cpa audit review ch6 review 2

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Joens1313
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cpa audit review ch6 review 2
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2014-08-10 18:24:46
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cpa audit review ch6
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cpa audit review ch6 review 2
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  1. Fact Pattern:  Sales procedures that were encountered during the regular annual audit of Marvel Wholesale Distributing Company are described below.  Customer orders are received by the sales-order department. A clerk computes the dollar amount of the order and sends it to the credit department for approval. Credit approval is stamped on the order and returned to the sales-order department. An invoice is prepared in two copies, and the order is filed in the customer order file. The customer copy of the invoice is sent to the billing department and held in the pending file, awaiting notification that the order has been shipped. The shipping copy of the invoice is routed through the warehouse, and the shipping department has authority for the respective departments to release and ship the merchandise. Shipping department personnel pack the order and prepare a three-copy bill of lading:  The original copy is mailed to the customer, the second copy is sent with the shipment, and the other is filed in sequence in the bill of lading file. The invoice shipping copy is sent to the billing department. The billing clerk matches the received shipping copy with the customer copy from the pending file. Both copies of the invoice are priced, extended, and footed. The customer copy is then mailed directly to the customer, and the shipping copy is sent to the accounts receivable clerk. The accounts receivable clerk enters the invoice data in a sales-accounts receivable journal, posts the customer’s account in the subsidiary customers’ accounts ledger, and files the shipping copy in the sales invoice file. The invoices are numbered and filed in sequence.

    To determine whether Marvel Company’s internal control operated effectively to minimize errors of failure to invoice a shipment, the auditor should select a sample of transactions from the population represented by the

    A.Bill of lading file.
    B.Subsidiary customers’ accounts ledger.
    C.Sales invoice file.
    D.Customer order file.
    A.Bill of lading file.

    The auditor should match bill of lading file copies relating to customer shipments to sales invoices (or possibly to the accounts receivable subsidiary ledger) to determine whether shipments were not billed.
    (this multiple choice question has been scrambled)
  2. Immediately upon receipt of cash, a responsible employee should

    A.Update the subsidiary accounts receivable records.
    B.Prepare a remittance listing.
    C.Prepare a deposit slip in triplicate.
    D.Record the amount in the cash receipts journal.
    B.Prepare a remittance listing.

    Effective control of cash requires that receipts be recorded promptly. For mail receipts, a listing of remittance advices by an employee not performing incompatible functions is a standard control procedure. If the customer does not return the remittance advice, one should be prepared at the time the mail is opened. If remittance advices are not used, a listing of receipts should still be made when the mail is opened.
    (this multiple choice question has been scrambled)
  3. To safeguard the assets through effective internal control, accounts receivable that are written off should be transferred to

    A.A tax deductions file.
    B.A separate ledger.
    C.A credit manager, since customers may seek to reestablish credit by paying.
    D.An attorney for evidence in collection proceedings.
    B.A separate ledger.

    Accounts receivable that are written off should be transferred to a separate ledger. This ledger should be maintained by the accounting department and periodically reviewed to determine if any of the accounts have become collectible.
    (this multiple choice question has been scrambled)
  4. One of two office clerks in a small company prepares a sales invoice for $4,300; however, the invoice is incorrectly entered by the bookkeeper in the general ledger and the accounts receivable subsidiary ledger as $3,400. The customer subsequently remits $3,400, the amount on the monthly statement. Assuming there are only three employees in the department, the most effective control to prevent this type of error is

    A.Requiring that monthly statements be prepared by the bookkeeper and verified by one of the other office clerks prior to mailing.
    B.Requiring the bookkeeper to perform periodic reconciliations of the accounts receivable subsidiary ledger and the general ledger.
    C.Assigning the second office clerk to independently check the sales invoice prices, discounts, extensions, and footings and to account for the invoice serial number.
    D.Using predetermined totals to control posting routines.
    D.Using predetermined totals to control posting routines.

    A control total should be generated for the transactions to be posted. It then should be compared with the total of items posted to the individual accounts.
    (this multiple choice question has been scrambled)
  5. Fact Pattern:  Sales procedures that were encountered during the regular annual audit of Marvel Wholesale Distributing Company are described below.  Customer orders are received by the sales-order department. A clerk computes the dollar amount of the order and sends it to the credit department for approval. Credit approval is stamped on the order and returned to the sales-order department. An invoice is prepared in two copies, and the order is filed in the customer order file. The customer copy of the invoice is sent to the billing department and held in the pending file, awaiting notification that the order has been shipped. The shipping copy of the invoice is routed through the warehouse, and the shipping department has authority for the respective departments to release and ship the merchandise. Shipping department personnel pack the order and prepare a three-copy bill of lading:  The original copy is mailed to the customer, the second copy is sent with the shipment, and the other is filed in sequence in the bill of lading file. The invoice shipping copy is sent to the billing department. The billing clerk matches the received shipping copy with the customer copy from the pending file. Both copies of the invoice are priced, extended, and footed. The customer copy is then mailed directly to the customer, and the shipping copy is sent to the accounts receivable clerk. The accounts receivable clerk enters the invoice data in a sales-accounts receivable journal, posts the customer’s account in the subsidiary customers’ accounts ledger, and files the shipping copy in the sales invoice file. The invoices are numbered and filed in sequence.

    To determine whether Marvel Company’s internal control operated effectively to minimize errors of failure to post invoices to the customers’ accounts ledger, the auditor should select a sample of transactions from the population represented by the

    A.Customer order file.
    B.Bill of lading file.
    C.Sales invoice file.
    D.Subsidiary customers’ accounts ledger.
    C.Sales invoice file.

    The auditor should trace sales according to the sales invoices to the accounts receivable subsidiary ledger. Sales invoices in the sales invoice file without corresponding entries in the subsidiary ledger represent transactions not posted.
    (this multiple choice question has been scrambled)

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