cpa audit review ch6 review 3
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An auditor is determining whether internal control over the revenue cycle of a wholesaler is operating effectively in minimizing the failure to prepare sales invoices. The auditor most likely will select a sample of transactions from the population represented by the
Shipping document file.
The auditor should trace shipping document file copies relating to customer shipments to sales invoices (or possibly to the accounts receivable subsidiary ledger) to determine whether shipments were billed.
An auditor’s tests of controls for completeness of the revenue cycle usually include determining whether
An invoice is prepared for each shipping document.
Tests of completeness determine whether all assets, liabilities, and equity interests are recorded properly. They emphasize the events rather than the existence of the documents. When a shipping document does not have a matching invoice, the relevant revenue is not recorded. The invoice is used to prepare the necessary journal entries.
A erroneous entry of a customer’s name into the field that should contain the amount of the sale is detected by a ----------------. This control identifies an alphabetic character in a field that should contain only numeric characters.
To conceal defalcations involving receivables, the auditor would expect an experienced bookkeeper to charge which of the following accounts?
To conceal a theft of customer payments on account, a bookkeeper debits sales returns and credits accounts receivable. If accounts receivable are not credited, the customer will continue to be billed and will complain.
Under effective internal controls, the Sales Department should be responsible for which of the following activities?
A.Authorization of write-offs of uncollectible accounts.
B.Recording of credit memos related to sales returns and allowances.
C.Receipt of returned goods.
D.Approval of the return of defective merchandise.
Approval of the return of defective merchandise.
To ensure that the sales returns and allowances function is effective, proper controls must be established, including a segregation of duties. The Sales Department should be responsible for the initial approval of sales returns and allowances.
Alpha Company uses its sales invoices for posting perpetual inventory records. Inadequate internal control over the invoicing function allows goods to be shipped that are not invoiced. The inadequate controls could cause an
A.Overstatement 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.Understatement of revenues, receivables, and inventory.
Understatement of revenues and receivables and an overstatement of inventory.
If goods are shipped before the sales are invoiced, inventory will not be credited for the shipments, thus overstating inventory. Moreover, if the accounting function does not receive copies of the invoices, sales and receivables will not be recorded, with the consequent understatement of those accounts.
Which of the following internal control activities most likely would assure that all billed sales are correctly posted to the accounts receivable ledger?
A.Daily sales summaries are compared with daily postings to the accounts receivable ledger.
B.The accounts receivable ledger is reconciled daily to the control account in the general ledger.
C.Each shipment on credit is supported by a prenumbered sales invoice.
D.Each sales invoice is supported by a prenumbered shipping document.
Daily sales summaries are compared with daily postings to the accounts receivable ledger.
Daily sales summaries represent billed sales. Reconciliation with the postings to the accounts receivable ledger would provide assurance that billed sales were posted.
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