Question 1

The ________ is a contract between a carrier (e.g.,a trucking company)and the seller of goods that dictates the details surrounding the shipment of goods.
A) bill of lading
B) sales invoice
C) picking ticket
D) remittance advice

Accepted Answer

A bill of lading is a legal document that serves as a receipt of goods shipped, a contract between the carrier and the shipper, and a document of title. It contains details such as the type and quantity of goods being shipped, the names of the shipper and carrier, the destination, and the terms of shipment.

Question 2

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

The function of indicating credit approval is necessary to ensure that a customer's creditworthiness has been evaluated and approved before extending credit to them. This information should be documented on the sales order to ensure that the order is not fulfilled until credit approval has been given. This helps to mitigate the risk of bad debt and helps to ensure that the company is only selling to customers who have the ability to pay. Recording credit approval on the sales invoice, customer order, or remittance advice would not provide sufficient documentation of credit approval before the sale is completed.

Question 3

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

Accepted Answer

The receipt of a customer order initiates the sales process which then leads to the collection cycle. Without a customer order, there won't be any sales and therefore no need for a collection cycle.

Question 4

Match seven of the terms for documents and records (a-k)with the descriptions provided below (1-7):
a.Customer order form
b.Sales order
c.Bill of lading
d.Sales invoice
e.Summary sales report
f.Accounts receivable master file
g.Monthly statement
h.Remittance advice
i.Prelisting of cash receipts
j.Credit memo
k.Uncollectible account authorization form
________ 1.A list prepared when cash is received by someone who has no responsibility for recording sales,accounts receivable,or cash,and has no access to the accounting records.It is used to verify whether cash received was recorded and deposited at the correct amounts and on a timely basis.
________ 2.A document indicating a reduction in the amount due from a customer because of returned goods or an allowance.
________ 3.A document prepared to initiate shipment of goods,indicating the description of the merchandise,the quantity shipped,and other relevant data.It is a written contract between the carrier and seller of the receipt and shipment of goods.
________ 4.A document for communicating the description,quantity,and related information for goods ordered by a customer.This is frequently used to indicate credit approval and authorization for shipment.
________ 5.A document mailed to the customer and typically returned to the seller with the cash payment.
________ 6.A document used internally to indicate authority to write-off an account receivable as uncollectible.
________ 7.A document or electronic record indicating the description and quantity of goods sold,the price,freight charges,insurance,terms,and other relevant data.

Accepted Answer

The answer of Match seven of the terms for documents...

Question 5

You are an audit manager for Rodgers & Co.and have recently taken on a new client,Manufacturing Company.You are in the initial stages of planning the audit and have decided to start gathering information about the sales/collection cycle of the business.List below the classes of transactions that you need to gather audit evidence for in designing your audit procedures.

Accepted Answer

The answer of You are an audit manager for Rodgers...

Question 6

When posting items from the sales journal,details of the journal and journal totals are posted to which items?
A) 
B) 
C) 
D)

Accepted Answer

The answer of When posting items from the sales journal,details...

Question 7

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 8

Sales should be recorded,at the earliest,when:
A) the order is received.
B) the order is received and credit is approved.
C) credit is approved and it is verified that there is enough inventory to fill the order.
D) the shipment takes place.

Accepted Answer

The answer of Sales should be recorded,at the earliest,when:
A) the...

Question 9

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. The purpose of a lockbox is to speed up the handling of cash receipts by having them sent directly to a bank address rather than to the company's physical location. Once the bank receives the receipts, they will usually process them and deposit the funds into the company's account. Bank employees are trained to handle and process these receipts efficiently, accurately, and securely, which is why they are the most appropriate choice for this task.

Question 10

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

Accepted Answer

A sales invoice is a document that details the sale of goods or services and the amount due for payment, but it does not necessarily indicate credit approval. Credit approval may be indicated separately through other documents or processes.

Question 11

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 described system is called a lockbox system, where payments are sent directly to an address maintained by a bank. Direct deposit usually refers to an automatic deposit of funds into an individual's account, and funds transfer and interbank transfer typically involve the transfer of funds between different accounts or banks.

Question 12

A document that initiates shipment of goods and indicates the description of the merchandise,the quantity shipped,and customer name and address is the:
A) bill of lading.
B) sales invoice.
C) picking ticket.
D) vendor invoice.

Accepted Answer

A bill of lading is a legal document that serves as evidence that goods have been received by a carrier for shipment, and it details the contents of the shipment, the quantity being shipped, the customer's name and address, and other relevant information. This document serves as a contract between the carrier and the shipper and also acts as a receipt for the goods shipped. A sales invoice is a document that indicates the price and terms of sale for goods or services sold, a picking ticket is a document used to track the picking of items from inventory for an order, and a vendor invoice is a document used by a supplier to request payment for goods or services provided to a customer.

Question 13

Customer billing is a critical process which auditors must understand.What are the most important aspects of billing and what are the related objectives?

Accepted Answer

The answer of Customer billing is a critical process which...

Question 14

Credit memos are normally issued to:
A) adjust the customers balance to the amount owed to the company because of returned goods or an allowance.
B) assist in the aging of accounts receivable.
C) reduce customer frustration and sales losses.
D) inform the customer of the balance due.

Accepted Answer

Credit memos are usually issued to adjust the customer's account balance due to returned goods or allowances. This helps keep the customer's account accurate and up-to-date, and avoids overcharging or undercharging the customer. Credit memos may also assist in reconciling accounts receivable and reducing customer frustration, but their primary purpose is to adjust balances. They do not inform the customer of the balance due; rather, they reflect adjustments already made to the account.

Question 15

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

Accepted Answer

Credit approval ensures that the customer is able to pay for the goods, reducing the risk of non-payment or bad debt. Shipping goods before credit approval could result in financial losses for the seller.

Question 16

When processing and recording cash receipts,an important fact to consider is:
A) the most important concern is depositing cash at least twice daily.
B) the most important concern is the possibility of theft.
C) theft can occur only after the receipts are entered in the records.
D) it the customer fails to include a remittance advice, the check should be returned to the customer.

Accepted Answer

While it is important to deposit cash at least twice daily for security purposes, the possibility of theft during processing and recording of cash receipts is a major concern that should not be overlooked. Therefore, option B is the correct answer. Option C is incorrect since theft can occur at any point during the process, including before the receipts are entered in the records. Option D is also incorrect since if a customer fails to include a remittance advice, efforts should be made to obtain the necessary information rather than simply returning the check.

Question 17

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

Sales returns and allowances involve the processing and recording of credit memos, which reduce the amount of revenue recognized for the sale. Processing customer orders (A), writing off uncollectible accounts (B), and granting credit (D) are not necessarily related to the specific function of sales returns and allowances.

Question 18

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 19

Discuss the four business functions that result in sales transactions in a typical sales and collection cycle and,for each function,state the key documents and records involved.

Accepted Answer

The answer of Discuss the four business functions that result...

Question 20

Explain each of the following types of documents and indicate the class of transactions in which they are commonly used.
1.Customer order
2.Shipping document
3.Remittance advice
4.Sales returns and allowance journal
5.Uncollectible account authorization form

Accepted Answer

The answer of Explain each of the following types of...

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

The ________ is a contract between a carrier (e.g.,a trucking company) and the seller of goods that dictates the details surrounding the shipment of goods.

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?

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

When posting items from the sales journal,details of the journal and journal totals are posted to which items?

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

Sales should be recorded,at the earliest,when:

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

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

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

A document that initiates shipment of goods and indicates the description of the merchandise,the quantity shipped,and customer name and address is the:

Customer billing is a critical process which auditors must understand.What are the most important aspects of billing and what are the related objectives?

Credit memos are normally issued to:

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

When processing and recording cash receipts,an important fact to consider is:

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

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

Discuss the four business functions that result in sales transactions in a typical sales and collection cycle and,for each function,state the key documents and records involved.

Explain each of the following types of documents and indicate the class of transactions in which they are commonly used. 1.Customer order 2.Shipping document 3.Remittance advice 4.Sales returns and allowance journal 5.Uncollectible account authorization form