Question 1

The total of the individual account balances in the accounts receivable subsidiary ledger should equal the:
A)total sales for the period.
B)balance of the sales account in the general ledger.
C)total sales less the total cash received for the period.
D)balance of the accounts receivable account in the general ledger.

Accepted Answer

The accounts receivable subsidiary ledger is a detailed listing of all individual customer accounts with their respective balances. Therefore, the total of the individual account balances in the subsidiary ledger should equal the balance of the accounts receivable account in the general ledger, which represents the total amount owed by all customers. Options A, B, and C are not correct because they do not reflect the purpose and content of the subsidiary ledger.

Question 2

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

Accepted Answer

A sales order is a document used to outline the specific details of a customer's order, including the quantity and type of goods being purchased. This document is typically matched with the goods being shipped to ensure that the correct items are being sent to the customer. Therefore, a sales order is the best choice for this question.

Question 3

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.

Accepted Answer

The objective stated in the statement is accurate and true. The audit of the sales and collection cycle aims to ensure that the financial statements present an accurate and fair picture of the account balances impacted by the cycle in line with accounting standards.

Question 4

A document sent to each customer showing his or her beginning accounts receivable balance and the amount and date of each sale, cash payment received, any debit or credit memo issued, and the ending balance is the:
A)accounts receivable subsidiary ledger.
B)monthly statement.
C)remittance advice.
D)sales invoice.

Accepted Answer

A monthly statement is a document that is sent to each customer showing their beginning accounts receivable balance, and the amount and date of each sale, cash payment received, any debit or credit memo issued, and the ending balance. It provides a summary of all account activity for a given month, and serves as a reminder for customers to pay any outstanding balances.

Question 5

The document used to indicate to the customer the amount of a sale and payment due date is the:
A)sales invoice.
B)bill of lading.
C)purchase order.
D)sales order.

Accepted Answer

A sales invoice is a document used to indicate to the customer the amount of a sale and payment due date. A bill of lading is a document used in shipping to indicate the receipt of goods and their shipment to a destination. A purchase order is a document used by a buyer to request goods or services from a supplier. A sales order is a document used by a seller to confirm a customer's request for goods or services.

Question 6

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

Accepted Answer

The sales and collection cycle is a key component of the accounting cycle for businesses that sell goods or services to customers. It involves the process of making sales, collecting payments from customers, and recording those transactions in the company's accounts. This cycle is essential for tracking revenue, managing accounts receivable, and maintaining sound financial records for the business.

Question 7

Most companies recognize sales revenue when:
A)sales are invoiced.
B)payment is received from the customer.
C)goods are shipped.
D)the customer's order is received.

Accepted Answer

Most companies recognize sales revenue when goods are shipped, as this typically marks the point at which ownership and risks associated with the goods are transferred to the buyer, aligning with the revenue recognition principle that revenue is recognized when it is earned and realizable.

Question 8

The document that requires adjustments to the customers subsidiary ledger account is the:
A)bill of lading.
B)sales invoice.
C)credit memo.
D)monthly statement.

Accepted Answer

A credit memo is a document issued by the seller to the buyer indicating that the buyer's account has been credited for a specific amount, usually due to a return of goods or an allowance granted. This document serves as evidence of the adjustment made to the customer's subsidiary ledger account. The other options listed are all documents that may initiate a transaction but do not necessarily require adjustments to customer subsidiary ledger accounts.

Question 9

A document prepared to initiate shipment of the goods sold by an independent shipper is the:
A)sales order.
B)bill of lading.
C)sales invoice.
D)customer order.

Accepted Answer

A bill of lading is a legal document that serves as proof of shipment and receipt of goods between a shipper and a carrier. It includes details such as the date of shipment, the type and quantity of goods being shipped, the names of the shipper and carrier, and the destination. The bill of lading is prepared by the shipper and is presented to the carrier at the time of pick up.

Question 10

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

Accepted Answer

A transaction in the sales and collection cycle is initiated when a customer requests goods, as this is the starting point for the sales process.

Question 11

Which of the following is an account that is not affected by the sales and collection cycle?
A)Cash
B)Accounts receivable
C)Allowance for doubtful accounts
D)Accounts payable

Accepted Answer

Accounts payable is not a part of the sales and collection cycle as it deals with the payment for goods or services received by the company and not the sale of goods or services to customers. The other options, cash, accounts receivable, and allowance for doubtful accounts, are all related to the sales and collection cycle.

Question 12

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

Accepted Answer

The five classes of transactions included in the sales and collection cycle are sales, cash receipts, sales returns and allowances, write-off of uncollectible accounts, and allowance for doubtful accounts. Interest income is not related to the sales and collection cycle.

Question 13

In the accounts receivable subsidiary ledger the length of time the account has been due can be useful to the client and the auditor in preparing the:
A)trial balance.
B)working trial balance.
C)accounts receivable trial balance.
D)aged accounts receivable trial balance.

Accepted Answer

The length of time the account has been due is necessary to prepare an aged accounts receivable trial balance. This report categorizes accounts receivable by the length of time they have been outstanding. It helps to spot accounts that are slow to pay or possibly uncollectible. Therefore, this report is useful for both the client and the auditor.

Question 14

Generally, when is the earliest point in the sales and collection cycle in which revenue can be recognized?
A)When the sale is approved
B)When the credit approval process is finalized
C)When the cash is collected
D)When the goods have been shipped

Accepted Answer

The earliest point in the sales and collection cycle in which revenue can be recognized is when the goods have been shipped. This is because at this point, the seller has fulfilled its obligation to transfer ownership and risks associated with the goods to the buyer, and the buyer is obligated to make payment. However, revenue recognition should only occur if it is probable that economic benefits from the transaction will flow to the seller and the amount of revenue can be reliably measured.

Question 15

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.

Accepted Answer

The auditor's objectives remain unchanged regardless of whether the client is an e-commerce or a "bricks and mortar" business. The auditor still needs to ensure that sales and cash collections are accurately recorded and reported.

Question 16

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

Accepted Answer

The answer of A ________ is a document that indicates...

Question 17

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.

Accepted Answer

Before goods are shipped on account, it is important to ensure that the customer has sufficient credit to pay for the goods. This is done by approving the customer's credit. The preparation of the sales invoice and verification of the unit price can be done by other personnel, and approving the journal entry may not be necessary at this stage.

Question 18

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

Accepted Answer

Remittance advice is the document that accompanies the customer's payment, providing details such as invoice numbers, amounts paid, and payment methods. It serves as proof of payment for both the customer and the vendor. Credit memo is a document generated by the vendor to reduce the amount owed by the customer, vendor invoice is a document generated by the vendor to request payment for goods or services, and monthly statement is a document generated by the vendor to provide a summary of all transactions during a certain period.

Question 19

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

Accepted Answer

Credit approval ensures that the customer has sufficient funds or credit to pay for the goods being shipped. Without credit approval, there is a risk that payment will not be received, which would cause a loss to the company. Therefore, credit approval must take place before goods can be shipped in order to assure payment can be reasonably expected.

Question 20

Which of the following is not a business function within the "Sales" class of transactions?
A)Processing customer orders
B)Granting credit
C)Processing and recording sales returns and allowances
D)Shipping goods

Accepted Answer

The answer of Which of the following is not a...

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

The total of the individual account balances in the accounts receivable subsidiary ledger should equal the:

A ________ is a document that is matched with the customer order to assure that the correct quantity and type of goods are shipped.

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 document sent to each customer showing his or her beginning accounts receivable balance and the amount and date of each sale, cash payment received, any debit or credit memo issued, and the ending balance is the:

The document used to indicate to the customer the amount of a sale and payment due date is the:

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

Most companies recognize sales revenue when:

The document that requires adjustments to the customers subsidiary ledger account is the:

A document prepared to initiate shipment of the goods sold by an independent shipper is the:

What event initiates a transaction in the sales and collection cycle?

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

Which of the following is not one of the five classes of transactions included in the sales and collection cycle?

In the accounts receivable subsidiary ledger the length of time the account has been due can be useful to the client and the auditor in preparing the:

Generally, when is the earliest point in the sales and collection cycle in which revenue can be recognized?

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 ________ is a document that indicates a request for merchandise by a customer.

Before goods are shipped on account, a properly authorized person must:

The document that accompanies the customer's payment is the:

What critical event must take place before goods can be shipped in order to assure payment can be reasonably expected?

Which of the following is not a business function within the "Sales" class of transactions?