts should be responsible for the preparation of
documents that reduce accounts receivable balances.
b. Responsibility for approval of the write-off of uncollectible accounts receivable should be
assigned to the cashier.
c. Balances in the subsidiary accounts receivable ledger should be reconciled to the general
ledger control account once a year, preferably at year-end.
d. The billing function should be assigned to persons other than those responsible for
maintaining accounts receivable subsidiary records.

42. To achieve control when there is no billing department, the billing function should be
performed by the

a. Accounting department
b. Sales department
c. Shipping department
d. Credit and collection department

43. The person who opens the mail commonly prepares a remittance advice when a customer
fails to return one with a payment. Consequently, mail should be opened by the

a. Credit manager.
b. Receptionist.
c. Sales manager.
d. Accounts receivable clerk.

44. Which of the following would the auditor consider to be an incompatible operation if the
cashier receives remittances from the mail room?

a. The cashier makes the daily deposit at a local bank.

b. The cashier prepares the daily deposit.
c. The cashier endorses the checks.
d. The cashier posts the receipts to the accounts receivable subsidiary ledger.

45. Which of the following would best protect a company that wishes to prevent lapping?

a. Segregating duties so that accounting has no access to an incoming mail

b. Segregating duties so that no employee has access both to checks from customers and to
currency from daily cash receipts
c. Having customers send payments directly to the company’s bank
d. Requesting that customers checks be made payable to the company and be addressed to
the treasurer

46. Defective merchandise returned by customers should be presented to

a. Inventory control personnel.

b. Sales personnel.
 c. Purchasing personnel
d. Receiving personnel

47. In considering internal control within the revenue/receipt cycle, what is the purpose of a
transaction walk through?

a. To assure that employees are performing assigned functions accurately.

b. To confirm the auditor’s understanding of the internal control structure.
c. To select documents for detailed tests of controls.
d. To verify the results of the auditor’s sampling plan.

48. To determine whether internal control operates effectively to minimize errors of failure to bill
a customer for a shipment, the auditor would select a sample of transactions from the population
represented by the

a. Shipping records file

b. Customer order file
c. Sales invoice
d. Subsidiary customer accounts ledger

49. The purpose of tests of controls over shipping is to determine whether

a. Billed goods have been shipped.

b. Shipments are billed.
c. Shipping department personnel are competent.
d. Credit is approved before goods are shipped.

50. The purpose of tests of controls over billing is to determine whether

a. Billed goods have been shipped.

b. Shipments are billed.
c. Billing department personnel are competent.
d. Credit is approved before goods are billed.

51. Which of the following control procedures could prevent or detect errors or frauds arising
from shipments made to unauthorized parties?

a. Document policies and procedures for scheduling shipments.

b. Establish procedures for reviewing and approving prices and sales terms before sale.
c. Prenumber bills of lading and assure that related billings are made on a periodic basis.
d. Prepare and periodically update lists of authorized customers.

52. Which of the following is not a control that generally is established over cash transactions?

a. Depositing each day's receipts intact.

b. Separating cash handling from recordkeeping.
c. Obtaining a receipt for every disbursement.
d. Centralizing the receipt of cash.

53. Which of the following is not a universal rule for achieving internal control over cash?

a. Deposit each day's cash receipts intact.

b. Cash handling from recordkeeping.
c. Separate recordkeeping from accounting for cash to the extent possible.
d. Have monthly bank reconciliations prepared by employees not responsible for the issuance
of checks

54. The auditors compare information on canceled checks with information contained in the cash
disbursement journal. The objective of this test is to determine that:

a. Proper cash purchase discounts have been recorded.

b. Cash disbursements are for goods and services actually received.
c. No discrepancies exist between the data on the checks and the data in the journal.
d. Recorded cash disbursement transactions are properly authorized.
55. A practical and effective audit procedure for the detection of lapping is:

a. Tracing recorded cash receipts to postings in customers' ledger cards.

b. Preparing an interbank transfer schedule.
c. Comparing recorded cash receipts in detail against items making up the bank deposit as
shown on duplicate deposit slips validated by the bank.
d. Preparing a proof of cash.

56. By preparing a four-column bank reconciliation ("proof of cash") at year-end, an auditor will
generally be able to detect:

a. An embezzlement of cash receipts not recorded in the cash receipts journal before they
had been deposited into the bank.
b. An unrecorded deposit made at the bank at the end of the month.
c. A second payment of an account payable which had already been paid in full two months
earlier.
d. A receivable collected that had previously been written off as uncollectible.

57. Tracing recorded sales transactions in the sales journal to the shipping documents (bills of
lading) provides evidence about the:

a. Presentation of payables.
b. Billing of all sales transactions.
c. Completeness of recording of sales transactions.
d. Occurrence of sales transactions.

58. Operating control of the check-signing machine normally should be the responsibility of the :

a. general accounting function

b. treasury function
c. legal counsel
d. internal audit function

59. Internal control over cash receipts is weakened when an employee who receives customer
mail receipts also:

a. prepares initial cash receipts records

b. records credits to individual accounts receivable
c. prepares bank deposit slips for all mail receipts
d. maintains a petty cash fund

60. The authorization for the write-off of accounts receivable should be the responsibility of the:

a. credit manager
b. controller
c. accounts receivable clerk
d. treasurer

61. For good internal control, which of the following functions should not be the responsibility of
the treasurer's department?

a. data processing
b. handling of cash
c. custody of securities
d. establishment of credit policies

62. For effective internal accounting control, employees maintaining the accounts receivable
subsidiary ledger should not also approve:

a. employee overtime wages

b. credit granted to customers
c. write-offs of customer accounts
d. cash disbursements
 63. The mailing of disbursement checks and remittance advices should be controlled by
the employee who

a. signed the check last

b. approved the payment
c. matched the receiving reports, purchase orders, and vendor's invoices
d. verified the mathematical accuracy of the payment and the remittance advices

63. A company policy should clearly indicate that defective merchandise returned by
customers is to be delivered to the:

a. sales clerk
b. receiving clerk
c. inventory control clerk
d. accounts receivable clerk

64. It would be appropriate for the payroll accounting department to be responsible for
which of the following functions?

a. approving employee time records

b. maintaining records of employment, discharges, and pay increases
c. preparing periodic government reports as to employees' earnings and withholding
taxes
d. temporarily retaining unclaimed employee paychecks

65. Which of the following is an internal control procedure that would prevent a paid
disbursement voucher from being presented for payment a second time?

a. vouchers should be prepared by individuals who are responsible for signing

disbursement checks
b. disbursement vouchers should be approved by at least two responsible management
officials
c. the date on a disbursement voucher should be within a few days of the date the
voucher is presented for payment
d. the official signing the check should compare the check with the voucher and should
deface the voucher documents

67. A company holds bearer bonds as a short-term investment. Custody of these bonds
and submission of coupons for interest payments normally is the responsibility of the

a. treasury function
b. legal counsel
c. general accounting function
d. internal audit function

66. For good internal control, the monthly bank statements should be reconciled by
someone under the direction of the

a. credit manager
b. controller
c. cashier
d. treasurer

67. For good internal control, the person who should sign checks is the

a. person preparing the checks

b. purchasing agent
c. accounts payable clerk
d. treasurer
70. An effective internal accounting control measure that protects against the preparation
of improper or inaccurate disbursements would be to require that all checks be

a. signed by an officer after necessary supporting evidence has been examined

b. reviewed by the treasurer before mailing
c. numbered sequentially and accounted for by internal auditors
d. perforated or otherwise effectively cancelled when they are returned with the bank
statement

71. Which of the following internal control activities most likely would ensure that all billed
sales are correctly posted to the accounts receivable ledger?

a. Daily sales summaries are compared to daily postings to the accounts receivable
ledger
b. Each sales invoice is supported by a prenumbered shipping document
c. The accounts receivable ledger is reconciled daily to the control account in the
general ledger
d. Each shipment on credit is supported by a prenumbered sales invoice

72. Which of the following control activities may prevent the failure to bill customers for
some shipments?

a. Each shipment should be supported by a prenumbered sales invoice that is

accounted for
b. Each sales order should be approved by authorized personnel
c. Sales journal entries should be reconciled to daily sales summaries
d. Each sales invoice should be supported by a shipping document

73. An auditor selects a sample from the file of shipping documents to determine whether
invoices were prepared. This test is performed to assess the assertion of

a. Authorization and accuracy

b. Completeness
c. Cutoff
d. Occurrence

74. An auditor would consider a cashier’s job description to contain compatible duties if the
cashier receives remittances from the mailroom and also

a. Records the journal entry to recognize the cash receipt

b. Prepares the monthly bank reconciliation
c. Prepares the daily deposit slip
d. Approves customer discounts

75. All of the following are important controls over credit memos except

a. Proper segregation of duties to ensure that sales discounts taken were earned
b. Credit memos should be approved by someone other than whoever initiated it
c. Credit memos should be supported by a receiving document for returned goods
d. Proper segregation of duties between access to customer records and authorizing
credit memos

76. Which is not a key segregation of duties for the revenue process? Different parties
should

a. Prepare shipping orders and prepare bills of lading

b. Perform the credit and billing functions
c. Perform the shipping and billing function
d. Receive cash and adjust accounts receivable
77. Immediately upon receipt of cash, a responsible employee should

A. Record the amount in the cash receipts journal

B. Prepare a listing of remittances
C. Update the subsidiary accounts receivable records
D. Prepare a deposit slip in triplicate

78. An auditor’s purpose in reviewing credit ratings of customers with delinquent accounts
receivable most likely is to obtain evidence concerning management’s assertions about

A. Valuation and allocation

B. Completeness
C. Existence
D. Rights and obligations

79. A procedure to test for a cash receipts cutoff error is:

a. reconciling the bank statement.

b. performing a four-column proof-of-cash.
c. observing the counting of cash at the balance sheet date.
d. tracing recorded cash receipts to bank deposits on the bank statement of a different
period.

80. The two primary classes of transactions in the sales and collection cycle are:

a. sales and sales discounts.

b. sales and cash receipts.
c. sales and sales returns.
d. sales and accounts receivable.

81. For cash receipts, the occurrence transaction-related audit objective affects which of the
following balance-related audit objective?

a. Existence
b. Completeness
c. Rights
d. Detail tie-in

82. For cash receipts, the occurrence transaction-related audit objective affects the
completeness balance-related audit objective.

a. True
b. False

83. The audit procedure of tracing sales invoices to shipping documents will provide the
auditor evidence that:

a. billed sales were shipped.

b. shipments were recorded as receivables in the subsidiary ledger.
c. the accounts receivable master file and the accounts receivable subsidiary ledger
reconcile.
d. goods shipped were billed to customers.

84. For most audits, a proper cash receipts cutoff is less important than the sales cutoff
because the improper cutoff of cash:

a. is detected and correct when cash is separately audited.

b. is unlikely to have a material impact on the balance sheet or the income statement.
c. affects items on the balance sheet but does not affect net income.
d. rarely occurs given the control consciousness of most entities.
85. Generally, audit evidence gathered from the sales and collection cycle is combined with
evidence:

a. as the evidence accumulation process proceeds.

b. only when all fieldwork processes of the engagement are completed.
c. only after the audit of the sales and collection cycle is concluded.
d. after the conclusion of both the cash cycle and the sales and collection cycle.

86. Tracing bills of lading to sales invoices will provide evidence that

a. Recorded sales were shipped.

b. Invoiced sales were shipped.
c. Shipments to customers were invoiced.
d. Shipments to customers were recorded as sales.

87. Which source document should an auditor use to verify the correct sales date for an item
sold FOB shipping point?

a. Carrier’s bill of lading.

b. Customer’s payment document.
c. Customer’s purchase order.
d. Sales invoice.

88. Which of the following is the most effective audit procedure to ascertain the accuracy of
accounts receivable?

a. Vouching.
b. Confirmation.
c. Recalculation.
d. Aging.

89. Which of the following audit objectives is not served by confirming customers’ accounts
receivable?

a. Valuation of accounts receivable as of the balance sheet date.

b. Existence of customers represented in the accounts receivable trial balance.
c. Completeness of customers represented in the accounts receivable trial balance.
d. Sales and accounts receivable cutoff.

90. An internal auditor is concerned that a division may be intentionally shipping unordered
merchandise to customers near the end of each quarter to meet sales goals. To determine
if this is happening, the auditor should:

a. Trace from a sample of shipping documents to related documents indicating removal

from inventory.
b. Trace from a sample of shipping documents to related sales invoices.
c. Send accounts receivable confirmations to selected customers as of the end of the
quarter.
d. Trace from a sample of sales invoices to related shipping documents.

91. Alpha Company uses its sales invoices for posting perpetual inventory records.
Inadequate control activities over the invoicing function allow goods to be shipped that are
not invoiced. The inadequate control activities could cause an

a. Understatement of revenues, receivables, and inventory

b. Overstatement of revenues and receivables and an understatement of inventory
c. Understatement of revenues and receivables and an overstatement of inventory
d. Overstatement of revenues, receivables, and inventory
92. Alpha Company uses its sales invoices for posting perpetual inventory records.
Inadequate control activities over the invoicing function allow goods to be invoiced that are
not shipped. The inadequate control activities could cause an

a. Understatement of revenues, receivables, and inventory

b. Overstatement of revenues and receivables and an understatement of inventory
c. Understatement of revenues and receivables and an overstatement of inventory
d. Overstatement of revenues, receivables, and inventory

93. For the most effective internal control, monthly bank statements should be received
directly from the banks and reviewed by the

a. Controller
b. Cash receipts accountant
c. Cash disbursement accountant
d. Internal auditor

94. Auditors are more concerned with the occurrence assertion for revenues than the
completeness assertion because:

a. Clients are more likely to overstate than understate revenues

b. Clients are more likely to understate than overstate revenues
c. It is difficult to determine when services have been performed
d. The allowance for doubtful accounts often is understated

95. A CPA auditing an electric utility wishes to determine whether all customers are being
billed. The CPA’s best direction of test is from the

a. Meter department records to the billing (sales) register

b. Billing (sales) register to the meter department records
c. Accounts receivable ledger to the billing (sales) register
d. Billing (sales) register to the accounts receivable ledger

96. Which of the following procedures would ordinarily be expected to best reveal improper
cutoff of sales at the balance sheet date?

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

97. To achieve good internal control, which department should perform the activities of
matching shipping documents with sales orders and preparing daily sales summaries?

a. Billing
b. Shipping
c. Credit
d. Sales Order

98. An auditor most likely would limit substantive tests of sales transactions when control risk
is assessed as low for the existence or occurrence assertion concerning sales transactions
and the auditor has already gathered evidence supporting

a. Opening and closing inventory balances

b. Cash receipts and accounts receivable
c. Shipping and receiving activities
d. Cutoffs of sales and purchases
 99. To reduce the risks associated with accepting e-mail responses to requests for
confirmation of accounts receivable, an auditor most likely would

a. Request the senders to mail the original forms to the auditor or the auditor may follow
up with a telephone call to verify the response
b. Examine subsequent cash receipts for the accounts in question
c. Consider the e-mail responses to the confirmations to be exceptions
d. Mail second requests to the e-mail respondents

100. Some firms that dispose of only a small part of their total output by consignment
shipments fail to make any distinction between consignment shipments and regular sales.
Which of the following would suggest that goods have been shipped on consignment?

a. Numerous shipments of small quantities

b. Numerous shipments of large quantities and few returns
c. Large debits to accounts receivable followed by small periodic credits
d. Large debits to accounts receivable followed by large periodic credits

Source:

AACSB
AACSB
AICPA BB
AICPA FN
Auditing and Assurance Services, 14e (Arens)
CPA Review School of the Philippines
Test Bank Messier