Question 1

The document that accompanies the customer's payment is the
A) credit memo.
B) remittance advice.
C) vendor invoice.
D) monthly statement.

Accepted Answer

A remittance advice typically accompanies a customer's payment and provides information on the payment amount, date, and other relevant details. A credit memo is used to adjust a customer's account balance, a vendor invoice is a bill sent by a vendor to a customer, and a monthly statement is a summary of a customer's account activity over a period of time.

Question 2

The preparation of a sales invoice is the final step in the sales and collection cycle.

Accepted Answer

The preparation of a sales invoice is an early step in the sales and collection cycle, typically followed by the delivery of goods or services, receipt of payment, and the recording of the payment in the financial records.

Question 3

When dealing with the processing and recording of cash receipts,
A) the most important concern is the theft of cash.
B) theft can only occur before the receipts are entered into the records.
C) cash receipts should be deposited at least monthly.
D) the monthly statement is used to prepare the cash receipts journal.

Accepted Answer

The most important concern when dealing with the processing and recording of cash receipts is the potential for theft of cash, as it is a liquid asset and easily misappropriated.

Question 4

A bill of lading is a written contract between the seller and the buyer.

Accepted Answer

A bill of lading is a legal document between the carrier and the shipper, not the seller and the buyer. It serves as a receipt of goods shipped or to be shipped, as well as a document of title and evidence of the contract of carriage.

Question 5

Which of the following is a business function related to sales returns and allowances?
A) processing customer orders
B) writing off uncollectible accounts
C) processing and recording credit memos
D) granting credit

Accepted Answer

Processing and recording credit memos are related to sales returns and allowances. Credit memos are issued to customers who return goods or receive an allowance for damaged or defective goods. This function is important for maintaining accurate records of sales returns and allowances and ensuring proper accounting for these transactions. Processing customer orders (A) is related to the initial sale of goods, while writing off uncollectible accounts (B) and granting credit (D) are related to credit management and accounts receivable, respectively.

Question 6

When posting items sold on account from the sales journal
A) 
B) 
C) 
D)

Accepted Answer

The answer of When posting items sold on account from...

Question 7

For a firm that practices good internal controls in the sales and collections cycle, the function of indicating credit approval should be recorded on which of the following documents?
A) sales order
B) sales invoice
C) customer order
D) remittance advice

Accepted Answer

Indicating credit approval should be recorded on the sales order document to ensure that a credit check has been performed and the customer has been approved for the purchase. This helps to prevent fraud and ensure that the company is not extending credit to customers who are not likely to pay. The sales invoice document is generated after the sale has been made and does not typically include credit approval information. The customer order is an initial request for products or services and may not include credit approval information. The remittance advice is a document sent by the customer when payment is made and does not typically include credit approval information.

Question 8

Credit should be approved before a customer's order is received.

Accepted Answer

Credit approval typically occurs after a customer's order is received but before the order is processed and shipped, to ensure the customer has the means to pay.

Question 9

Which of the following is a correct statement regarding the shipment of goods?
A) The shipping document must be in paper form.
B) The shipping document is used to update the perpetual inventory records.
C) Only one copy of the shipping document is needed.
D) All of the above are correct statements.

Accepted Answer

Option A is incorrect because many companies now use electronic shipping documents. Option B is correct because the shipping document is used to update the perpetual inventory records by reducing the quantity of the items that have been shipped. Option C is incorrect because multiple copies may be required for different parties involved in the shipment process.

Question 10

A ________ indicates a reduction in the amount due from a customer because of returned goods or an allowance.
A) bill of lading
B) sales invoice
C) credit memo
D) monthly statement

Accepted Answer

A credit memo is a document that indicates a reduction in the amount due from a customer. This can be because of returned goods or an allowance given to the customer, such as a discount or promotional offer. A bill of lading is a document used in shipping to acknowledge the receipt of goods. A sales invoice is a document used to request payment for goods or services provided. A monthly statement is a summary of transactions and balances for a specific period of time, but does not indicate a reduction in the amount due.

Question 11

Which document or record is used in the write-off of uncollectible accounts classes of transactions?
A) general journal
B) remittance advice
C) sales transaction file
D) sales order

Accepted Answer

The write-off of uncollectible accounts is a adjusting entry that needs to be recorded in the general journal. The other documents listed (remittance advice, sales transaction file, and sales order) are not directly related to the write-off of uncollectible accounts.

Question 12

Some companies have customers send payments directly to an address maintained by a bank. This is called a(n) ________ system.
A) direct deposit
B) funds transfer
C) lockbox
D) interbank transfer

Accepted Answer

The system where customers send payments directly to an address maintained by a bank is called a lockbox system. Direct deposit involves the deposit of money directly into a recipient's bank account, funds transfer is a general term for moving money from one account to another, and interbank transfer refers specifically to transfers between different banks.

Question 13

A sales invoice is a document that usually indicates credit approval.

Accepted Answer

A sales invoice is a document that indicates the specifics of a sales transaction, such as the products or services sold, quantities, prices, and payment terms. It does not necessarily indicate credit approval, although it may include information about any credit agreements or terms.

Question 14

Credit should be approved before goods are shipped to a customer.

Accepted Answer

It is a best practice for credit to be approved before goods are shipped to a customer. This ensures that the customer has established credit and is capable of paying for the goods received. By approving credit ahead of time, the company can minimize the risk of bad debt or payment delays.

Question 15

A bill of lading is a special type of sales invoice used when goods are shipped interstate.

Accepted Answer

A bill of lading is a legal document issued by a carrier to a shipper, detailing the type, quantity, and destination of the goods being carried. It serves as a shipment receipt when the carrier delivers the goods at the predetermined destination. It is not a sales invoice but rather a document that accompanies goods in transit, providing evidence of the contract of carriage.

Question 16

A ________ is a list prepared when cash is received by someone who has no responsibility for recording sales, accounts receivable, or cash, and who has no access to the accounting records.
A) prelisting of cash receipts
B) sales invoice
C) packing ticket
D) vendor invoice

Accepted Answer

A prelisting of cash receipts is a document prepared by someone who is not responsible for accounting or record-keeping. This document lists the cash that has been received and is used as a control to ensure that all cash is accounted for and deposited correctly. Sales invoices, packing tickets, and vendor invoices are not relevant to this situation as they pertain to the sale of goods or services, not the receipt of cash.

Question 17

Who is generally responsible for opening receipts when a company uses a lockbox to speed the handling of cash receipts?
A) company personnel
B) temporary employees in the town where the lockbox is located
C) bank employees
D) company controller

Accepted Answer

Bank employees are generally responsible for opening receipts when a company uses a lockbox system, as the system is designed to have payments sent directly to a post office box that the bank accesses, thus speeding up the deposit process.

Question 18

Which accounts are involved in the sales class of transactions?
A) accounts receivable and sales returns and allowances
B) cash and allowance for uncollectible accounts
C) sales allowances and accounts receivable
D) accounts receivable and sales

Accepted Answer

The sales class of transactions involves the accounts receivable and sales. Therefore, option D is the correct answer. Option A and C include the accounts receivable and sales returns and allowances or sales allowances, but they do not cover all accounts involved in the sales class of transactions. Option B includes cash and allowance for uncollectible accounts, which are not directly related to sales.

Question 19

The shipping point is critical because it is the first point at which company assets are released to another party.

Accepted Answer

The shipping point is the location where goods/materials are released to the carrier for transportation to the customer. It is critical because it represents the transfer of ownership and responsibility from the company to the carrier or customer. At this point, the company's assets (the goods/materials) are released and are no longer under its control until they reach their final destination.

Question 20

The receipt of a customer order from a customer is the starting point for the entire sales and collection cycle.

Accepted Answer

The customer order triggers the sales process, which then leads to invoicing, shipment of goods/services, and eventually collection of payment. Therefore, the receipt of a customer order is indeed the starting point for the entire sales and collection cycle.

Quiz 14: Audit of the Sales and Collection Cycle: Tests of Controls

The document that accompanies the customer's payment is the

The preparation of a sales invoice is the final step in the sales and collection cycle.

When dealing with the processing and recording of cash receipts,

A bill of lading is a written contract between the seller and the buyer.

Which of the following is a business function related to sales returns and allowances?

When posting items sold on account from the sales journal

For a firm that practices good internal controls in the sales and collections cycle, the function of indicating credit approval should be recorded on which of the following documents?

Credit should be approved before a customer's order is received.

Which of the following is a correct statement regarding the shipment of goods?

A ________ indicates a reduction in the amount due from a customer because of returned goods or an allowance.

Which document or record is used in the write-off of uncollectible accounts classes of transactions?

Some companies have customers send payments directly to an address maintained by a bank. This is called a(n) ________ system.

A sales invoice is a document that usually indicates credit approval.

Credit should be approved before goods are shipped to a customer.

A bill of lading is a special type of sales invoice used when goods are shipped interstate.

A ________ is a list prepared when cash is received by someone who has no responsibility for recording sales, accounts receivable, or cash, and who has no access to the accounting records.

Who is generally responsible for opening receipts when a company uses a lockbox to speed the handling of cash receipts?

Which accounts are involved in the sales class of transactions?

The shipping point is critical because it is the first point at which company assets are released to another party.

The receipt of a customer order from a customer is the starting point for the entire sales and collection cycle.