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

The remittance advice is a document accompanying the customer's payment that provides information on the invoice number, amount paid, and any discounts or adjustments made. The credit memo is a document issued by the seller to the buyer to reduce the amount owed due to returned or defective goods, while a vendor invoice is a document issued by the seller requesting payment from the buyer. A monthly statement is a summary of all transactions over a period of time and is not necessarily associated with a specific customer payment.

Question 2

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

Revenue can be recognized when the goods have been shipped, indicating that the earnings process is complete and control of the goods has passed to the customer. While the other options are important steps in the sales and collection process, they do not represent the completion of the earnings process and the transfer of control of the goods.

Question 3

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

The credit memo is used to adjust a customer's account by reducing the amount owed. It may be issued for various reasons such as returns, allowances, or discounts. The bill of lading is a document used in shipping and transportation, the sales invoice is used to bill a customer for a sale, and the monthly statement summarizes a customer's account activity but does not require adjustments.

Question 4

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 is necessary to ensure that the customer has the financial means to pay for the goods being shipped. Without credit approval, there is a risk that payment may not be received, or may be received at a much later time, causing cash flow problems for the seller.

Question 5

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 verify that the customer has been approved for credit. This ensures that the business is not extending credit to customers who may not be able to pay, reducing the risk of bad debt. The other options listed may be important steps in the sales process, but they do not directly relate to approving credit for the customer.

Question 6

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 sent to each customer which shows their beginning accounts receivable balance, the amount and date of each sale, cash payment received, any debit or credit memo issued, and the ending balance. It is a summary of activity for the month and is used to keep the customer informed of their current account status. The other options do not fit the description of a monthly statement. Accounts receivable subsidiary ledgers are used internally to keep track of individual customer account activity, remittance advice is a document sent by the customer with payment to explain what the payment is for, and sales invoices are documents sent to customers at the time of sale, not at the end of the month.

Question 7

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

Interest income is not part of the sales and collection cycle, as it is typically recorded in the financing and investing cycle. The five classes of transactions in the sales and collection cycle include (1) sales, (2) cash receipts, (3) sales returns and allowances, (4) write-off of uncollectible accounts, and (5) bad debt expense.

Question 8

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 are not a part of the sales and collection cycle. They are a part of the purchase and payment cycle.

Question 9

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. This is in accordance with the revenue recognition principle, which states that revenue should be recognized when the goods are transferred to the customer and the seller no longer has control over them. Invoicing or receiving payment from the customer are not always necessary for revenue recognition. The customer's order is also not a sufficient trigger for revenue recognition.

Question 10

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 that is created as a result of a customer placing an order. It serves as a record of the customer's request for specific goods or services, including information such as quantities, descriptions, and pricing. When the order is fulfilled, the sales order is matched with the goods that are shipped to ensure accuracy and completeness. The sales order helps to ensure that the customer receives the correct quantity and type of goods, and it provides a record of the transaction for both the company and the customer.

Question 11

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 prepared by an independent shipper to initiate shipment of goods. It serves as a receipt of goods received and a contract between the shipper and carrier regarding the terms of shipment. A sales order is a document used to initiate internal processing of a customer's order, a sales invoice is a document used to record the sale and request payment from the customer, and a customer order is not a commonly used term in the context of shipping goods.

Question 12

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

The answer of What event initiates a transaction in the...

Question 13

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 14

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 helpful in preparing an aged accounts receivable trial balance, which groups accounts by the number of days outstanding. This allows for analysis of the company's collections policies and the likelihood of collecting on overdue accounts. The other options (trial balance, working trial balance, and accounts receivable trial balance) do not specifically require the age of the accounts to be considered.

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 answer of The auditor's objectives for the sales and...

Question 16

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...

Question 17

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

This statement is true. The primary objective of the audit of the sales and collection cycle is to determine whether the financial statements fairly present the account balances affected by this cycle in accordance with accounting standards. This involves testing the completeness, accuracy, and validity of sales transactions, as well as assessing the adequacy of internal controls over the cycle.

Question 18

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

The sales invoice is the document given to the customer indicating the amount of the sale and the due date for payment. It serves as a record of the transaction and can be used as proof of sale for accounting and tax purposes. The bill of lading is a document used in shipping to indicate the details of the goods being transported, the purchase order is a document used by a buyer to request goods or services from a seller, and the sales order is a document used by a seller to track an order from the customer. None of these documents indicate the amount of a sale or payment due date to a customer.

Question 19

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 process in accounting for businesses that sell goods or services to customers. It includes all of the activities involved in making a sale, delivering goods or services to the customer, and receiving payment. This cycle is important for businesses to keep track of their sales revenue and accounts receivable, as well as manage inventory and cash flow.

Question 20

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 record of all individual customer accounts and their respective balances. The total of all these individual balances should equal the balance of the accounts receivable account in the general ledger, which reflects the total amount owed by all customers as of a specific date. Option A is incorrect because the accounts receivable subsidiary ledger does not necessarily reflect all sales made during the period. Option B is incorrect because the balance of the sales account in the general ledger represents the total amount of sales made during the period, not the amount owed by customers. Option C is incorrect because the total cash received for the period is not necessarily equal to the amount owed by customers as of a specific date.

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

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

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

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

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

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

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:

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

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

Most companies recognize sales revenue when:

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

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?

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

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:

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:

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

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.

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.

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